DCIT vs. M/S PARESH EXPORTS PVT. LTD.,,

The following questions of law are remanded back to the Tribunal: - Assessment year 2003-04 “1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition made in respect of cash sales not accounted without considering the fact that turnover reflected as per cash book does not reflect the sales as per bill book and the assessee has not been able to reconcile the same with evidences during the course of assessment proceedings and appellate proceedings? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition made by the assessing authority in respect of peak negative cash balance without appreciating 2 252/Bang/2013 M/s. Paresh Export (P) Ltd the fact that the assessee was unable to substantiate the sales made for the period March 2003 reflected as sales on 3-3-2003 with any sale bills and negative cash balance was worked out based on audited books of accounts of the assessee and the return of income filed by the assessee? Assessment year 2005-06 (1) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition of Rs.6,00,13,928/- on account of unaccounted interest income on FDs by holding that the Revenue has not brought any material to make such addition as held by CIT(APPEALS) even when the assessee has admitted only Rs.4,39,97,515/- in the return of income and CIT(APPEALS) without proper discussion has held that Rs.29,45,468/- is taxable? (2) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the unaccounted income in gold without appreciating that the assessee has failed to prove the source for the said purchases of gold and failed to give independent reasonings for setting aside the additions? 3. The brief facts are that the assessee is in the business of trading in bullion. Gold is imported from foreign suppliers through M/s. PEC ltd., a government undertaking. Orders are placed on foreign suppliers through M/s. PEC ltd., and purchase of gold is made by either consignment method or letter of credit method. Under consignment method foreign suppliers make sales to M/s. PEC ltd., who in turn sells the gold and makes payment of the receiving the same from the assessee. Under letter of credit methodM/s. PEC ltd., opensa letter of credit with the bank on behalf of the assessee on the strength of which the foreign supplier makes delivery of gold to M/s. PEC ltd. As and when the assessee makes payment the mould is relieved from the local maintained by M/s. PEC ltd., at a bank. The assessee under this method is allowed to make payments through fixed deposits made out by amounts matching the payment and these fixed deposits are kept byM/s. PEC ltd., t maturity of letter of credit. In other words these fixed deposits are kept as security byM/s. PEC ltd., until actual payment is made. A search was conducted on the assessee on 28.01.2005 during which several incriminating materials were found and seized. Notices u/s.153A were issued on 18.04. 2005. During the assessment proceedings the assessee was required to get its 3 252/Bang/2013 M/s. Paresh Export (P) Ltd accounts audited u/s.142(2A) by the auditor appointed by the CIT(Appeals). The assessment was completed where the AO made the additions towards the following Assessment year 2003-04 i. Unaccounted interest income Rs.1,11,97,808/- ii. Peak Negative cash balance Rs.5,57,19,892/- iii. Cash bill not entered in cash book Rs.8,03,22,660/- iv. Purchase of unaccounted gold bars Rs.7,82,95,007/- v. Exchange gain Rs.80,24,028/- Assessment year 2005-06 i. Unaccounted interest income Rs.6,00,13,928/- ii. Unaccounted investment in Gold towards purchase& sale of gold bars Rs.5,02,20,000/- iii. Cash seized Rs.27,00,000/- 4. Aggrieved the assessee preferred an appeal before the CIT(Appeals) who deleted the additions made by the AO. In the first round, the revenue filed appeal before the ITAT against the order of the CIT(Appeals). The Tribunal confirmed the order of the CIT(Appeals) for AY 2003-04 with regard to the additions made towards peak negative cash balance and cash bills not entered in cash book (unaccounted cash sales) and remitted the rest of the issues back to the AO. For AY 2005-06, the Tribunal confirmed the order of the CIT(Appeals) with regard to unaccounted interest income and Unaccounted investment in Gold towardspurchase & sale of gold bars

The revenue preferred appeal before the High Court against the order of the ITAT. The Hon'ble High Court remitted the matter to the Tribunal with the following observations: - Assessment year 2003-04 “4. We have considered the submissions made by learned counsel for the revenue and have perused the records. The Tribunal has upheld the finding recorded by the Commissioner of Income-Tax (Appeals), which reads as under: - 4 252/Bang/2013 M/s. Paresh Export (P) Ltd “10. We have considered the above submissions. It is clear from the above that the CIT(APPEALS) has examined this issue and drawn due conclusion. The Revenue has not brought any material to assail such conclusion and hence we confirm the decision of the CIT(APPEALS).” 5. Thus, from a perusal of paragraph No. 10 of the Order passed by the Tribunal, it is evident that the Tribunal has not assigned any reasons worth naming for confirming the findings recorded by the Commissioner of Income-Tax (Appeals). From a perusal of paragraph No. 6 of the Order passed by the Tribunal, it is evident that the Tribunal has remitted the matter to the Assessing Officer with regard to the substantial question of law No. 3 involved in this appeal. We find that substantial questions of law No. 1 and 2 are inextricably involved with substantial question of law No. 3. Since the Order of the Tribunal, which is a final fact finding authority is cryptic and suffers from the vice of non-application of mind, the same is hereby quashed. The matter is remitted to the Tribunal to consider the substantial questions of law No. 1 and 2 afresh by assigning reasons.” Assessment year 2005-06 2. This court, vide judgement dated 17.11.2020 passed in ITA no.514/2017 quashed the order passed by the income tax appellate Tribunal on the ground that the same is cryptic and suffers from nonapplication of mind and has remitted the same to the Tribunal to consider the substantial question of law No. 1 and 2. 3. For the reason assigned in the aforesaid judgement the order dated 09.12.2016 by the Tribunal in 2005-06 is quashed and the matter is remitted to the Tribunal to consider the substantial question of law No. 1 and 2 afresh by assigning reasons.

During the remanded proceedings before the Tribunal none appeared representing the assessee. Several notices were served through registeredpost on the assessee intimating the date of hearing. The Tribunal also directed the Revenue to serve notice on the assessee. The Revenue attempted to serve notice by affixing the same in the last known address of the assessee which is substantiated by the compliance report submitted by the Revenue before the Tribunal’s. In the light of the above, we are proceedings to adjudicate the appeal after hearing the submissions made by the representative of the revenue.

The CIT(APPEALS) held that it is quite likely that the negative cash balance has surfaced only due to fact that sales of March 2003 are entered only on 31-03-2003 and if purchases and sales were entered as and when they took place, the negative cash balance would not have arisen. The LdCIT(APPEALS) accepted the claim of the assessee that sales are made immediately on receipt of goods from M/s PEC and entire sales for March 2003 is not made on 31/3/2003. Thus the CIT(APPEALS) deleted the addition. Aggrieved, Revenue filed this appeal before the Tribunal.

During the course of hearing the learned D.R. submissions as follows - The conclusion drawn by the Id. CIT(APPEALS) based on 'probability' is merely on assumption and presumption without any linkage to the facts. The fact is that there was a negative cash balance which appeared throughout the month of March 2003 that continued up to the end of the month as under:

We heard the learned D.R. and perused the material on record. The AO during the course of proceedings under Section 153A of the Income Tax Act, 1961 (the Act) has done a day-wise analysis of the cash book and has reconciled the cash balance with the cash deposits made in the bank. It is observed by the AO that even on days when there is no sufficient cash balance as per the books of account, the assessee has deposited cash into the bank accounts. The AO also noticed that there was a huge cash sales entry on the last day of the financial year due to which the cash balance has become positive as on 31st March. The AO therefore added the peak negative cash balance as unaccounted cash and had made addition towards the same. We notice that the assessee submitted before the CIT(Appeals) that the assessee accounts the entire purchases and sales made during the month of March on a single day, i.e. as on 31st March on a consolidated basis due to which the cash book reflects negative balance on various dates during the month. The assessee had also submitted that, the cash sales, however, was deposited as and when the sales happens into the bank without any corresponding entries in the cash book as the entry is made on consolidated basis. The CIT(Appeals) has allowed the appeal in favour of the assessee by holding that 8 252/Bang/2013 M/s. Paresh Export (P) Ltd “in the remand report dated 08/11/2012 the Assessing Officer confirms the fact that the entries for both purchase and sale of gold Going made during March 2003. As regards purchase, it is clear from the statements obtained from PEC Ltd that supplies have been made on different dates in the March 2003, even though the same has been recorded by a consolidated entry on 31/03/2003. If one were to look into the past as well as future transactions ie. before March 2003 and after March 2003, it is evident from the books of the assessee that sales are made immediately on receipt of goods from PEC LTD and that sales are made as and when goods are received from PEC Ltd. By studying the past and future patterns, it is quite likely that the negative cash balance has surfaced only due to the fact the sales of March 2003 are entered only on 31/03/2003 and if they been entered as and when they actually took place, the same would not have arisen.”

It was contended by the learned D.R. that though the fact that entries of cash sales are made on last date is mentioned in the remand report, the AO has recorded that the same is not substatiated by sales bills. We see merit in this contention of the learned D.R. We notice that the conclusion drawn by the CIT(Appeals) is not done based on factual verification of how sales is getting booked, whether supporting sales bills are available etc., but based on conjuncture and surmise by studying the past and future patterns followed by the assessee. The CIT(Appeals) should have drawn to the conclusion after examining the evidences and should not have assumed the reason for negative cash balance. The submission of the assessee that, cash sales receipts are bunched and accounted need to be substantiated by corresponding sales bills and the submission that the receipts are deposited into the bank as and when sales is made also need to be factually verified. The CIT(Appeals) has done no verification and has merely allowed the appeal by stating that it is more than unlikely that the entire sales of March is done on 31.03.2003. In the light of the above discussion we are of the considered view that the decision of the CIT(Appeals) is based on assumption without verification of the facts of the case, and therefore we remit the issue back to the AO with the direction to examine whether the cash sales happened during the month of March are 9 ITA Nos. 251& 252/Bang/2013 M/s. Paresh Export (P) Ltd supported by proper sales bills and that the contention of the assessee that it is accounted by consolidated entry as on 31.03.2003 is correct and reconciling with the sales bills for the month of March. This issue is allowed in favour of the Revenue for statistical purposes.

Before the CIT(APPEALS) the assessee contended that it had sold gold through its agent M/s Spectra Investments and that entire turnover (net commission paid to M/s Spectra Investments) had been accounted for and that addition made by AO amounted to double addition. It also contended that entire purchase was from one entity M/s PEC Ltd., and therefore there was no possibility of unaccounted purchases and since quantity could be tallied, unaccounted sales would not arise.

A remand report was called from the AO who reported that sales made through M/s Spectra Investments remained unexplained as turnover shown in cash book of the assessee does not reflect sales as per bill book of M/s Spectra Investments. The CIT(APPEALS) held that the excess turn over by spectra 10 252/Bang/2013 M/s. Paresh Export (P) Ltd investment amounts to Rs 7,06.08,500/- and not Rs. 8,03,22,660/- and further held that the entire turnover cannot be added and only Gross Profit has to be added. Accordingly to the CIT(APPEALS) applied the GP @ 0.15% on excess turnoverof Rs. 7.06 crorethat worked out to Rs.l,05,913/- and deleted the rest of the additions made by the AO.

In this connection the ld DR submitted that – The CIT(APPEALS) has ignored the comments of the AO in the remand report dated 28.09.2010. The evidence relied upon by the AO in para 6, page 9 of the report states that cash bills accounted in the books of accounts and those alleged to have been made by assessee's agent M/s Spectra Investment bears the signature of the same person which indicate that these sales are made by the assessee but not accounted in books. Therefore the CIT(APPEALS) should have confirmed the unaccounted sales in totality. It is submitted that the working brought out by the CIT(APPEALS) defies any logic. Even if it were to be accepted that telescoping benefit had to be granted on sales proceeds being rotated to make further sales, the peak investment in sales ought to have been worked out and not initial investment. It is therefore submitted that the AO had correctly brought the unaccounted sales to tax and the same addition should be upheld.

We heard the rival submissions and perused the material on record. We notice that the it is not in dispute that there is an unaccounted turnover in assessee’s case since the CIT(APPEALS) himself has confirmed the same. However, the CIT(APPEALS) has reworked the unaccounted to be Rs.7,06,08,500 and the basis on which this revised figure is worked out is not clearly coming out of the order of the CIT(APPEALS). Further the CIT(APPEALS) has applied the GP ratio on this revised turnover to make the addition, without verifying whether the corresponding purchases and other expenses have already been accounted in the books or not. The CIT(APPEALS) has also not brought out any reason for applying the GP ratio 11 252/Bang/2013 M/s. Paresh Export (P) Ltd instead of treating the entire amount of sales as addition towards unaccounted sales. Considering these facts that the CIT(APPEALS) has not provided any details of how the revised sales figure is arrived at and that why applying GP ratio is justified, we remit the issue back to the AO for proper verification of facts. The AO is directed to look into the details of turnover of M/s.Spectra Investments who are claimed to be the agents of the assessee in order to compute the right amount of sales that is not reflecting in the books of accounts of the assessee and also to decide based on examination of facts whether the entire sales to be added as unaccounted or only the profit element. This ground of the revenue is allowed for statistical purposes. AY 2005-06 – Unaccounted Interest Income 17. During the course of assessment proceedings the AO found that the assesseemaintains fixed deposits (FD) with PEC in order to meet the payment commitments to towards purchase of gold from M/s.PEC Ltd. Since these FDs are kept with PEC only as security and returned when the actual payment is made by the assessee. Based on the materials found during the course of search the AO worked out the interest received by the assessee. The AO also found discrepancies in the FD details of the assessee and PEC. The AO also noticed that there is a difference between the interest returned by the assessee and the amount as calculated by the AO and therefore called on the assessee to furnish the details of interest income and also reconciliation. Since the assessee did not provide any details the AO proceeded to add the entire interest income as arrived at by him to the income of the assessee.

The assessee contended before the CIT(APPEALS) that the AO’s addition is without basis and the AO has blindly followed the report furnished by the investigating wing with regard to the FDs. The CIT(APPEALS) called for a remand report from the AO in this regard. The AO verified the details and stated that the interest income earned by the assessee is Rs.5,45,45,971 12 252/Bang/2013 M/s. Paresh Export (P) Ltd and since the assessee has declared an interest income of Rs.4,39,97,515 in the return of income, the AO stated that the difference amount of Rs.1,05,48,456 be brought to tax. The CIT(APPEALS) however extracted the copy of assessee’s account in the books of PEC as per which the assessee has earned an income of RS.5,74,91,439 and compared the same with the amount shown in the books which is at Rs.5,45,45,971 and added the balance amount of Rs.29,45,468. The difference between the original addition of Rs.6,00,13,928 and the addition made by the CIT(APPEALS) is deleted by the CIT(APPEALS). The revenue is in appeal against the deletion made by the CIT(APPEALS) 19. In this connection it is submitted by the ld DR that as per remand report of the AO, the assessee has shown interest income of Rs 4,39,97,515/- in its return of income. Therefore, the ld DR submitted that the LdCIT(APPEALS) should have confirmed the addition of the difference of Rs 1,34,93,924/- (Rs.5,74,91,439 – Rs.4,39,97,515).

We heard the rival submissions and perused the materials on record. The following facts emanate from the perusal of AO’s remand report and CIT(APPEALS)’s order. The amount declared by the assessee as interest income is RS.4,39,97,515. The amount of interest earned by the assessee as per remand report is Rs.5,45,45,971. The amount of interest earned by the assessee as per the ledger extract of assessee’s account in M/s.PECLtd’s books as stated by CIT(APPEALS) is Rs.5,74,91,439. Given these facts, the CIT(APPEALS) ideally should have brought to tax the amount of interest arrived at by him and the amount declared in the return of income of the assessee. i.e.Rs 1,34,93,924/- (Rs.5,74,91,439 – Rs.4,39,97,515). We also notice that there is a difference of Rs.29,45,468 between the remand report of the AO and the interest as per the M/s.PEC Ltd., which has not been reconciled. Instead the CIT(APPEALS) has erroneously treated this difference as the addition. We are therefore of the considered view that the reconciliation 13 ITA Nos. 251& 252/Bang/2013 M/s. Paresh Export (P) Ltd of the interest amount as per assessee’s books and M/s.PEC Ltd., should be done in order to determine the correct amount of interest. Therefore we remit this issue back to the AO with a direction to reconcile the correct amount of interest earned by the assessee and bring to tax the difference between the correct amount of interest and the interest already declared in the return of income by the assessee. The assessee should be given a reasonable opportunity of being heard in this regard. It is ordered accordingly. This issue is allowed in favour of the revenue for statistical purposes. Unaccounted investment in Gold

Addition of Rs.5,02,20,000/- was made by the AO as unaccounted investment in purchase and sale of 85 Kgs of gold u/s 69 of the Act. During the course of search on 28.01.2015, Sh. Parvez,MD of the assessee was confronted to explain the cash generated out of the sale on 27.01.2015 to which he had stated under oath that there was a sale of 118 kgs of Gold on 27.01.2015 and the cash is generated out of the same. The AO noticed that as per the stock statement of M/s.PEC Ltd., who is only supplier of gold to the assessee, there was a stock of 85 kgs of gold as on 28.01.2015 which in the sworn statement is stated to be already sold by the assessee on 27.01.2015. When questioned on this discrepancy the sworn statement was retracted to state that only 33 Kgs of gold was purchased and sold on 27.01.2015 and the cash generated is out of the advance money taken from the customers. It is also stated that 85 kgs of gold was subsequently purchased from M/s.PEC Ltd., by the assessee and sold subsequently and all these transactions have been accounted in the books of accounts of the assessee. Therefore the assessee submitted before the AO that no addition is warranted towards this 85 kgs of Gold and it was erroneously mentioned as sold on 27.01.2015 which statement is retracted.

The AO did not accept the submissions of the assessee on the basis that the MD changed his stance when it was noticed that M/s PEC had not issued the said 85 bars by stating that he had taken an advance of Rs.4 crore prior to 27.01.2005. The AO also stated that the MD did not prove the identity of the customers from whom he had claimed that an advance was taken. Therefore the AO concluded that the said 85 bars were purchased from unaccounted funds and made an addition u/s.69 for an amount of Rs.5,02,20,000.

The assessee before CIT(APPEALS) stated that it had purchased 33 bars from M/s PEC Ltd which was sold on 27.01.2005 and that the same was accounted in his books. The CIT(APPEALS) deleted the addition made by the AO by stating that as per the stock statement of M/s.PEC Ltd., 85 kgs is shown as closing stock as of 27.01.2015 and that the same is sold to the assessee subsequently. Aggrieved the revenue is in appeal before us. 24. The ld DR submitted that the claim of the assessee that it had purchased 33 bars from M/s PEC Ltd which was sold on 27.01.2005 is contrary to the statement of Mr.Parvez on 28.01.2005 where he has given details of sale of 118 bars of gold on 27.01.2005. The ld DR also submitted that it is clear that the assessee changed his statement after it was revealed by M/s PEC Ltd that 85 bars were still with them as on 27.01.2005. It is the contention of the ld DR that the CIT(APPEALS) completely ignored the fact that the assessee failed to provide any evidence of his claim that he had taken an advance of Rs.4 crore prior to 27.01.2005. It is also noted that the LdCIT(APPEALS) has mentioned at page 26 of his order about 'details of supplies furnished by M/s PEC Ltd during remand proceedings' which is not found to be part of any remand report submitted by the AO to the CIT(APPEALS). Therefore the ld DR prayed that the addition made by the AO deserves to be sustained.