PARAG JEWELLERY (P) LTD.,CHENNAI vs. ITO, NCW-5(1), CHENNAI

आयकर अपीलीय अिधकरण, ‘बी’ ायपीठ, चेई
IN THE INCOME TAX APPELLATE TRIBUNAL , ‘B’ BENCH, CHENNAI
ी मनु कुमार िगर ,ाियक सद एवं ी जगदीश , लेखा सद के सम&
BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER
AND SHRI JAGADISH, ACCOUNTANT MEMBER

आयकरअपीलसं./I.T.A.No.2306/Chny/2024
(िनधारण वष / Assessment Year: 2017-18)

Parag Jewellery Private Limited,
25, Kuppu Muthu Street,
Triplicane-600 005. Vs
The Income Tax Officer,
Corporate Ward-5(1),
Chennai.
PAN : AAGCP-7201-H

(अपीलाथ/Appellant)

(यथ/Respondent)

अपीलाथकओरसे/ Appellant by :
Mr. B.Ramakrishnan, F.C.A.
यथकओरसे/Respondent by :
Ms. Pushpa Hemachand, JCIT

सुनवाईकतारीख/Date of hearing
:
20.01.2025
घोषणाकतारीख /Date of Pronouncement
:
28.03.2025

आदेश
आदेश
आदेश
आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

The captioned appeal filed by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals)(NFAC)
Delhi [CIT(A)] dated 10.07.2022 for Assessment Year 2017-18. 2. Brief facts are as under:
The assessee is a private limited company and engaged in the retail business of gold jewellery, silver, diamonds etc. The assessee filed its return of income for AY 2017-18 on 30.10.2017, which was revised on 20.03.2018 admitting income of Rs.19,28,420/-. The case was selected for scrutiny and notices u/s.143(2) & 142(1) were issued calling for details. Assessee company was incorporated by takeover of existing business which was carried out by one Shri

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Nathmal with name & style of M/s.Parag Jewellery. This business was taken over as running business by the company and all the assets and liabilities were taken over by the assessee. Hence, the stock of gold jewellery was taken over as per the arrangement, the assessee had to pay hire charges for the stock of gold taken by the assessee. The cost are incurred for the purpose of solely carrying on the business of the assessee. The assessee is a retailer and cannot carry on its operations without having stocks in trade to display trade or stock to sell. The stocks are owned by director of the company who was carrying on this running business. It was decided to take over the business and form a company form of organization.
Hence, the business was taken over after agreeing to pay a nominal hire charges for the stock of gold jewellery. Also during the preceding year acquired stock on hire and paid stock hire charges on the same. The assessee is in a retail business, the more stock they have the more display they will have and the sales will increase based on the display of stock available on the counters of the assessee. This being the case, these expenses have been solely incurred for the purpose of business of the assessee. A sum of Rs.
39,00,000/- has been paid to Mr.Nathmal, the Managing Director of the company for letting out the stock in trade on hire. The balance

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of Rs. 2,85,000/- has been paid to Smt. Tara Jain and Smt. Indra
Bai, for hiring of stock. On perusal of the details and financials of the assessee company furnished by the assessee, the AO has noticed that assessee has availed unsecured loans from Shri
Nathmal, Tara Jain and Indra Bai and claimed interest paid to them. The AO was of the view that considering nature of business of assessee, hiring gold interest paid is not related the business of the assessee and hence, disallowed hire gold interest paid amounting to Rs.41,85,000/- and added the same to total income.
3. Aggrieved, the assessee challenged order of assessment passed u/s.143(3) dated 31.12.2019, before the ld.CIT(A), who sustained the addition made by the AO by holding as under:
“4.3 I have gone through the grounds of appeal, facts of the case, assessment order and the submissions of the appellant. It is submitted by the appellant that the company hired the stock from the directors and used for the purpose of its business. The stock was used for sale to the customers and again new stock was purchased. Considering the nature of business, hiring of gold is not necessary. On The other hand, the company shows the value of gold said to have been received from Shri Nathmal,
Smt. Tara Jain and Smt. Indra Bai as unsecured loan to the tune of Rs. 18,13,50,000/-. It is seen from the Gold Hire agreement, the appellant has to credit a sum of security deposit of Rs.
6,00,00,000/- (rupees six crore only) at the time of this agreement is signed. This will be interest free security deposit. It is seen from the submissions the appellant had closing stock worth of Rs. 9 crores and paying the rent of Rs. 41,85,000/-. The appellant ought to have made the payment to the directors of Rs. 9 crores instead of paying security deposit of Rs. 6 crores and can avoid the hire charges. The appellant is following this procedure in order to tax evasion at higher rate on the profits

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earned by the company. Under the circumstances and in my opinion, the AO has correctly disallowed the hire charges of Rs.
41,85,000/-. In view of the above, the addition of Rs.
41,85,000/- Is upheld and the ground raised in this regard is dismissed.

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7. We have heard the rival submissions and perused the records of the case file. We have also gone through the paper book filed by the assessee containing pages 1-174 which is reproduced below:
INDEX FOR PAPERBOOK

S.No Particulars

Page Nos
1. Copy of Gold Hire Agreement between M/s. Parag
Jewelley Pvt Ltd and Shri. Nathmal dated 06.02.2013
1-2

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Copy of ITR Acknowledgement & Tax Audit Report in Form 3CA-3CD of M/s. Parag Jewellery Pvt Ltd for AY
2016-17
9-25
5
Copy of Auditor's Report of M/s. Parag Jewellery for the Year ended 31.03.2016
26-32
6
Copy of Financial Statements of M/s. Parag Jewellery
Pvt Ltd for the year ended 31.03.2016
33-44
7
Copy of Intimation u/s. 143(1) of the Income Tax Act,
1961 for the AY 2017-18
45-51
8
Copy of ITR Acknowledgement & Tax Audit Report in Form 3CA-3CD of M/s. Parag Jewellery Pvt Ltd for AY
2017-18
52-67
9
Copy of Auditor's Report of M/s. Parag Jewellery for the Year ended 31.03.2017
68-74
10
Copy of Financial Statements of M/s. Parag Jewellery
Pvt Ltd for the year ended 31.03.2017
75-89
11
Copy of ITR Acknowledgement & Tax Audit Report in Form 3CA-3CD of M/s. Parag Jewellery Pvt Ltd for AY
2018-19
90-110
12
Copy of Auditor's Report of M/s. Parag Jewellery for the Year ended 31.03.2018
111-117
13
Copy of Financial Statements of M/s. Parag Jewellery
Pvt Ltd for the year ended 31.03.2018
118-128
14
Copy of ITR Acknowledgement of Shri Nathmal for AY
2016-17
129-120
15
Copy of Financial Statements of Shri. Nathmal for the year ended 31.03.2016
130-135
16
Copy of ITR Acknowledgement of Shri. Nathmal for AY
2017-18
136

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17
Copy of Financial Statements of Shri. Nathmal for the year ended 31.03.2017
137-141
18
Copy of ITR Acknowledgement of Shri. Nathmal for AY
2018-19
142
19
Copy of Financial Statements of Shri. Nathmal for the year ended 31.03.2018
143-148
20
Copy of ITR Acknowledgement of Smt. Indra Bai for AY 2016-17
149
21
Copy of Financial Statements of Smt. Indra Bal for the year ended 31.03.2016
150-152
22
Copy of ITR Acknowledgement of Smt. Indra Bai for AY 2017-18
153
23
Copy of Financial Statements of Smt. Indra Bai for the year ended 31.03.2017
154-156
24
Copy of ITR Acknowledgement of Smt. Indra Bai for AY 2018-19
157
25
Copy of Financial Statements of Smt. Indra Bai for the year ended 31.03.2018
158-160
26
Copy of ITR Acknowledgement of Smt. Tara Jain for AY 2016-17
161
27
Copy of Financial Statements of Smt. Tara Jain for the year ended 31.03.2016
162-165
28
Copy of ITR Acknowledgement of Smt. Tara Jain for AY 2017-18
166
29
Copy of Financial Statements of Smt. Tara Jain for the year ended 31.03.2017
167-169
30
Copy of ITR Acknowledgement of Smt. Tara Jain for AY 2018-19
170
31
Copy of Financial Statements of Smt. Tara Jain for the year ended 31.03.2018
171-174

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month to the owner. It is also clear stipulation in the Gold Hire
Agreements that apart from the hire charges, the renter shall also deposit security charges with the owner. Schedule 3(B) forming part of balance sheet duly records loan from Nathmal (Director) and and Tara Jain and related party Indra Bai (Page 78 paper book).
Schedule 20 forming part of balance sheet duly records hire gold interest paid of Rs.41,85,000/- (Page 78 paper book). We also find that the company hired the stock from the directors and used for the purpose of its business. In fact, the company has no stock-in-trade of its own. Pursuant to bench query, ld. AR for the assessee submitted that stock-in-trade is exempt from the Wealth Tax. It is undisputed fact that the company has closing stock of Rs.9,76,12,546/-. We find force in the argument of the AR for the assessee that the company has to pay interest, if it has purchased stocks worth Rs. 9,76,12,546/- at least at 12% being bank rate which will be Rs.1,08,00,000/-. We are of the view that assessee’s decision to take on hire charges which requires payment of Rs.41,85,000/- was better option than taking loan from the bank to purchase the stocks. Hence, in the light of our above view, we delete the addition made by the AO.

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9. In result, the appeal of the assessee is allowed.

Order pronounced in the open court on 28th March, 2025 (जगदीश )

( मनु कुमार िगर )
( Jagadish )

( Manu Kumar Giri)
लेखा
लेखा
लेखा
लेखा सदय
सदय
सदय
सदय / Accountant Member ाियक सद / Judicial Member
चेई/Chennai,
दनांक/Date: 28.03.2025
DS

आदेश क ितिलिप अेिषत/Copy to:
1. Appellant
2. Respondent