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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income Tax(Appeals) [CIT(A)], Rajahmundry vide ITA
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No.CIT(A)-Rjy/10093/2016-17 dated 03.07.2017 for the assessment year 2013-14.
The assessee is a bullion trader, commenced the business as private limited company during the impugned assessment year and prior to the commencement of the company, the assessee was carrying on the same business as a proprietary concern in the name of Sri Easwari Jewellers..
In this appeal, the assessee has raised six grounds in total. Ground Nos. 1 and 6 are general in nature which does not require specific adjudication. Ground No.5 is argumentative, hence dismissed.
Ground No.2 to 4 are related the additions of Rs.1,08,90,000/, Rs.16,46,000/- and Rs.470000/- made by the Assessing Officer (AO) u/s 68 of the Income Tax Act, 1961 (hereinafter called as ‘Act’)on account of the advances received from the customers as unexplained cash credits. During the assessment proceedings, the AO found that the assessee has accepted the advances of Rs.1,08,90,000/-from 66 customers as per page Nos.213 to 215 of the paper book.
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Before the AO, the assessee explained that it had received the advances below Rs.2,00,000/- from each customer upto 13.08.2012 aggregating to Rs.1,08,90,000/- for supply of bullion. The assessee has received the same and duly issued receipts and the copies of receipts are placed in the paper book in page Nos.290 to 323. However, the assessee did not obtain the details such as name and address of the customer, PAN, Aadhar No., telephone No. etc. The assessee submitted before the AO that it has received the advances on various dates and the advances were settled through sale of gold to the respective customers. The AO observed that there was a substantial gap in receipt of advance and sale of gold, therefore, suspected the transaction and viewed the intending customer would not wait for such a long time to take delivery of the goods. The AO further observed that the assessee made the first purchase on 12.05.2012 and the payment for the said purchase was made through Andhra Bank account Bhimavaram Branch on 11.05.2012 through RTGS to the tune of Rs.43,09,500/-, whereas the advances were received from the customers prior to the purchases made by the assessee i.e. from 16.04.2012 which was also given the suspicion to the AO. The AO requested the assessee to furnish the details of the parties, names and address, PAN etc., but the assessee failed to produce the addresses and PAN etc. Therefore, the AO
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held that adjustment of customers account with sales was bogus and the assessee failed to establish the capacity, credit worthiness and identity of the customers who gave the advances due to the following reasons : (a) Any customer intending to purchase raw gold (with .999 purity) in the form of bullion (biscuits or coins) will not wait for such a long time to take delivery of the goods (b) Yellow metal is subjected to high rate of fluctuation and volatile for demand, whereas, in the present case, customers were shown to have waited to take possession of their purchases for months together, which will be observed only in real estate business but never in bullion market that too in the case of raw gold purchases rather manufacturing ornaments on order. (c) Assessee has no closing stock of gold bullion, which proves that entire business in this commodity is only on cash and carry basis.
5.1. The AO further observed that the assessee has made 5 purchases between the period 11.05.2012 to 21.12.2012 and corresponding sales were made between 12.05.2012 to 21.05.2012 on 4 days amounting to Rs.1,28,01,800/-, thereafter, there was no purchase and sale up to 11.07.2012 after effecting the sales of Rs.1.08 crores on 18.07.2012. The assessee has again shown advances from customers from 24.07.2012 and it was continued upto 13.08.2012. Therefore, the AO was of the view that whenever the assessee was in need of cash for purchase of stocks, introducing the cash credits in the form of advances and adjusting the
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outstanding advance by sale of gold which was found to be inconsistent in this line of business. Accordingly the AO held that the assessee failed to prove the credit worthiness, genuineness and identity of the customers and made the addition u/s 68 of the Act. Similar additions of Rs.16,46,000/- and Rs.4,7,000/- were also made under unsecured loans and credit balances in debtors account which was also adjusted against the sales.
Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the order of the AO. The Ld,CIT(A) relied on the number of decisions as follows : (i) CIT Vs. Devi Prasad Viswanath Prasad (72 ITR 194) (ii) Smt. Harshita Chordia Vs. ITO (298 ITR 249) (iii) ITAT Ahmedabad in ITO Vs. Sapna Land Developers (ITA No.2992/Ahd dated 28.12.2015 Thus, the Ld.CIT(A) held that the assessee failed to prove the nature and source of impugned credits, therefore confirmed the entire additions. The Ld.CIT(A) placed heavy reliance on the decision of Hon’ble Apex Court in the case of Devi Prasad Vishwanath Prasad (supra) and also the decision of Hon’ble Supreme Court in the case of Kale Khan Mohammad Hanif Vs. CIT (50 ITR 1 SC). Accordingly dismissed the appeal of the assessee.
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Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal. Appearing for the assessee, ShriG.V.N.Hari, Ld.Counsel of the assessee submitted that the assessee is a bullion trader and in this line of business it is very common to receive the advances against the sales. Since the value of the yellow metal is very high the assessee’s does not keep the huge stocks and receive advances for supply of the material. The assessee was carrying on the business of bullion trading on his own as proprietary concern prior to the assessment year 2013-14 and has filed the copies of IT returns of Sreeram Sri Balaji of M/s Sri Eswari Jewellers, as an evidence to show that the assessee was carrying on the bullion trading prior to incorporation and commencement of the company by name M/s Seeram Padmanabha Jewellers (P) Ltd. The Ld. AR argued that the M/s Sri Eswari Jewellers, proprietary concern was merged with M/s Seeram Padmanabha Jewellers Pvt, Ltd. and carried on the same business of bullion trading from the previous year relevant to the assessment year 2013-14 onwards. Therefore, submitted that the Ld.AO’s observation that the impugned assessment year was the initial year of business is incorrect. The Ld.AR taken our attention to page No.20 of the paper book related to the profit and loss account and submitted that the total turnover of the assessee during the impugned assessment year was 282.15 crores and the
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advances received from the customers was only Rs.1,08,90,000/- which was less than 0.38% and argued there is no necessity for the assessee to introduce cash credits in such small amounts. Inviting our attention to page No.178 of the paper book relating to advances from customers’, the Ld.AR submitted that during the year under consideration, the assessee has accepted total advances of Rs.2,05,00,55/- continuously and adjusted the same against the sales made by the assessee. Thereby contended that, in this line of business, it is very common practice to receive the advances and subsequently supply the material. The assessee filed the details of advances accepted by the assessee in cash in page No.204 to 212 of the paper book, wherein, it has received the advances from 132 customers and the goods were supplied subsequent to the receipt of advances. Similarly, the Ld.AR referring to page No.216 to 217 of the paper book which contain the party-wise details of the advances received through cheque stated that the said advances were also subsequently settled against the sales. Though the AO stated in the assessment order that the assessee supplied the bullion with a gap of more than 3 months in the case of cash advances, similar delay was also occurred in the case of advances received from the customers by cheque and the AO did not take the same stand as in the case of cash advances. The assessee referred the item No. 43,44 and 45 in page
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No.216 of the paper book, wherein there was substantial delay in supply of the goods to its customers for the advances received by the cheque also. Referring to page No. 250 to 251, the Ld.AR submitted that in the subsequent assessment year i.e. 2014-15, the AO has accepted the customer advances and no addition was made. Referring to page No.149 ‘Item Register’, the Ld.AR argued that the assessee was continuously making the purchases and sales as per the requirement but not rarely as observed by the AO. Though there were no purchases from 31.05.2012 to 11.07.2012, it cannot be considered adversely. Though the assessee had received the advances, because of non receipt of the material from the dealers of the assessee, there were no purchases and sales during the interim period mentioned by the AO in the assessment order. 7.1. The Ld.Counsel for the assessee referring the pages of the paper book referred earlier submitted that the assessee has accepted the advances and duly issued the receipts to the customer. Since the assessee was in the business of bullion trading before the incorporation of the private limited company, the assessee is having goodwill and good name in the vicinity to supply the material in time and maintained the quality. Therefore, the customers have believed the assessee and given the advances even before the commencement of trading in the company and the assessee has issued
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the receipts duly for accepting the advances against sales to the customers. It is for the customer to present the receipt and to collect the bullion on the due date. The assessee cannot help to the customer who does not revert or demand gold within the time. However, the assessee has supplied the material as and when the customer approached the assessee. There was no requirement of demanding the details of the customers such as name and addresses, PAN etc. for the sales advances as per the I.T.Act or as per the Sales of Goods Act. The bullion is sold across the counter and there was no requirement of even for requesting the address or PAN. Therefore, the assessee did not demand the address or PAN from the customer. The assessee further submitted that the entire advances received by the assessee during the previous year relevant to the assessment year 2013-14 were adjusted against the sales and the accounts were closed. The assessee is maintaining day to day stock register and the AO has examined the sales account and purchases account and the AO did not find any defect either in the purchases or sales and the stock register. Having accepted the purchases, sales and the stock register, there is no case for suspecting the sales made to the customers who has given advances and consequently there is no case for making any addition as bogus advances. Thus, the Ld.AR argued that the entire addition made by the AO was on surmises and
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conjectures without any valid evidence, therefore, requested to set aside the orders of the lower authorities and allow the appeal of the assessee. The Ld.AR also relied on the decision of Hon’ble ITAT Kolkata Tribunal in the case of Dutta Automobiles (P) Ltd. Vs. ACIT (2016) 138 DTR 0361 (Kol)( (Trib) and argued that on the similar facts and circumstances, the Hon’ble ITAT deleted the addition and the facts of the assessee’s case are similar to that of the decision rendered by the Hon’ble ITAT, Kolkata.
On the other hand, the Ld.DR argued that the AO brought out the entire facts in para Nos.2.2 to 2.4 of the assessment order and submitted that the assessee was given sufficient opportunities to furnish the evidences. Since the assessee failed to prove the capacity, credit worthiness and identity of the customer who made the advance, the AO rightly taxed the advances under section 68 of the Act. The Ld.DR further argued that the Ld.CIT(A) also rightly relied on the decision of CIT Vs.Devi Prasad Vishwanath Prasad (supra) and confirmed the addition since the assessee failed to furnish the basic details. The Ld.DR further submitted that the decision relied upon by the assessee in the case of Dutta Automobiles (P) Ltd. Vs. ACIT (supra) is related to the trade of motor cycles and not related to the trade of bullion trading. Therefore, argued that the
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case law relied upon by the assessee is distinguishable and not applicable in the assessee’s case. Further the Ld.DR strongly supported the orders of the lower authorities.
We have heard both the parties and perused the material placed on record and gone through the evidences placed before us by the Ld.AR. Though the AO stated that this was the first year of business of the assessee and there was no opening stock in the books of accounts, the assessee has established with the relevant evidences that this is the first year of business for the company incorporated under the name and style of Seeram Padmanabha Jewellers Pvt. Ltd. and one of the Directors of the company had carried on the business of bullion trading prior to incorporation of the private limited company and the said proprietary concern was merged with the company thus, the observation of the AO that it was first year of business was not correct. During the year under consideration, the assessee has made the turnover of 282,15,24,083 and accepted the advances of Rs.2,05,00,550/- out of which the AO made the addition of Rs.1,08,90,000/- and accepted the remaining advances which shows that there is a practice of receiving advances from customers for supply of the bullion. Similarly, the assessee had received the advances of Rs.
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2,17,42,614/- during the impugned assessment year through cheque from as many as 80 customers which was enclosed in page No.216 and 217 of the paper book. The details of customers given the advances through bank cheque was also furnished and the same establishes the fact that there is a practice of accepting the advances from the customers for supply of the material. The Ld.AR invited our attention at item No.43 to 45 of page No.216 which shows that there was substantial delay in supply of the goods though the customer paid advances in cheque, which shows the fact that the delay in supply of the goods is not uncommon only to the cash advances and it is an accepted practice. The assessee has accepted the advances and issued the receipts having received the advances in the same format as per page No.290 to 323 of the paper book, both for the cash advances as well as the advances received in cheque. There was no difference in both the cases. In both the cases, the assessee has written the name and only place in the address column of the receipt. The AO accepted the practice of issuing the receipts without having mentioned the address of the customers and other details. The assessee is following the same practice consistently in all cases. There was no mandate of obtaining the details of the address, PAN or KYC details for receipt of advances against the sales either in the Income Tax Act, 1961 or in the Sale of Goods Act, 1930. There
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was no requirement of obtaining the PAN for the advances received below Rs.2 lakhs during the year under consideration. The assessee has sold the bullion to the customers who paid the advances and adjusted the outstanding amount against the sales. The assessee has not brought any cash credits or unsecured loans which are outstanding as at the end of the year and the entire advances were closed either in the impugned A.Y or the subsequent A.Y. The assessee has maintained the stock register, purchase account and the sales account which were accepted by the AO and no defects were found in the books of accounts. Out of the same purchase and the stocks, the assessee has supplied the material to the customers, who paid the advances and the AO did not dispute the sales. In case, the sales made to the customers who paid the advances in cash as per the list enclosed in paper book for 66 customers is bogus, the AO should have examined the issue and reduced the sales to that extent. Having accepted the sales account, purchases account and stock account in toto, there is no reason to suspect the sales made to the 66 customers, who paid the advances in cash. Having accepted the books of accounts and sales account merely because of delay in supply, there is no reason to suspect the advances received in cash. Therefore, we are of the considered opinion that the assessee has discharged its burden and duly accounted the
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advances received and issued necessary sales bills to the customers. Having accepted the entire sales, there is no case for making the addition. Similar view was taken by the Coordinate Bench of ITAT Kolkata in the case of Dutta Automobiles Ltd., cited supra. For the sake of clarity and convenience, we extract para No.4 and para No. 7 and 8 which reads as under :
“4. We have heard rival submissions and gone through facts and circumstances of thecase. We find that the assessee is a private limited company started its business for AY 2008-09 as a dealer of Hero Honda motor cycle manufactured by Hero Motor Corporation Ltd. having distributorship for Durgapur and surrounding areas. Being a private limited company, assessee's accounts are audited under the provisions of Companies Act, 1956 as well as under the Income tax Act u/s. 44AB of the Act. The assessee is following mercantile system of accounting. All the purchases of assessee are supported by suppliers' invoices and tax invoices, which are issued to customers for sale of motor cycles. The assessee explained before us that in case of motor cycle dealership, the product being of high demand and supplies are not matching thereto particularly in case of Hero Honda Motor Cycle. Accordingly, purchasers gave advance for the goods chosen but not available in stock, for which advances are credited to "advance from customers account" and as and when particular product is available i.e. motor cycle, that is delivered after taking balance amount after adjusting earlier advance against full invoice price. According to assessee, such advances are mainly remained unadjusted for last 2/3 months round the year and accordingly, in the relevant financial year 2009-10 relevant to AY 2010-11, the balance as on 31.03.2010 was Rs.3,99,54,051/-, which is the subject matter of present appeal as added by AO and confirmed by CIT(A). According to assessee, the advance was received by the assessee against booking of a particular make of motor cycle, which is not immediately available. As and when the same is received from Hero Motor Corporation Ltd. the same is delivered to customers after adjusting advance against full invoice price. The AO called for details viz., (a) Name & full postal addresses of the person from whom advance was taken, (b) PAN of the person from whom advance was taken, (c) Voter Id. Card No. of the person from whom the advance was taken, (d) Chassis No. of the two wheeler supplied to the party, (e) Total price of the two wheeler (on road price) and (f) Amount received as advance from party with date.
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The Ld. Counsel for the assessee before us explained that the above particulars asked for by the AO like asking information under KYC norms, which is not compulsory in case of Sale of Goods Act i.e. for sale of motor cycles or scooters. Ld. Counsel for the assessee filed complete paper book consists of pages 1 to 213, wherein the relevant information at 51. No. 5 i.e. copies of money receipt issued to customers while booking and taking advance is given at pages 15 to 109, at Si. No. 6 party wise details to whom motor cycle was delivered against advance given at pages 110 to 130, at Sl. No. 7 copies of invoice issued to parties on sale of motor cycle and adjustment of advance at pages 131 to 145, at Si. No. 8 confirmation from few parties for deposit of advances at pages 146 to 187, at SI. No. 10 party wise and motor cycle wise advances as on 3 1.03.2010 at pages 193 to 212 and also at 51. No. 11 comparative chart of sales and advances from customers from FY 2007-08 to 2011-12. The last item i.e. comparative chart of sales and advances from customers is new evidence tiled before the Tribunal for the first time otherwise all the evidence were before AO as well as before CIT(A), but this comparative chart is only compilation of sales and purchases as well the advances. It was explained that name of the customers with relevant receipt no. issued on receiving advance and amount of advance receipt were given. Even the addresses of customers therein relevant tax/sales invoices, which were produced before the AO as well as before CIT(A), contains full names, addresses, chassis and engine no. and total price of motor cycles sold under said invoice including the advance adjusted which was received from the customers. According to Ld. Counsel for the assessee, this is general practice in the trade where the demand is high and goods are in short supply and in such scenario, assessee is receiving money against future sales. Ld. Counsel for the assessee explained before us that the liability credited under the head "advance from customer account" and the same is squared up the moment motor cycle is delivered to the customer. According to Ld. Counsel, this can be verified from the books of account and AO has verified also. Ld. Counsel for the assessee particularly drew our attention to page 131 of the assessee's paper book wherein the customer's name and address is mentioned as Maya Gurung, A-Zone, Hostel Avenue, Durgapur-4, DT. Burdwan, invoice dated 23.04.20 10 wherein advance of Rs.38,000/- was adjusted as under: Sl.No .Particulars Amount 1. Super splendor cast 45,250.00 2. Hero Honda Goodlife 260.00 45,510.00 Less : Advance 38,000.00 Due 7,510.00 Less Paid 7,510.00 7. We find that the assessee is following mercantile system of
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accounting, wherein it is receiving advance deposits from customers on account of sale of motor cycle being a dealer in automobile. Whenever the sale is taken place, within one to two months, these deposits are adjusted against sale price of the motor cycle. This fact is admitted by both the sides. The issue is whether the assessee is consistently following certain system of accounting which had been accepted by the department from the very beginning and even in future years. There is no change of system of accounting followed by the assessee. Allowing the department to adopt a different approach altogether in this assessment year in question would create an anomalous situation as far as the assessee is concerned. The issue that the dealer receiving advance money from customers where the item is in demand and there is scarcity of supply, it many a times happen that seller receives advance money from the purchaser and as and when supply is made the advance is adjusted against sale price. This is being done by the present assessee before us also. The advance money, in the present case before us, is adjusted the sale price of the motor cycle and sale is disclosed in the return of income i.e. the trading account of the assessee. Accordingly, we find no ambiguity in the system followed by the assessee. 8. From the details filed before us, Ld. DR could not point out the discrepancy in the same because these advances were adjusted against sales. When this was pointed out to Ld. Sr. DR, he stated that the assessee is unable to produce the PANs, names and addresses of the parties. He was specifically shown a tax/retail invoice wherein complete details were given except thePAN/Voter I. Card. In our view, PAN/Voter Identity Card is a KYC norm, which does not apply to the sale of goods under the Sale of Goods Act. In view of the above, we are of the view that the AO and CIT(A) both have erred in making and confirming this addition and accordingly, we delete the same. The sole issue of assessee's appeal is allowed.”
The above order of the tribunal was affirmed by the Hon’ble High court of Calcutta in [2017] 81 taxmann.com 107 (Calcutta). The Hon’ble high court held in the cited decision as under: 7. The assessee may not have maintained detailed record of the customers. But question is whether the receipt has satisfactorily been established to be on account of advance payment. That question has been answered by the learned Tribunal in the affirmative by holding as follows: "The advance money, in the present case before us, is adjusted the sale price of the motor cycle and sale is disclosed in the return of income i.e. the trading
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account of the assessee. Accordingly, we find no ambiguity in the system followed by the assessee." 8. The aforesaid finding was recorded by the learned Tribunal on the basis of evidence disclosed before them which is also found in the paper book filed before us by Mr. Khaitan. It cannot, therefore, be said that the view taken by the Tribunal is perverse. The question essentially is a question of fact and the learned Tribunal on the basis of evidence was satisfied that the money had in fact been received by way of advance and therefore, no question of any bogus liability being created was there as held by the Assessing Officer. 9. In that view of the matter, we are of the opinion that the finding arrived at by the learned Tribunal is not perverse. Section 68 in the facts of the case had no applicability. The question is, thus, answered in favour of the assessee.
On the similar facts Hon’ble Delhi High court in the case of Commissioner of Income-tax, Delhi-VI v.Tulip Finance Ltd. reported in (2009] 178 Taxman 182 (Delhi) also taken the similar view. Though the Ld.DR argued that the decision of Coordinate bench of ITAT, Kolkata is distinguishable, merely because of the trade is different, the case law cannot be held to be distinguished. Since the facts of the case are identical and there is no requirement of KYC norms as per the Sale of Goods Act and the I.T.Act, AO having accepted the purchases, sales and stock register should not have made the addition of customer advances. Therefore we are of the considered opinion that both the AO and the Ld.CIT(A) have erred in making and confirming the addition and accordingly, we set aside the orders of the Ld.CIT(A) and delete the addition made by the AO and allow the appeal of the assessee.
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Ground No.3 and 4 are related to the addition made by the AO amounting to Rs. 16,46,000/- u/s 68 of the Act under unsecured loans and Rs.4,70,000/- as unexplained credits. The said amount also represented the advances received from the customers for sale of goods as stated by the assessee. The advances were received on 06.11.2012 and sales was made on 31.10.2013 in the subsequent assessment year. Similarly, in the case of M.Satyanarayana, the advance was received on 21.11.2012 and the sale was made on 31.10.2013. In both the cases, there was substantial delay in supply of goods, however, the assessee has supplied the material to the customers in the subsequent year. In the subsequent year, the AO has accepted the sales and there was no mistake found by the AO in the assessment year 2014-15. Therefore, having accepted the sales, the issue is squarely covered by the earlier paragraphs of this order in the case of customer advances and accordingly, we set aside the order of the CIT(A) and delete the addition made by the AO.
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In respect of the addition of Rs.16,46,000/-, the assessee has accepted the unsecured loans of Rs.16,46,000/- from the following persons : K Nagaraju, Chinaamiram Rs.1,50,000 K.Suneetha, Veeravasaram Rs.4,50,000 K.VenkateswaraRao, Vundi Rs.2,96,000 M.Sudhakar, Bhimavaram Rs.70,000 P.LasvanyaBandada Rs.3,00,000 S.Subbaraju, Bhimavaram Rs.2,00,000 V.Anusha, Bhimavaram Rs.1,80,000 Total Rs.16,46,000
Facts are identical to customer advances and the assessee adjusted the advances against the sales in the subsequent year and furnished the evidences before the Ld.CIT(A). The A.O has accepted the sales account. Hence we hold that having accepted the sales there is no case for making the addition and accordingly we set aside the order of the Ld.CIT(A) and delete the addition. The appeal of the assessee on this ground is allowed.
Ground No.5 is argumentative, therefore, ground No.5 is dismissed.
In the result, the appeal of the assessee is allowed.
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Order pronounced in the open court on 14th November, 2018.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददिांक /Dated : 14.11.2018 L.Rama, SPS
आदेश की प्रधिधलधप अग्रेधर्ि/Copy of the order forwarded to:- 1. अपीलधथी / The Appellant – M/s Seeram Padmanabha Jewellers Pvt. Ltd. D.No.6A-2-6, Near Gandhi Statue, Southern Street, Eluru 2. प्रत्यार्थी / The Respondent – Income Tax Officer, Ward-1, Eluru 3. The Pr.CIT, Rajahmundry 4. The Commissioner of Income Tax (Appeals), Rajahmundry 5. धिभागीयप्रधिधिधि, आयकरअपीलीयअधिकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 6. गाडाफ़ाईल / Guard file
आदेशािुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, VISAKHAPATNAM