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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: SRI RAJPAL YADAV & SRI MANISH BORAD
order
: Sept 09th, 2022 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2017-18 is directed against the order passed u/s 263 of the Income Tax Act, 1961 (in short the “Act”) by ld. Pr. Commissioner of Income-tax-9, Kolkata [in short I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. ld. “PCIT”] dated 21.03.2022 which is arising out of the assessment order framed u/s 143(3) of the Act dated 29.11.2019.
2. The assessee is in appeal before this Tribunal raising the following grounds:
“1. That, the alleged mistakes/deficiencies in the assessment order passed u/s. 143(3) dated 29-11-2019 as pointed out by the Ld. Pr. CIT in his order passed u/s 263 of the Act dated 21-03-2022 did not make the assessment order either erroneous or prejudicial to the interest of the revenue and hence the prerequisite of twin conditions for the exercise of jurisdiction by the Ld. Pr. CIT suomoto under it being absent in this case, the impugned order u/s.263 of the Act should be quashed on the facts of the case.
That, the order of the Ld. Pr. CIT u/s.263 directing the A.O. to pass a fresh assessment order as per directions contained therein is against the law settled by various judicial pronouncements on the issue inasmuch as there is no incidence that tax lawfully exigible has not been imposed or a lesser tax has been imposed.
3. That, the Ld. Pr. CIT has wrongly assumed jurisdiction u/s.263 of the Act for setting aside the original assessment order with regard to cash payment of Rs.2,24,63,103/- made for purchase of old gold jewellery when it was duly explained to him that the A/R of the assessee had inadvertently while filing the details of total purchases during the course of assessment mentioned ‘cash payment of Rs.2,24,63,103/-‘instead of ‘Exchange of Old Gold Jewellery against bale of new Items to Retail Customers of Rs.2,10,38,492/-’ and “Purchase of Old Jewellery through Bank of Rs.14,24,611/- and further with the help of documentary evidences the assessee had substantiated that there was not a single instance of cash payment during the year and thus provisions of section 40A(3) of the Act are not applicable, hence the order is neither erroneous nor prejudicial on this ground.
4. That, the appellant craves leave to alter, amend, rescind and substitute any of the above-mentioned grounds and add any further grounds before or at the time of hearing of the appeal.”
Assessment Year 2017-18 Page 2 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta.
3. Briefly stated the facts as culled out from records are that the assessee is an individual and carrying on his business in the name of Radheysham Jewellers. Income at Rs.97,63,350/- declared in the e-return for the AY 2017-18 filed on 21-09-2017. The case selected for scrutiny through CASS (Computer Aided Scrutiny Selection) system followed by serving of notices issued u/s. 143(2) and 142(1) of the Act. Detailed questionnaires were issued and submissions on multiple occasions were filed by the assessee. After considering the same returned income was determined as assessed income at Rs.97,63,350/- vide assessment order dt. 29-11-2019 framed u/s. 143(3) of the I.T Act, 1961.
4. Subsequently, the Ld.PCIT (Principal Commissioner of Income Tax) assuming jurisdiction u/s. 263 of the Act called for assessment records and after examining the same the Ld. PCIT issued following show cause notice (SCN). Relevant extract is reproduced below:-
“From the examination of materials on record, it is seen that the assessment order u/s 143(3) of the I.T. Act dated 29.11.2019 passed by the Assessing Officer (AO) for the A.Y. 2017-18 is erroneous in so far as it is prejudicial to the interests of the revenue. During the course of assessment proceedings of the assessee, the AO had failed to examine following issues: 2. Failure of AO to make necessary enquiries: On examination of assessment records for A.Y. 2017-18, it is found in the instant case that the assessee filed his return of Income for the A.Y. 2017-18 declaring a total income of Rs 97,63,350/-The case was selected for scrutiny through. CASS and assessment u/s 143(3) of Income Tax Act 1961 was completed on 29.11.2019 accepting the returned income. Thereafter, on perusal of the assessment records, it Assessment Year 2017-18 Page 3 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. is seen from profit and loss a/c for the F.Y. 2016-17 and submission of the assessee that cash payment of Rs.2,24,63,103/- was made for purchase of old gold jewellery. In terms of Section 40A(3) of the Income Tax act, 1961, if cash payment in excess of Rs 20,000/- is made in case of any expenditure, the said expenditure is not allowable. Hence, following the provision of section 40A(3) of the I.T. Act, the above said expenditure of Rs.2,24,63,103/- was required to be added back while computing total income. However the same was not done. Failure to do so has rendered the order erroneous in so far as it is prejudicial to the interests of the revenue.
In the light of the above, it is clear that the AO has, while passing the order u/s 143(3) of the Act, failed to make proper and the required enquiry/verification under clause (a) of Explanation 2 to section 263 of the I.T. Act, 1961 in respect of the above issue. As such, the assessment order u/s 143(3) of the I.T. Act, 1961 dated 29/11/2019 is erroneous and prejudicial to the interests of Revenue.
In view of the above, you are requested to explain as to why the assessment order in your case Radheshyam Gupta, PAN- ADJPG3274G for the A.Y. 2017-18 should not be revised u/s 263 of the Income Tax Act, 1961 as the assessment order passed in the aforesaid case is erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, your case is fixed for hearing on 11.03.2022 at 11:00 A.M. and you may appear in the chamber of the undersigned at room no. 601, Aayakar Bhawan Poorva, 110, Shantipally, Kolkata-700107 either in person or through authorized representative on the scheduled date, time, and place along with written explanation with supporting evidences. Due to outbreak of Pandemic COVID-19, you are requested to kindly note that appearing in person or through Authorized Representative is optional and you may submit your explanation/ written submission through official e-mail: kolkata.pcit9@incometax.gov.in; it will be treated as compliance to this show cause notice. Kindly note that if you fail to submit your explanation to this show-cause notice by the scheduled date, the case will be decided ex-parte without making any further correspondence with you.”
Assessment Year 2017-18 Page 4 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta.
During the course of revisionary proceedings u/s. 263 the assessee made detailed submissions with regard to the issue raised in the above referred show cause notice. It was submitted that no violation of section 40A(3) of the Act has been made by the ld.AO and alleged amount of purchase mentioned in the show cause notice at Rs.2,24,63,103/- comprises of two items namely (i) purchase of old gold jewellery in exchange of sale of new jewellery of Rs.2,10,38,492/- and (ii) purchase of old gold jewellery through banking channel of Rs.14,24,611/-. It was stated that as per purchase through banking channel is concerned provisions of section 40A(3) of the Act are not attracted.
As regards remaining purchase of Rs.2,10,38,492/- no cash payment has been made to make such purchase and the same is the value of jewellery exchanged for making new jewellery for the customers. It was also submitted that when a customer approaches the assessee for purchase of new jewellery some old jewellery is brought by the customer and the same is given to the seller so as to adjust the price of such exchanged jewellery against the new jewellery purchase. However, the ld.PCIT was not satisfied with the submissions made by the assessee and after relying on judicial pronouncement came to the conclusion that the ld.AO has passed assessment order without making/conducting enquiries/verifications, which should have been made by him before framing the assessment order u/s. 143(3) of the Act. The ld.PCIT, thus, held that the assessment order passed u/s. 143(3) of the Act dt. 29-11-2019 deserves to be Assessment Year 2017-18 Page 5 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. set aside and restored it back to the file of the ld.AO to frame fresh assessment after considering the issues as discussed in the impugned order.
Aggrieved, now the assessee is in appeal before this Tribunal raising various grounds challenging the exercising the jurisdiction by the ld.PCIT u/s. 263 of the Act and also challenging the direction of the ld. PCIT in setting aside the assessment order passed u/s. 143(3) of the Act dt. 29-11-2019 is bad in law.
The Ld. Counsel for the assessee referring to written submissions and paper book containing various details running into 56 pages, another paper book containing month wise summary of old gold jewellery, purchase ledger of old jewellery payments though banks, sample copy of the sale memo and purchase memo etc. running into 146 pages, copy of cash book for the FY 2016-17 stated that no sum of money was paid in cash or for purchase of old jewellery. Our attention was invited to Sheet Nos. 1 to 12 placed at pages 2-13 of P.B containing the month-wise details of sale and purchase for the of the year. It was stated that when a customer approaches to purchase new jewellery then for making payment for the sale consideration, apart from payment in cash/cheque sometimes the customer give old gold jewellery in exchange. The difference of sale price over price of old jewellery is received in cash/cheque. There is no instance where the assessee paid cash for purchasing of Assessment Year 2017-18 Page 6 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. old jewellery. The element of purchase of old gold jewellery is shown with total purchases for proper accounting purpose.
The Ld. Counsel also submitted that complete details of purchase/sales were called before the Ld. AO and detailed enquiry has been conducted with regard to various financial transactions carried out during the year. Reference was made to the notices issued u/s. 143(2) & 142(1) of the Act dt. 06-02- 2019 & 27-09-2019 and submissions filed by the assessee to these notices. It was also submitted that the case of the assessee also falls under the exceptions provided under Rule 6DD(d) of the I.T Rules, 1962, which provides that provisions of section 40A(3) of the Act will not apply where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supply or services rendered by the assessee to such payee. Further reliance was placed by the Ld. Counsel on the following decisions:-
S.No. In the cases of Reported in 1 DCIT Vs. Kirtilal Kalidas Jewellers (2012)27 taxmann.com 341 (Chennai) 2 ACIT Vs. Ms Kanishk Gold P.Ltd ITA .1323/Mds/2012 ITAT Chandigarh 3 PCIT Vs. Delhi Airport Metro Express (2017) 398 ITR 3 (Del) P.Ltd 4 DIT Vs. Jyoti Foundation (2013) 38 taxmann.com 180(Del) 5 ITO Vs. D.G Housing Proj.Ltd (2012) 20 taxmann.com 587(Delhi H.C) 6. Sanjay Jain Vs. PCIT dt. 23-03-21
10. Per contra, Ld. Departmental Representative vehemently argued supporting the findings of the ld. PCIT and judgements Assessment Year 2017-18 Page 7 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. relied on the impugned order and also submitted that the assessee has submitted the details of purchase at page 36 of the P.B stating that cash of Rs.,3,03,796/- and cash of Rs. 2,24,63,103/- has been paid in cash for purchase of old diamond jewellery and old gold jewellery. Thus, there is a clear violation of section 40A(3) of the Act. Therefore, the ld. PCIT has rightly held that the ld. AO has not examined the issue and therefore, the same is to be re-examined by the ld.AO
We have heard the rival contentions and perused the record placed before us and carefully gone through the judgments and the decisions referred by the ld. Counsel for the assessee. In this appeal the assessee has challenged the action of the ld. PCIT invoking the jurisdiction u/s. 263 of the Act and setting aside the assessment order dt. 29-11-2019 framed u/s. 143(3) of the Act holding it as erroneous and prejudicial to the interest of the revenue.
12. Section 263 of the Act has a direct bearing on the issue raised before us. Therefore, it will be relevant to discuss the scope of section 263 of the Act as well as judicial pronouncements.
263. Revision of orders prejudicial to revenue.--(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order Assessment Year 2017-18 Page 8 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Vide Finance Act, 2015 w.e.f 01-06-2015 a new explanation 'Explanation 2' was added to section 263 of the Act which reads as follows:
Explanation 2.- For the purposes of this section, it is hereby declared that an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board u/s. 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person."
A simple reading of the section 263 of the Act quoted above makes it clear that the power of suo moto revision can be exercised by the Commissioner only if, on examination of records of any proceedings under this Act, he considers that any order passed by the Assessing Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue".
The Commissioner has to be satisfied of twin conditions, namely, Assessment Year 2017-18 Page 9 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. (i) the order of the Assessing Officer sought to be revised is erroneous ;and (ii) it is prejudicial to the interests of the Revenue.
Further vide Finance Act, 2015 w.e.f. 01-06-2015 a new explanation 'Explanation 2' was added to section 263 of the Act which reads as follows:
In simple words, following orders passed by assessing officer shall now be considered as erroneous and prejudicial to the interest of revenue w.e.f. 01.06.2015, where AO passed order:-
1) without making any inquiries/verification which he/she is required to be made. 2) without making inquiry into a claim which is claimed by assessee and allowed such claim. 3) which is not in accordance with any order/direction/instruction (i.e. circulars) issued by CBDT 4) which is not in accordance with any decision of jurisdictional High Court or Supreme Court which is prejudicial to the assessee or any other person. In other words, where jurisdictional High Court or Supreme Court's decision is against the assessee or any other person and AO passed the order without considering such judgment then such order shall be considered as erroneous and prejudicial to the interest of revenue.
We note that in the judgment of the Hon’ble Delhi High Court in the case of PCIT vs. Delhi Airport Metro Express Pvt. Ltd reported in [2017] 398 ITR 8 (Delhi),it was held that, "9. It is seen, in the order dated 30th March 2016, the PCIT has proceeded by setting out the contents of the SCN and the Assessment Year 2017-18 Page 10 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. contents of the reply given by the Assessee. It appears that no inquiry, as such, was undertaken by the PCIT to come to the conclusion that the original assessment order was erroneous and prejudicial to the interests of the Revenue.
For the purposes of exercising jurisdiction under Section 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. All that PCIT has done in the impugned order is to refer to the Circular of the CBDT and conclude that "in the case of the Assessee company, the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular 9/2014 but the AO failed to do so. Therefore, the order of the AO is erroneous insofar as prejudicial to the interest of revenue".
11. In the considered view of the Court, this can hardly constitute the reasons required to be given by the PCIT to justify the exercise of jurisdiction under Section 263 of the Act. In the context of the present case if, as urged by the Revenue, the Assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the PCIT to undertake an inquiry as regards which of the assets were purchased and installed by the Assessee out of its own funds during the AY in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the PCIT.
Mr. Ashesh Jain then volunteered that the PCIT had exercised [he second option available to him under section 263 (1) of the Act by sending the entire matter back to the AO for afresh assessment. That option, in the considered view of the Court, can be exercised only after the PCIT undertakes an inquiry himself in the manner indicated hereinbefore. That is missing in the present case.
Assessment Year 2017-18 Page 11 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. 13. Therefore, the Court is of the view that the ITAT was not in error in setting aside the impugned order of the PCIT under Section 263 of the Act. No substantial question of law arises." 16. Further, Hon’ble Delhi High Court in the case of DIT vs Jyoti (2013) 38 taxmann.com 180(Delhi High Court), held that :
In the instant case, inquiries were certainly conducted by the Assessing Officer. It is not a case of no inquiry. The order under Section 263 itself records that the Director felt that the inquiries were not sufficient and further inquiries or details should have been called. However, in such cases, as observed in the case of ITO v. D.G. Housing Projects Ltd. [20121 343 ITR 329120 taxmann.com 5871[20131 212 Taxman 132 (Mag.), the inquiry should have been conducted by the Commissioner or Director himself to record the finding that the assessment order was erroneous. He should not have set aside the order and directed the Assessing Officer to conduct the said inquiry.
[Para 5] 17. Hon’ble Delhi High Court in the case of ITO vs D. G. Housing Projects Limited. [2012] 20 taxmann.com 587 (Delhi High Court), held that :
"19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous”. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and Assessment Year 2017-18 Page 12 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.
Recently Co-ordinate Bench of Chandigarh in the case of Sanjay Jain Vs PCIT in IT A No. 140/CHD/ 2021 dated 23-03- 2021 wherein it was held that, "Accordingly, we hold that the proceedings u/s 263 of the Act were bad in law in all the captioned four appeals and we quash the revisionary proceedings for the reason that the AO had made adequate enquiries is all the Jour cases and further the Ld. PCIT had not conducted any independent enquiry on his own before coming to an incorrect conclusion that the assessment orders were erroneous as being prejudicial to the interest of the revenue and were liable to be set aside."
Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. Commissioner of Income-tax (243 ITR 83), it has held by the that:
A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suomotu under it, is that Assessment Year 2017-18 Page 13 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous,· and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act.
The phrase (prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income- tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law."
20.Hon’ble Supreme Court in CIT v. Max India Ltd [2007] 295 ITR 0282-SC it has held that:
"The phrase (prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.
Assessment Year 2017-18 Page 14 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. 21. Now in light of the provisions of section 263 of the Act and judicial pronouncements refereed above, we will first examine that whether the ld.AO has conducted necessary enquiry regarding the issue raised in the Show Cause Notice and secondly, that whether the order of the ld. AO is erroneous as well as prejudicial to the interest of the revenue.
As far as conducting the enquiry is concerned, we find that after selecting the case for scrutiny the ld. AO issued notice u/s. 142(1) of the Act dt. 6-2-2019 along with annexure and called for various information to conduct the assessment proceedings. In the said notice the assessee was asked to furnish various information including party-wise details of sales/purchase, month-wise details of stock of finished goods. The assessee duly replied to this notice on 16-02-2019(page 34-35 of PB-2). In the submissions the assessee enclosed the details of purchases, month-wise stock movement and quantity details of finished goods and finished goods including gold jewellery purchased from customers and converted into fine gold. The assessee also enclosed ledger accounts of purchase of fine gold, old gold and diamond jewellery, new gold jewellery. It is worth noting that complete details of purchase of old gold jewellery amounting to Rs. 2,24,63,103/- was placed before the ld.AO for necessary examination.
Further the ld. AO issued another notice issued u/s. 142(1) of the Act on 27-08-2019 calling for various details of cash deposits in the bank, cash sales/cash deposits and the assessee Assessment Year 2017-18 Page 15 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. made necessary compliance to this notice also. Copy of the said reply was filed on 07-09-2019, placed at page 46 of P.B-2. Further on 08-11-2019 Ld.AO again called for some information regarding miss-match of total sales as per VAT return and sales shown in the P/L and also the purchases the figures appearing in the P/L account and audited balance sheet and figure appearing in submission dt. 06-02-2019. The assessee duly replied to this query on 08-11-2019.
Under these given facts, we find that detailed enquiry has been conducted on the issue referred in show cause notice by the ld. AO and complete details with necessary evidence/explanation has been filed by the assessee on multiple occasions and thus, it remains uncontroverted fact that an independent enquiry was carried out by the ld.AO and after due consideration of facts and proper application of mind a permissible view has been taken for assessing the income of the assessee. It is also worth noting that no independent enquiry has been conducted by Ld.PCIT on his own before setting aside the order of Assessing Officer. Therefore, on this ground itself the impugned proceeding u/s. 263 deserves to be quashed as the ld.AO has conducted adequate enquiry on the said issue.
Now we come to the merits of the case. After carefully considering the submissions of the assessee and perusing the material/submissions of the assessee filed before the ld.AO, we find that the assessee is in the course of its business of selling of old gold jewellery and occasionally receives old gold jewellery in Assessment Year 2017-18 Page 16 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. exchange from the customers. The value of such old gold jewellery is calculated by the assessee as per rates of the gold/silver/diamond or other precious stones as on the date of the transaction and the same is reduced from the sale value of new jewellery purchased by such customers.
We can understand such transaction with the help of an example. The value of new gold jewellery is Rs. 1 lakh and customer gives old gold jewellery worth at Rs. 20,000/- to the assessee in exchange. After agreeing to the value of old jewellery the customer pays Rs. 80,000/-, which can be received in cash/cheque. In this transaction no cash is paid by the seller to purchase of old gold jewellery. Now in the books of account in order to make clarity and also to make proper quantitative details the assessee categorises the Rs. 1 lakh as sales and books purchase of old jewellery at Rs. 20,000/-.
Thus, we find that actually the assessee has not made any purchases in cash in alleged transactions and only net consideration i.e total sale value less value of old jewellery exchange is received by the assessee in cash/cheque.
We also observe that case of assessee falls under the exception provided in Rule 6DD(d) of the IT Rules, 1962, which reads as under:-
"No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account Assessment Year 2017-18 Page 17 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. payee cheque drawn on a bank or account payee bank draft exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely :- (d) where the payment is made by way of adjustment against the amount if any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee; “ 29. Our view is supported by the decision of Chennai Bench in the case of DCIT vs Kirtilal Kalidas Jewellers (P.) Ltd [2012] 27 taxmann.com 341 (Chennai) wherein it was held that, "12. We have perused the orders and heard the rival submissions. What we find from assessment order is that assessee had indeed produced books of accounts before the Assessing Officer. Assessing Officer has clearly noted that the assessee had produced purchase vouchers for old jewellery and diamonds. Assessing Officer also noted that assessee was maintaining branch-wise accounts which were consolidated at its Head Office. It is also noted from the assessment order that assessee had filed details of various expenses incurred including TDS reconciliation. Admittedly, assessee was in the business of selling jewellery and it was also purchasing old gold and old diamonds from its customers, who wanted to exchange their old jewellery with new jewellery. Contention of the assessee that it was not effecting any cash purchase from its customers, has not been effectively rebutted. Case of the assessee is that it was effecting purchase of old jewellery from customers who were willing to buy new jewellery from the assessee. In some of the cases, when old Jewellery were given, they were taken for manufacturing new jewellery or to make certain customized changes required by customers. We are unable to accept the view of the A.O. that unless and until the sale and purchase were effected on same day, Section 40A(3) was attracted. Clause (d) of Rule 6DD which gives the alleviating circumstances where rigours of Section 40A(3) are not attracted, states as under:-
Assessment Year 2017-18 Page 18 I.T.A. No.: 187/Kol/2022 Assessment Year: 2017-18 Radheyshyam Gupta. where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee.
13. Thus, where the payments were effected to a customer on account of adjustment resulting out of an exchange of old jewellery with new Jewellery, then it does get covered under the exception clause (d) of Rule 6DD mentioned above. "
Further in the case of ACIT vs Ms Kanishk Gold Pvt. Ltd in ITA 1323/Mds/2012, the co-ordinate Bench, Chennai held that, "1. The contention of the Revenue is that Rule 6DD is not applicable in a case where purchase is made from A and sale is made to B. The contention is really against the facts of the case. We are not considering a case where the assessee is purchasing old gold ornaments from person A and selling new gold ornaments to another person B. In such circumstances, those sales are entirely different and independent both by nature and both by the parties involved. In such a case, settlement of account by receiving and paying the differential amounts does not arise at all. In the present case, that is not the issue pointed out by the assessing authority and replied by the assessee. The issue arises where the assessee-company purchases old gold ornaments from a person and sells new gold ornaments to the same person. It is in such circumstances, the final settlement of the transactions is made by paying and receiving the amount of differential value.
1.2 The transaction considered in this case is of same person purchasing new gold ornaments from the assessee against old gold ornaments. In such a case, clause (d) of Rule 6DD clearly applies. The said clause reads that where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee is exempted from the operation of Section 40A(3). Therefore, in the present case, as rightly pointed out by the Commissioner of Income Tax (Appeals), the case of the assessee is protected by clause (d) of Rule 6DD.