M/S. GOEL JEWELLERS OVERSEAS CORP.,NEW DELHI vs. JCIT, NEW DELHI

PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : is the assessee’s appeal preferred against order dated 23.09.2014 passed by the Ld.CIT (Appeals)- XXVI, New Delhi for assessment year 2011-12. is the department’s cross appeal for the same year.

2.1.1 During the course of assessment proceedings on examination of stock statement, the AO noticed that the assessee had declared a closing stock of 50676.819 gms gold valued at the rate of Rs. 1700.40 per gm as on 31.03.2011. However, the AO observed that the assessee had not mentioned the exact quantitative details of 24 carat and 22 carat gold jewellery, the specifications and the correct rates of valuation. The AO also observed that the assessee had applied the same rate of valuation for 24 carat gold as well as for 22 carat gold. The AO also noted that on examination of assessee’s books of accounts it was revealed that the assessee did not maintain any actual record of stock and further there was no goods inwards register or goods outward register. Thereafter, the AO issued summons u/s 131 of the Act to the State Bank of India, Overseas Branch, New Delhi requiring them to furnish statement of stock as submitted by the assessee to them on 31.03.2011 as well as required the assessee to submit a certified copy of stock statement on 31.03.2011. On comparing the stock reported as per the Tax Audit Report and the statement of stock as submitted by the assessee to the SBI, Overseas Branch, New Delhi, the AO concluded that there were glaring discrepancies between the stock as per the audit report and the stock statement as submitted to the bank. The discrepancy was tabulated by the Assessing Officer in the form of following tables:-

A. Item: Gold Particulars Stock as on 31.03.2011 submitted to Stock as on 31.03.2011 as per SBI Overseas bank audit report

Quantity Rate Value Quantity Rate Value 24CaratGold 3132 gms 1679/g 5,25,96,719/- 50676.82 1700/gm 86172890/- 22 Carat 75630gms 1679/gm 107648954/- -- -- -- Gold 64114gms jewellery (Pure) (pure) Dealer 24 5222.7gm 1679/gm 80,67,461/- -- -- -- Carats 4804 gms (pure) Infix gold 22000gms 2150/gms 47300000/- -- --- --- from Nova scotia B Item: Diamond Particulars Stock as on 31.03.2011 submitted to Stock as on 31.03.2011 as per SBI Overseas bank audit report

Quantity Rate Value Quantity Rate Value Diamond 3410.41 10152/- 34622482/- 3510 10514/- 36910593/- jewellery (CTS)

C Item: Diamond Particulars Stock as on 31.03.2011 submitted to Stock as on 31.03.2011 as per SBI Overseas bank audit report

Quantity Rate Value Quantity Rate Value Pr. Stone -- -- -- 14382 77.65 11,16,821/- D Item: Diamond Particulars Stock as on 31.03.2011 submitted to Stock as on 31.03.2011 as per SBI Overseas bank audit report

Quantity Rate Value Quantity Rate Value 33829 40.43 13,67,720/- 2.1.2 The AO observed that the assessee had declared stock of gold under four different categories, namely, (i) 24 carat gold bar (raw gold), (ii) finished gold (22 carat), (iii) stock in store/dealers’ gold and, (iv) 22000 gms unfixed gold from Nova Scotia. The AO was of the opinion that the stock statement submitted to the bank was more comprehensive and was in continuation of the record of stock being submitted by the assessee itself on monthly basis to the bank. This was having more evidentially value. The AO also observed that the assessee had failed to produce actual record of stock maintained by him and that further the very existence of two varying stock statements would lead to the conclusion that the closing stock declared by the assessee in its Trading account and Balance sheet cannot be relied upon.

2.1.3 The AO asked the assessee to show cause as to why the difference between the two statements should not be added back as undisclosed and unaccounted income on account of suppression of closing stock.

2.1.4 In response, the assessee submitted that the 22,000 gms of gold which was shown as received from Bank of Nova Scotia as ‘unfixed gold’ for manufacture and export purpose had been received against issue of Letter of Credit of Rs. 5 crores by the State Bank of India, Overseas Branch and no financial entry of value of this stock was recorded in the books of accounts of the assessee as no provisional price was provided by the bank to the assessee in respect of this gold. However, the receipt of gold was duly entered in the stock register maintained by the assessee but the stock value was calculated by the assessee only as per the financial books after excluding 22,00 this 0 gms of gold received under the Letter of Credit. It was further submitted that if this quantity to 22,000 gms is added to the stock quantity of 50,676.82 gms, the aggregate will be 72,676.82 gms which would approximately tally with the stock statement submitted to the State Bank of India wherein the quantity was shown at 72,052.49 gms and the difference would only be 624.33 gms. The assessee also submitted that while submitting the details to the bank, the quantity of 22,000 gms was inadvertently added to the stock instead of reducing the same from the total gold stock in possession of the assessee firm. It was also submitted that the valuation of this unfixed gold was reduced in valuation by Rs. 5 crores from the stock inventory and this resulted in excess valuation of stock by Rs. 4.73 crores before the Bank.

2.1.5 However, the AO was of the opinion that the assessee’s contention that in submitting the details to the bank a quantity of 22,000 gms had been inadvertently added rather than being reduced was not to be believed and the same was merely an after-thought. The AO also observed that this error, as claimed by the assessee, was nowhere rectified by the assessee in the subsequent statement/s submitted to the bank and that the very stock statements formed the basis for availing credit facility from the bank. The AO also noted that as per the statement filed with the bank, the assessee had 72050 gms of gold apart from 22,000 gms of unfixed gold from Bank of Nova Scotia, thus, taking the total stock to 94050 gms of gold as on 31.03.2011 whereas only 50676 gms of gold were shown in the audit report and, thus, there was a suppression of closing stock of gold by 43374 gms.

By applying the rate of Rs. 2075 per gm, the AO arrived at a figure of Rs. 9,00,01,050/- which was added to the income of the assessee on account of suppression of closing stock of gold.

2.2 The second addition of Rs. 43,938/- was made by applying gross profit rate at the rate of 4.328% on alleged unaccounted sale of diamond jewellery worth Rs. 10,15,200/- which was also calculated by the AO by considering the difference between the stock statement submitted before the bank and the stock declared in the audit report according to which there was a difference and deficit of 100 CTS of diamond jewellery.

2.3 Apart from this, the AO noted that the assessee had debited an amount of Rs. 12,00,000/- under the head ‘salary to partners’ and required the assessee to submit the ledger account of the same. On perusal of the ledger account, the AO noted that there were 24 instances where the partners had been paid cash in excess of Rs. 20,000/-. The AO was of the opinion that provisions of Section 40(A)(3) of the Act had been and, therefore, proceeded to disallow an amount of Rs. 6,00,000/- out of the salary paid to partners u/s 40(A)(3) of the Act.

2.4 Apart from this, the AO also noticed that the assessee had debited travelling expenses of Rs. 9,57,874/- in its Profit & Loss Account and the AO required to assessee to file relevant details.

From perusal of the details filed by the assessee, the AO reached the conclusion that some expenses pertained to personal trip/s of the family members of the partners and in some cases, there were no evidences of expenditure incurred as no vouchers and bills were produced. The AO proceeded to disallow an amount of Rs. 2,41,242/- under this head and added the same to the income of the assessee.

2.5 Similarly, on examination of the business promotion and sales promotion expenses, the AO noted that the assessee had debited expenditure of Rs. 1,67,356/- on account of payment to ‘Mahindra Holidays and Resorts’ which was not duly supported by any bill or vouchers. The assessee also could not substantiate that this expenditure was related to the business of the assessee.

Similarly, while examining the ledger account of sales promotion, the AO noted that the assessee had debited an amount of Rs. 1,60,000/- on account of payment for Commonwealth games tickets for customers but no bill or voucher pertaining to the same was produced by the assessee and nor could the assessee establish that the said expenditure was in any way related to the business of the assessee. Accordingly, the AO proceeded to make an addition of Rs. 3,27,356/- by adding these two items to the income of the assessee.

2.6 Further, the AO noticed that the balance sheet of the assessee shows Sundry Creditors totalling Rs. 1,77,90,014/- and the assessee was required to file complete names, addresses, PANs and confirmation of all creditors with outstanding balances of more than Rs. 50,000/- as on 31.03.2011. Thereafter, on receiving the details from the assessee, the AO issued summons u/s 131 to many parties and out of these parties summons were either received back un-served or no response was received in case of seven parties. The total outstanding shown as payable by the assessee in respect of these seven parties amounted to Rs. 46,15,850/- and the AO was of the opinion that the assessee was unable to prove the identity, genuineness as well as the credit worthiness of the liabilities pertaining to these seven parties. The AO proceeded to add of Rs. 46,15,850/- to the income of the assessee.

2.7 Aggrieved by the assessment order, the assessee approached the Ld. First Appellate Authority. The Ld. CIT (Appeals) partly allowed the assessee’s appeal by adjudicating the issues before him as under:- 10 (i) The addition of Rs. 9,00,01,050/- on account of suppression of closing stock was deleted by the Ld. CIT (A) on the ground that the discrepancy in stock would have been from earlier assessment years and the discrepancy did not arise in the relevant assessment year under consideration. The Ld. CIT (A) also recommended that the AO may consider taking suitable corrective action in preceding years.

(ii) With respect to the addition of Rs. 43,938/- on account of gross profit of unaccounted sale of diamond jewellery the Ld. CIT (A) held that in this case also the difference in the stock continued from the preceding year and, therefore, the addition would not have been made in the year under consideration.

(iii) With respect to the disallowance of partners’ salary amounting to Rs. 6 lakhs u/s 40(A)(3) of the Act, the Ld. CIT (A) was of the view that the provisions of Section 40(A)(3) were attracted in this case and the disallowance was sustained.

(iv) With respect to the disallowance in respect of travelling expenses amounting to Rs. 2,41,242/-, the Ld. CIT(A) held that the totality of the circumstances would have to be looked into and where direct evidences were not available, substantial evidences would be treated as sufficient for deciding the case.

The Ld. CIT (A) held that the AO had failed to substantiate, with reasoning, the disallowance and directed the deletion of this addition.

(v) With respect to business promotion expenses of Rs. 1,67,356/- the Ld. CIT (A) held that the assessee had failed to demonstrate how the payments made to Mahindra Holiday and Resort was incurred wholly and exclusively for business purposes and, therefore, the disallowance was held to be justified.

(vi) With respect to the disallowance of Rs. 160,000/- out of sales promotion expenses, the Ld. CIT (A) again held that the assessee had failed to demonstrate as to how the payments made for purchasing tickets of Commonwealth games was incurred wholly and exclusively for the business purposes. The Ld. CIT (A) sustained this addition also.

(vii) With respect to the addition made in respect of Sundry Creditors totalling to Rs. 46,15,850/- the Ld. CIT (A) analyzed the ledger accounts of all the seven parties and also gave due consideration to the submissions of the assessee in this regard and directed the entire addition to be deleted.

2.8 Aggrieved with the findings of the Ld. CIT (A), the assessee is in appeal before the ITAT in and has raised the following grounds :-

“1.That having regard to the facts and circumstances of the case, Ld. C1T (A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs.6,00,000/- on account of salary paid to partner u/s 40A(3) of the Act and that too by recording incorrect facts and findings and without considering the submissions of the assessee. 2.That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making disallowance of Rs. 1,67,356/- under the head business promotion expenses.

2.9 Similarly the department is also aggrieved by the order of the Ld. CIT(A) and is in appeal before the ITAT in and has raised the following grounds of appeal :-

“1. The Ld. CIT (A) has erred in deleting the addition of Rs. 9,00,01,050/- without appreciating the fact that the assessee failed to produce actual physical stock statement during the course of assessment proceedings. The assessee maintained two different stock statements i.e. one was given with the audit report and another was given to bank authorities whereas the assessee cannot maintain two different stock state if ments in the same financial year 2010-11 relevant to AY 2011-12.order is not accep' „.e on the merits in the assessment year 2008-09.

3.0 At the outset, the Ld. Sr. Departmental Representative prayed that the department’s appeal may be take up first because it involved a substantial issue in terms of deletion of addition of Rs. 9,00,01,050/- which was made by the AO on account of difference in the stock of Gold. The Ld. Authorised Representative had no objection to department’s prayer for taking up the department’s appeal first. Accordingly we proceed to hear the department’s appeal first.

4.0.0 The Ld. Sr. Departmental Representative submitted that there were glaring discrepancies in the stock and she referred to the observations of Assessing Officer as contained in pages 1,2 and 3 of the Assessment order and also referred to the Table/s produce by the AO in this regard. The Ld. Sr. Departmental Representative also referred to the submissions made by the assessee before the AO in this regard which have been reproduced by the AO on pages 4 and 5 of the assessment order and, thereafter, drew our attention to the findings of the AO as contained in pages 5, 6 and 7 of the assessment order. The Ld. Sr. Departmental Representative submitted that the stock statement submitted before the bank clearly mentioned opening stock, stock-in, stock-out as well as the closing stock of each item of inventory and, therefore, there was no ambiguity in this regard and the assesse’s plea of inadvertent/clerical error had no basis. It was further submitted that as per the admittance of the assessee itself there was an additional stock of 22,000 gms of Gold which had been received from bank of Nova Scotia as unfixed gold for manufacture and export purpose against issue of Letter of Credit of Rs. 5 crores by the State Bank of India and, therefore, there was absolutely no justification for not entering the same in the books of accounts. She submitted that the assessee’s claim, that this stock of gold was also entered into the stock register, was factually incorrect as the same is neither mentioned in the stock statement filed along with the audit report for assessment year 2011-12 and nor is mentioned in the details accompanying the balance sheet. It was also submitted that there was no doubt that this gold was the stock of the assessee but the assessee had failed to record the same in its books of accounts. It was also submitted that the assessee’s contention that, while submitting details to the bank, the quantity of 22,000 gms had been inadvertently added rather than reducing it was absolutely false as the assessee had submitted a complete separate account of gold from Nova Scotia in the statement submitted to the bank. It was also submitted that it is undisputed fact that the assessee had not been maintaining stock register in this regard and, therefore, apparently the books of accounts were not to be trusted. It was also submitted that the assessee’s claim that there was an inadvertent mistake, which had been continuing from preceding assessment years, was not to be believed as a mistake could not have been perpetrated month after month without the same being detected when the stock statement was being submitted to the bank every month. It was further submitted that the Ld. CIT (A) had grossly erred in deleting the addition by giving a finding that the mistake was relatable to earlier assessment years and, therefore, no addition could have been made in the year under consideration.

The Ld. Sr. Departmental Representative submitted that the Ld. CIT (A) had not reconciled the stock but had simply accepted the submissions of the assessee without duly verifying and examining the facts. The Ld. Sr. Departmental Representative also submitted that even if the explanation of the assessee regarding inadvertent error in adding the stock rather than reducing it was to be accepted, even then there was a difference of 624.33 gms which was a huge difference and looking into the assessee’s trade it would be improbable that such a difference could have gone un-noticed.

4.0.1 The Ld. Sr. Departmental Representative also drew our attention to page 598 of the paper book filed by the assessee which contained month wise summary of the difference between stock as per the stock statement and the stock submitted to the bank. In this regard it was submitted that since no stock register was produced before the Assessing Officer or the Ld. CIT (A), the veracity of this reconciliation was not proven. The Ld. Sr.

Departmental Representative also submitted that once a defect was pointed out by the assessing officer in the stock maintained by the assessee, the onus was on the assessee to satisfactorily explain the discrepancy which the assessee had failed to do.

4.0.2 It was also submitted that the assessee has claimed relief on account of opening stock but since no stock register was produced either during the assessment proceedings or first- appellate proceedings, no credence can be lent to the opening stock figures. The Ld. Sr. Departmental Representative vehemently argued that there was no evidence in support of assessee’s claim that the opening stock contained the aforesaid difference.

4.0.3 The Ld. Sr. Departmental Representative also negated the assessee’s claim that the difference in stock as per the books was 18 reconciled with stock as per statement in subsequent assessment year and as submitted in page 14 of the assessee’s written submission. It was submitted that the said reconciliation clearly showed that the difference was not merely on account of gold received on loan but also included stock given to karigars.

4.0.4 The Ld. Sr. Departmental Representative submitted that the AO had rightly made the addition on account of suppressed stock and prayed that the order of the AO may be restored in this regard.

4.1 With respect to the ground no. 2 of the department’s appeal which challenged the action of the Ld. CIT (A) in deleting the addition of Rs. 43,938/- on account of gross profit earned on unaccounted sale of diamond, it was submitted that here also the Ld. CIT (A) had accepted the assessee’s theory that the difference in stock pertained to earlier assessment years and, therefore, no addition could have been made during the year under consideration. It was submitted that, again, this finding of the Ld. CIT (A) was without any cogent reasoning and the arguments raised by her in respect of ground no.1 would apply for this ground also.

4.2 With respect to ground no. 3 of the department’s appeal which challenged the action of the Ld. CIT (A) in deleting the addition of Rs. 46,15,850/-, it was submitted that since the Sundry Creditors had failed to comply to the summons issued by the AO and/or the summons had been returned un-served, the identity of the creditors and their credit-worthiness at that point of time remained unproved. The Ld. Sr. Departmental Representative further submitted that subsequent payment/s by the assessee against the outstanding liability did not prove the genuineness of the transaction at that particular time.

4.3 With respect to the ground no. 4 of the department’s appeal challenging the deletion of addition of Rs. 2,41,242/- relating to travelling of expenses, the Ld. Sr. Departmental Representative submitted that no details had been submitted before the AO by the assessee and the Ld. CIT (A ) had reached a wrong conclusion that the surrounding circumstances can be looked into justify the incurrence of expenditure. The Ld. Departmental Representative prayed that the department’s appeal be allowed in totality by setting aside the order of the Ld. CIT (A).

5.0.0 In response to arguments of the Ld. Sr. Departmental Representative, the Ld. Authorised Representative with respect to 20 ground no. 1 of the department’s appeal submitted that the impugned stock of gold was taken on loan from the Bank of Nova Scotia and the assessee was only a custodian of the gold till it was ready for export. The Ld. Authorised Representative also drew our attention to voluminous document/s submitted before the Ld. CIT (A), with regard to the inadvertent error in submitting stock details to the Bank, which have been mentioned by the Ld. CIT (A) in pages 9 and 10 of the impugned order.

5.0.1 The Ld. Authorised Representative also placed on record a copy of the assessment order passed u/s 143(3)/147 of the Act dated 07.03.2016 for assessment year 2010-11 and submitted that subsequent to the directions of the Ld. CIT (A) that the stock discrepancy should be examined by the AO in earlier assessment years, the assessing officer, in the reassessment proceedings, had duly examined the alleged difference of stock as per books and the statement given to the bank as on 31.03.2010 and nothing was found to be lacking on the part of the assessee. It was submitted that no difference was found to be existing and no addition was made by the AO in this regard with the AO giving an explicit finding that the difference was on account of clerical error.

5.0.2 It was also submitted that it is not the department’s case that the assessee had not given the explanation before the AO regarding the discrepancy having been rectified in subsequent assessment year. It was submitted that this submission of the assessee before the AO was duly supported by an affidavit that a clerical error had occurred while filing the stock statement with the bank which was rectified subsequently in due course. He drew our attention to the copy of stock statement submitted to the bank as on 31.07.2011 where no such stock of unfixed gold was mentioned. It was submitted that this impugned clerical error was rectified and, therefore, there was no basis to make any addition.

5.0.3 It was also submitted that since the difference, if at all, was on account of difference in opening stock, therefore, the same could not have been the subject-matter of addition in the impugned year. Reliance was placed on the judgement of the Hon’ble Delhi High Court in the case of CIT vs. Capital Tyres Manufacturing Unit reported in 305 ITR 199 (Delhi) for the preposition that addition could not be made if the difference pertained to a different assessment year.

5.0.4 The Ld. Authorised Representative also drew our attention to the submissions of the assessee made before the Ld. CIT (A), the reconciliation statement placed before the Ld. CIT (A) and the various details submitted before the Ld. CIT (A) and placed at pages 513 to 568 of the paper book and it was submitted that the Ld. CIT (A) had given the impugned relief after duly considering the various documentary evidences submitted in this regard.

5.0.5 The Ld. Authorised Representative also submitted that the assessee’s case was that of hypothecation of stock and not of pledging of stock and, therefore, the addition could not have been made on that account. Reliance was placed on the judgment of the Hon’ble Apex Court in the case of CIT vs. Balbir Singh Maini reported in (2017) 86 taxmann.com 94 (SC) for the preposition that there was no accrual of income to the assessee when gold had been received as loan from Nova Scotia Bank. The Ld. Authorised Representative also vehemently supported the order of the Ld. CIT (A) on this issue and submitted that the order of the Ld. CIT (A) on the issue be upheld.

5.1 With respect to ground no. 2 of the department’s appeal which challenged the action of the Ld. CIT (A) in deleting the addition of Rs. 43,938/- being gross profit earned on account of 23 alleged unaccounted sales, the Ld. Authorised Representative submitted that here also there was categorical finding by the Ld. CIT (A) that the discrepancy pertained to earlier assessment years and, therefore, the same could not have been made the subject matter of addition in this year. The Ld. Authorised Representative again placed reliance on the order of the Ld. CIT (A) in this regard.

5.2 With respect to ground no. 3 of the department’s appeal challenging the action of the Ld. CIT (A) in deleting the addition of Rs. 46,15,850/- on account of Sundry Creditors, the Ld. Authorised Representative submitted that the addition had been deleted by the Ld. CIT (A) after duly considering the explanation of the assessee in this regard and after duly appreciating the fact that the outstanding payment/s to the creditors had been made in subsequent assessment years and, therefore, there was no reason to differ with the findings of the Ld. CIT (A) in this regard.

It was also submitted that no addition could be made u/s 41(1) of the Act even if the Sundry Creditors are treated as non-genuine by the AO.

5.3 With respect to ground no. 4 of the department’s appeal challenging the action of the Ld. CIT (A) in deleting the addition of 24 Rs. 2,41,242/- made out of travelling expenses, reliance was placed on the order of the Ld. CIT (A).

5.4 The Ld. Authorised Representative prayed that the department’s appeal deserved to be dismissed.

6.0 In rejoinder, the Ld. Sr. Departmental Representative, with respect to ground no. 1 of the department’s appeal, submitted that it was unbelievable that the assessee had not maintained the stock register as jewellers, due to the nature of their trade and the value of the items, invariably maintained a daily record of stock. The Ld. Sr. Departmental Representative also submitted that the veracity of the reconciliation statement as submitted and placed on the paper book page 598 was also not established. It was also submitted that the case laws relied upon the assessee were distinguishable on facts.

7.0 Arguing for the assessee’s appeal, the Ld. Authorised Representative submitted that ground no. 1 related to disallowance of Rs. 6,00,000/- made by the AO u/s 40A(3) of the Act. It was submitted that this disallowance was bad in law as the withdrawal made by the partners was not on account of payment of any expenditure but what simply a withdrawal against balance available in their accounts. It was further submitted that none of the amounts disallowed u/s 40A (3) were debited in the Profit & Loss Account as expenditure and were rather entries on account of capital account.

7.1 With respect to ground no. 2 of the assessee’s appeal challenging the disallowance of Rs. 1,67,356/- made by the AO on account of business promotion expenses, it was submitted that the said expenditure was incurred for purchase of membership of Mahindra Holiday Resort on time-share basis for the purpose of business of the assessee. However, it was fairly accepted that there was absence of bills and specific details as the record was very old. Reliance was placed on assessee’s submissions before the Ld. CIT (A) in this regard and it was submitted that the Ld. CIT (A) had not considered the submissions of the assessee in proper perspective.

7.2 With respect to ground no. 3 relating to disallowance of Rs. 160000/- on account of sales promotion expenses, it was submitted that the assessee has purchased tickets for its customers for Commonwealth games in order to promote its business prospects. It was submitted that details had been submitted before the Ld. CIT (A) in this regard along with written 26 submissions. However, the Ld. CIT (A) had brushed aside the submissions and upheld the addition. It was submitted that the disallowance was unjustified and the same should be directed to be deleted.

8.0 In response to the arguments advanced by the Ld. Authorised Representative in assessee’s appeal, the Ld. Sr.

Departmental Representative submitted that as far as ground no. 1 was concerned, it was not established that whether the cash withdrawals pertained to expenditure debited to Profit & Loss Account or pertained to capital account. The Ld. Sr.

Departmental Representative submitted that under the Income Tax law the partners and the partnership firm are separate legal entities and, therefore, the addition on this account was justified.

8.1 With respect to ground nos. 2 and 3 of the assessee’s appeal, the Ld. Sr. Departmental Representative placed reliance on the order of the Ld. CIT (A) and submitted that the disallowances / additions had been rightly sustained.

9.0 We have heard the rival submissions and have also perused the material on record. We take up the department’s appeal bearing for disposal first.

9.1 Ground no. 1 of the department’s appeal challenges the action of the Ld. CIT (A) in deleting the addition of Rs. 9,00,01,050/- with respect to difference in stock which came to the knowledge of the AO by comparing the stock statements submitted by the assessee to the State Bank of India, Overseas Branch with the stock as per the tax audit report on 31.03.2011.

It is an admitted fact that in the tax audit report, the assessee has declared a closing stock of 50676.819 gms of gold valued at Rs. 1700.40 per gram as on 31.03. 2011 whereas the assessee has submitted stock statement to the bank from, whom the loan/s were obtained showing gold stock of 72052.49 gms.

Therefore, the vast discrepancy in the quantity of gold shown to the bankers for the purpose of availing the loan and the quantity shown in the books for the tax purposes resulted in an addition in the hands of the assessee. The assessing officer stated that the stock statement submitted to the bank clearly shows the opening stock, stock-in, stock-out and final closing stock of each item separately. Therefore, there cannot be any clerical error.

However, the assessee explained before the AO that 22,000 gms of gold which was received from Bank of Nova Scotia was un- fixed gold for manufacture and export purposes against issue of Letter of Credit of Rs. 5 crores by State Bank of India, New Delhi.

It was contended before the AO that, therefore, the stock was an unpaid stock and did not belong to the assessee but by error it had been included in the stock statement submitted to the bank.

It was further submitted before the AO that as it was not paid stock it had correctly not been included in the inventory while preparing the profit and loss account and balance sheet for the year although it should not have been included in the stock statement submitted to the bank also. The assessing officer held that there was no basis at all to substantiate that it was a clerical error. The assessing officer observed stated that the unfixed stock was not included and accounted for in the books of the accounts. The assessing officer also noted that the assessee had not rectified the above so-called clerical error in the subsequent statement submitted to the bank. For this reason, the addition of Rs. 9,00,01,050/- was made for suppression of closing stock of gold by the assessing officer.

9.1.1 On appeal before the learned CIT (Appeals), the addition was deleted. The learned Commissioner (Appeals) held that the goods were hypothecated and not pledged with the bank and, therefore, the custody of the gold was not with the bank, but with the assessee. Hence, it cannot be said that assessee was having excess gold of the differential quantity. He further held that as the assessing officer had treated the stock statement submitted by the assessee to the State Bank of India at the end of the year as complete and correct, therefore, the corollary was that the stock statements submitted by the assessee to the State Bank of India for every month were also complete correct and sacrosanct.

He, therefore, held that the stock statement submitted by the assessee to the State Bank of India for the month ending on 31/3/2010 (Opening stock) was also bound to be complete, correct and sacrosanct. Therefore, he held that as the opening stock shown to the bank was 99420.685 gms whereas the opening stock as per the books of account was 55606.051 gms, there was a difference of 43811.792 g in the opening stock.

Therefore, according to him, the difference in the stock was relating to a period earlier than the commencement of the year under consideration and no difference has arisen during the year.

He, therefore, held that the difference in stock as per the statement submitted by the assessee to the bank had not arisen in the relevant assessment year and the entire addition of Rs. 9,00,01,050/– was deleted.

9.1.2 On careful reading of the order of the learned Commissioner (Appeals), it is apparent that he has presumed what the assessing officer has not stated. The basic fallacy in the order of the Ld. Commissioner (Appeals) is his stating that as the addition has been made by the assessing officer on account of the difference in stock as per the stock statement submitted to the bankers and the stock shown in the profit and loss account for the tax purposes has been taken for the purpose of addition therefore, the assessing officer has presumed that the opening stock statement submitted to the bank and the opening stock shown by the assessee in its profit and loss account are also sacrosanct. We do not find any such observation in the order of the assessing officer. Thus, the learned CIT (Appeals), for deleting the above addition, has presumed what the assessing officer has not stated. Further, it cannot be said that when there is a difference in the opening stock submitted to the bank and the opening stock shown in the books of accounts and there is also difference in the closing stock submitted to the bank and the closing stock shown in the profit and loss account at the end of the year, the addition cannot be made in the hands of the assessee for the year under consideration. We also do not find any reason to uphold the view of the Ld. Commissioner (Appeals) that if the difference is coming from earlier years, no addition can be made in the hands of the assessee in the year in which the difference is detected. The learned Commissioner (Appeals) also failed to appreciate the distinction between the judgment of the Hon’ble Punjab & Haryana High Court cited before him in the case of Sheena Exports and this case because in that particular case, no difference was there in the quantitative details and the only difference was in the value of the closing stock. Here, however, the differences, as indicated by the assessing officer, pertain to quantitative details. In the case of Sheena Exports, it was claimed that the statement submitted to the bank was merely a figure not supported by any quantitative details.

However, in the present case, the assessee has submitted the quantitative details duly bifurcated. Furthermore, before us the assessee has submitted the reconciliation of the stock, which is also not completely reconciled. If the view of the learned Commissioner (Appeals) is accepted that if the difference is found in the opening stock as well as the closing stock also, then no addition can be made during the year, then sections 69 to 69B of the Act will be rendered redundant. We note that even to support his contention, the learned Commissioner (Appeals) has not carried out any exercise to determine as to in which year the difference had arisen and as to in which year, the addition was required to be made. In our opinion, he was duty bound to do so as per the provisions of section 150 of the Act. Therefore, according to us, the learned Commissioner (Appeals) has grossly erred in deleting the addition of Rs. 9,00,01,050/- merely on a presumption and on mis-appreciation of the facts of the case .

However, the as the learned authorised representative has also submitted before us a detailed reconciliation of the stock, in fairness this reconciliation needs to be verified by the assessing officer properly. We note that even after considering the reconciliation submitted by the learned authorised representative, there remains a difference of 624.33 gms in the quantity of the gold which also needs to be explained and reconciled. Therefore, in the interest of justice, the issue is sent back to the file of the assessing officer with a direction to the assessee to produce before the assessing officer the stock register maintained by the assessee along with the month wise stock statements submitted to the bankers and to demonstrate that the difference in each month is on account of unfixed gold only. The assessing officer is also directed to verify the above details, if produced by the assessee, and decide the issue in accordance with the law after giving proper opportunity of hearing. In the result ground number 1 of the appeal of the revenue is allowed with above direction.

9.2.0 Ground no. 2 of the department’s appeal challenges the action of the Ld. CIT(A) in deleting addition of Rs. 43,938/- which was arrived at by applying the gross profit rate of 4.328% on alleged unaccounted sales of Rs. 10,15,200/- pertaining to diamond jewellery. Ground no. 2 is identical to the ground no. 1 of the department’s appeal and in view our detailed findings as contained in the preceding paragraphs with respect to ground no. 1, this ground is also restored to the file of the assessing officer for examining the issue afresh in light the evidences which the assessee may submit in this regard and after giving proper opportunity to the assessee before deciding the issue as per law.

Accordingly this ground also stands allowed for statistical purposes.

9.3.0 Coming to ground no. 3 of the department’s appeal which challenges the action of the Ld. CIT (A) in deleting the addition of Rs. 46,15,850/- which was added on account of 34 Sundry Creditors who had not responded to the summons issued u/s 131 of the Act, it is seen that the Ld. CIT (A) has examined the issue in detail on pages 29 to 37 of the impugned order and each the case of the seven parties has been examined at length by the Ld. CIT(A). The findings of the Ld. CIT (A) are contained in Para 9.1 of the impugned order and the same is reproduced here in under for a ready reference:-

9.1 I have carefully considered the facts of the case and perused material available on the record. The appellant filed the confirmation/proof of the liabilities of Chunilal Lunia (BO), Rs. 22,66,200/- and Rs. 19,66,918/- (Rajasthan) - during the assessment proceedings. The liability of Rs. 19,66,918/- is in respect of purchases of the preceding year. The purchases from Chunilal Lunia were not doubted by the AO. The AO's inference revolves around her logic that in case the payments would had been done in the relevant AY then the same would be genuine other wise not, if summon sent to the party returned unserved. This logic without bringing further material on the record is held improper particularly in view of the fact that the appellant has filed confirmations from the party whose credit balance of Rs.42,33,118/- has been doubted. The appellant demonstrated payments made to Chunilal Lunia by banking channel in the subsequent years. The purchases from Chunilial Lunia were being made from earlier years and were continued in the subsequent years. In view of above submissions, details/documents furnished during the course of assessment proceedings and the judicial precedents, I am of the opinion that the creditor Chunilal Lunia) appears to be genuine. It is not a case where the provisions of section 41(1) were invoked as it is not a case of remission or cessation of the liability. The expiry of the period of limitation prescribed under the Limitation Act has not extinguished. The Ld. Counsels demonstrated that the appellant had filed confirmations of Chunilal Lunia and Mr. Vijay Kumar Challa during the assessment proceedings vide its submission dated 03.12.2013. On which the AO failed to give any adverse comment. Here, it is evident from the submission of the Ld. Counsels that two of the creditors under reference are its karigars. One of the liability of Rs.30,000/- is in respect of purchases. Against which the appellant sold jewellery in the subsequent year. The subsequent payments/sale also proves that the liabilities exist genuinely. The appellant, with the help of above submission and enclosures of the submission explained and rebut the finding of the AO. These liabilities were not quite old. Further, it is also found that these liabilities were liquidated subsequently in short span of time; therefore, the genuineness of these liabilities gets established as the genuine liability cannot lie unclaimed for a long period. Accordingly, it is held that the AO has erred in treating sundry creditors aggregating to Rs.46,15,850/- as unexplained. Consequentially, the addition of Rs.46,15,850/- is deleted. The appellant gets relief of Rs.46,15,850/-.

9.3.1 Although, the Ld. Sr. Departmental Representative has argued at length that the Ld. CIT (A) has erred in deleting these additions, no factual infirmity or contradiction could be pointed out by her in this regard. We find that the Ld. CIT (A) has reached a logical conclusion in this regard and these factual findings remain un-contradicted. Accordingly, we find no reason to interfere with the findings of the Ld. CIT (A) on this issue and we dismiss ground no. 3 of the department’s appeal.

9.4 Ground no. 4 of the department’s appeal challenges the deletion of addition of Rs. 2,41,242/- out of travelling expenses.

In this regard, it is seen that the Ld. CIT (A) has deleted the addition while observing that although evidence beyond reasonable doubt is not available, the totality of circumstances has to be looked into and to evolve a process which would adapt to a situation in pursuit of truth and justice. The Ld. CIT (A) further observed that where direct evidences were not available, substantial evidences could be treated as sufficient for deciding the issue. Thereafter the Ld. CIT (A) has concluded in Para 6.1 of the impugned order that in his opinion the travelling expenses were incurred for business purposes and there was no element of personal/non-business expenditure embedded therein. However, the Ld. CIT (A) has not indicated the circumstances on which he relied upon to reach such a conclusion. It is undisputed that the assessee failed to produce documentary evidences in respect of these expenses before both the lower authorities and nor could justify its claim that the expenses has been incurred for purely business purposes. The Ld. CIT (A) has apparently accepted the contentions of the assessee without examining the veracity of the claim in detail. This should not have been done. However, in interest of justice, we deem it appropriate to restore this issue also to the file of the Assessing Officer to examine the issue afresh and direct the assessee to establish beyond reasonable doubt that these expenses were for business purposes. The AO shall afford proper opportunity to the assessee before adjudicating this issue as per law. Accordingly ground no. 4 stands allowed for statistical purposes.

9.5 Ground no. 5 is general in nature and does not call for any adjudication.

9.6 In the result, the appeal of the department stands partly allowed for statistical purposes in terms of our observations contained in the preceding paragraphs.

10.0 We now take up the assessee’s appeal bearing ITA No. 6062/Del/2014. The first ground taken by the assessee challenges the action of the Ld. CIT (A) sustaining disallowance of Rs. 6,00,000/- u/s 40(3) on account of salary paid to partners.

The main thrust of the argument of the Ld. Authorised Representative has been that the submissions of the assessee were not properly considered by the lower authorities in this regard. The Authorised Representative has drawn our attention to the submissions/documents which have been filed by the assessee to support the claim that the impugned payments were not against payment of salary but were rather debited to the capital account and were withdrawals of the partners. Apparently both the lower authorities have not considered this aspect of the assessee’s submission. Accordingly, in interest of justice, we deem it fit to restore this issue to the file of the Ld. CIT (A) to verify the claim of the assessee with the books of accounts that 39 the impugned payments were debits to the capital accounts of the partners and were not payments against salary to the partners. The Ld. CIT (A) is directed to decide this issue afresh after taking in due consideration the submissions to the assessee as well as the evidences on which it seeks to rely upon and, thereafter, pass the order in accordance with law after giving due opportunity to the assessee to present its case. In the result this ground stands allowed for statistical purposes.

10.1 Coming to ground no. 2 of the assesse’s appeal which challenges the action of the Ld. CIT (A) in sustaining disallowance of Rs. 1,67,356/- under the head ‘business promotion expenses’, it is seen that the AO had disallowed this amount because this payment to Mahindra Holidays and Resort was not supported by any bill or voucher and nor was the assessee able to establish that this expenditure related to assessee’s business. The Ld. CIT (A) also sustained the disallowance by observing that the assessee had failed to demonstrate as to how this payment was incurred wholly and exclusively for the purpose of assessee’s business. The Ld. Authorised Representative has drawn our attention to the submissions made before the Ld. CIT (A) in this regard and has submitted that the submissions were not properly considered by the Ld. CIT (A). A perusal of the order of the Ld. CIT (A) also shows that the submissions of the assessee have not been discussed by the Ld. CIT (A) while dismissing the ground. It is our considered opinion that interest of justice would be served if this issue is re-examined by the Ld. CIT (A) after duly considering the submissions made by the assessee in this regard and after giving the assessee proper opportunity. Thus, ground no. 2 also stands allowed for statistical purposes.

10.2 Ground no. 3 of the assessee’s appeal challenges the action of the Ld. CIT (A) in sustaining disallowance of Rs. 1,60,000/- pertaining to sales promotion expenses. These expenses were incurred for purchasing tickets for Commonwealth games and the assessee had claimed that this would result in expansion of the client base. However, the assessee was not able to establish that these expenses were for business purposes. The Ld. CIT (A) also dismissed the assessee’s ground for the reason that evidence beyond reasonable doubt was not available for establishing that these expenses were for business purposes. In this regard also the Ld. Authorised Representative has drawn our attention to the detailed submissions made before the Ld. CIT (A) and it is evident that the Ld. CIT (A) has dismissed the assessee’s ground without properly considering the submissions made by the assessee. Accordingly, in our considered view, this issue also needs to be restored to the file of the Ld. CIT (A) for fresh adjudication. Accordingly, we restore this issue also to the file of the Ld. CIT (A) for being adjudicated afresh after duly considering the submissions of the assessee in this regard and after giving proper opportunity to the assessee to present its case. Thus, this ground also stands allowed for statistical purposes.

10.3 Ground nos. 4 and 5 are general in nature and do not require any adjudication.

Order pronounced in the open court on 22nd October, 2018.