ASSISTANT COMMISSIONER OF INCOME-TAX vs. M/S. RAJMAL LAKHICHAND & SONS,

आदेश / ORDER आदेश आदेश आदेश

PER D. KARUNAKARA RAO, AM :

This appeal is filed by the Revenue against the order of CIT(A)-2, Nashik, dated 03-03-2016 for the Assessment Year 2011-12.

“1. On facts and in law, the Ld. CIT(A) has erred in deleting the disallowance u/s.40A(2)(b) of Rs.1,38,55,059/-, relying upon the Hon’ble ITAT, Pune’s decision in the case of M/s. Rajmal Lakhichand for the A.Y. 2009-10 and in not giving any reasoning for adopting the Gross Profit Ratio of 2.92% as against the disclosed GP ratio of 2.75%. 2. On facts, the Ld.CIT(A) has erred in not appreciating the fact that the disallowance u/s.40A(2)(b) on the excess payment on purchases made from the sister concern was made after considering the Jalgaon (Local) rates of Gold and Silver. 3. On the facts and circumstances of the case and in law, the order of Ld.CIT(A)-II, Nashik be cancelled on the above issue and that of the A.O. be restored.

From the above, we find the grounds revolve around disallowance of

Rs.1,38,55,059/- made u/s.40A(2)(b) of the Act.

engaged in the business of trading in silver/gold articles, ornaments and

bullion. Assessee filed the return of income declaring Nil income and

claimed carry forward of unabsorbed depreciation of Rs.26,72,095/-.

During the year under consideration, the turnover of the assessee was

Rs.2,96,09,88,727/-. Gross profit and net profit for the year are shown at

2.75% and 1.57% respectively. Special Audit u/s.142(2A) of the I.T. Act

was carried out wherein it was found that assessee made substantial

purchases from the sister concerns at higher rate qua the purchase rate

with the third parties. On this issue, AO rejected the explanation of the

assessee and opined that assessee paid excessive and unreasonable price

for purchases from the sister concerns. The AO invoking the provisions of

section 40A(2)(a) of the Act and disallowed an amount of Rs.1,38,55,059/-.

Further, AO also made couple of other additions (1) Rs.7,47,975/- u/s.14A

of the Act on account of investment in shares of sister concern from the

interest bearing funds; and (2) Rs.32,960/- on account of excess paid to

Mr. Manish Jain on the Gold Deposit. At the end of the assessment

proceedings, the AO determined the total income of the assessee at

Rs.6,47,43,443/- after setting off brought forward losses against the Nil

income returned by the assessee.

his predecessor in the assessee’s own case for the A.Y. 2010-11, partly

allowed the ground relating to disallowance u/s.40A(2)(a) of the Act. We

proceed to extract the finding given by the CIT(A) here as under :

“5.12 Thus, following the decision of the Hon'ble ITAT in the case of Rajmal Lakhichand, the adoption of G.P. rate of 2.92% as against the G.P. rate of 2.75 % disclosed by the appellant will be fair and meet the ends of justice. Therefore, the A.O. is directed to work out the G.P. at 2.92% on the total sales of Rs. 2,96,09,88,727 as per the audited accounts. The revised G.P. comes to Rs. 8,64,60,871/- as against the G.P. shown by the appellant at Rs. 8,15,16,851/-. After reducing the G.P. shown by the appellant the balance G. P. is to be added to the total income of the appellant which comes to Rs. 49,44,020/-. This covers the grounds on the addition made by invoking provisions of section 40A(2)(a) i.e. purchase of gold bullion and gold ornaments from the sister concerns by paying higher price. The other income shown by the appellant will remain unchanged. The other confirmed additions will also not be affected.

4.1 Regarding the other additions u/s.14A r.w.r 8D of the Act amounting

to Rs.7,47,975/- and Rs.32,960/-, the CIT(A) deleted both the additions

and the Revenue is not in appeal against those deletions. Therefore, only

issue for adjudication before us relates to the said addition u/s.40A(2)(b) of

the Act qua the G.P. additions.

(Rs.49,44,020/-) on the total sales, which means grant of relief of

Rs.89,11,039/- (i.e. Rs.1,38,55,059 – Rs.49,44,020), the Revenue is in

appeal with the grounds extracted above.

submitted that the disallowance was made only after considering the

Jalgaon local rates of gold and silver and therefore, prayed for restoring the

order of AO.

order in the assessee’s own case in ITA Nos. 532, 663/PUN/2013 and ITA

No.607/PUN/2013, dated 16-01-2015 for the A.Y. 2009-10 and ITA

Nos.1000 and 1068/PUN/2015, dated 31-08-2018 for the A.Y. 2010-11.

Further, he submitted that, in the said orders of the Tribunal, the said

disallowances linked to the invoking the provisions of section 40A(2)(b) of

the Act was not appreciated. Ld. Counsel for the assessee submitted the

fact of appreciation by the ITAT the decision of confirming additions linked

to the G.P. In this regard, Ld. Counsel relied on the decision of Pune Bench

of the Tribunal in the case of DCIT Vs. R.L. Gold Pvt. Ltd. in ITA Nos.1695

and 1702/PUN/2014, dated 17-02-2017 for the A.Y. 2009-10. Therefore,

considering the settled position on this issue, Ld. Counsel prayed for

deleting the same.

have also perused the orders of the Tribunal in the assessee’s own case in

the A.Yrs. 2009-10 and 2010-11 (supra). We find, on identical facts, the

Tribunal in ITA Nos.1000 and 1068/PUN/2015 for the A.Y. 2010-11 had

decided the issue in favour of the assessee and against the Revenue by

holding as under :

“11. Now, we will take up the issues raised by the Department in its appeal. The first ground raised by the Department in appeal is against deleting the addition of Rs.4,27,70,660/- u/s. 40A(2)(b) of the Act on account of excess payments made to sister concerns on purchase of gold/silver ornaments. The Commissioner of Income Tax (Appeals) has deleted the addition by following the order of Tribunal in the case of assessee’s sister concern M/s. Rajmal Lakhichand in ITA No.607/PN/2013 (supra). Identical addition was made in the case of M/s. Rajmal Lakhichand in assessment year 2011-12. The matter travelled to the Tribunal in ITA No. 2463/PUN/2016. In the said case, the Commissioner of Income Tax (Appeals) had sought remand report from the Assessing Officer. The Assessing Officer in remand report admitted that the assessee has not made excess payments to the sister concerns for purchase of ornaments. The Tribunal after considering the decision rendered in the case of M/s. Rajmal Lakhichand in ITA No. 607/PN/2013 (supra) and the comments of Assessing Officer in remand report deleted the addition by observing as under :

“7. It is an admitted fact that there is no change in the facts and the nature of transactions are identical. We further observe that similar disallowances were made in the case of other sister concerns of the assessee viz. Rajmal Lakhichand Jewellers Pvt. Ltd. and R.L. Gold Pvt. Ltd. The matter travelled up to the Tribunal and the Tribunal in the cases of Rajmal Lakhichand Jewellers Pvt. Ltd. Vs. Jt. Commissioner of Income Tax (supra) and R.L. Gold Pvt. Ltd. Vs. Dy. Commissioner of Income Tax (supra) has deleted the disallowances u/s. 40A(2) of the Act. 8. We further observe that the Assessing Officer in the remand report has accepted that after applying local rates, the assessee has not made any excessive payments to the sister concerns for the purchase of ornaments. The local rates as published in the local Newspapers have been compared with the rates applied by the assessee and on verification it is found to be in order. Thus, the Assessing Officer accepted that no excessive payments were made by the assessee to its sister concerns. Under such circumstances disallowance u/s. 40A(2)(a) is uncalled for.

In view of the above facts, we do not find any infirmity in the order of Commissioner of Income Tax (Appeals). Accordingly, the same is upheld and the appeal of Revenue is dismissed being devoid of any merit.”

No material has been placed on record by the Revenue highlighting the distinguishing feature in the transactions with sister concerns in the present case. The nature of the transactions in all the group concerns are identical. Thus, in the light of the decision of Tribunal in the case of assessee’s group concerns no disallowance u/s. 40A(2)(a) of the Act is warranted. Accordingly, the ground No. 1 raised in the appeal by the Revenue is dismissed.

of CIT(A) in adopting GP rate at 2.92% on the total sales is fair and

reasonable. Therefore, the decision of the CIT(A) does not call for any

interference on this issue of addition u/s.40A(2)(b) of the Act. Accordingly,

the grounds raised by the Revenue are dismissed.

Order pronounced on this 18th day of October, 2018.

Sd/- Sd/- (िवकास अव�थी /VIKAS AWASTHY) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �ाियक सद�/JUDICIAL MEMBER लेखा सद�/ACCOUNTANT MEMBER

पुणे / Pune; िदनांक / Dated : 18th October, 2018. Satish

आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-2, Nashik. 3. आयकर आयु� / The Pr.CIT-2, Nashik 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “ए” / DR ‘A’, 5. ITAT, Pune; गाड� फाईल / Guard file. 6. आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune.