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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
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.
Grounds raised by the Revenue read as under :
“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.
ITA No.1177/PUN/2016 M/s. Rajmal Lakhichand & Sons
The appellant craves leave to add, alter, modify, delete amend any of the grounds with prior permission of the Ld. Pr.CIT, as per the circumstances of the case. 5. The appellant prays to file any of the additional evidence, with the permission of Ld. Pr.CIT, appropriate to the grounds taken in appeal.”
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.
Briefly stated relevant facts of the case include that assessee is
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.
ITA No.1177/PUN/2016 M/s. Rajmal Lakhichand & Sons
In the First Appellate proceedings, the CIT(A), relying on the order of
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.
Aggrieved with the order of CIT(A) adopting the GP rate of 2.92%
(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.
Ld. DR for the Revenue relied heavily on the order of AO. He
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.
ITA No.1177/PUN/2016 M/s. Rajmal Lakhichand & Sons
Before us, Ld. Counsel for the assessee drew our attention to the
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.
We heard both the sides and perused the orders of the Revenue. We
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 :
ITA No.1177/PUN/2016 M/s. Rajmal Lakhichand & Sons
“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.
Considering the settled position on this issue, we hold that the order
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.
In the result, the appeal of the Revenue is 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
ITA No.1177/PUN/2016 M/s. Rajmal Lakhichand & Sons
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.