ITO 31(2)(3), MUMBAI vs. MUKESH M. PARMAR, MUMBAI

This appeal has been filed by the revenue against the order dated 18/03/2015 passed by the Ld. Commissioner of Income Tax (Appeals)-42, Mumbai, for the assessment year 2010-11, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).

On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the total addition of Rs. 57,10,843/- made on account of unexplained purchases and unexplained expenditure and directing the AO to tax 13.71% of bogus purchases ignoring the fact that the notices issued u/s 133(6) to the purchase parties were received back unserved.

On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the total addition of Rs. 57,10,843/- made on account of unexplained purchase and unexplained expenditure and directing the AO to tax 13.71% of bogus purchases ignoring the fact that the names of the 3 Assessment Year: 2010-11 purchase parties are in the list of the hawala parties issued by the Sales Tax Department. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the total addition of Rs. 57,10,843/- made on account of unexplained purchases and directing the AO to tax 13.71% of bogus purchases ignoring the fact that the onus lies on assessee to produce the concerned parties which assessee failed to do.”

The first issue pertains to addition of Rs. 10,00,000/- made on account of unexplained introduction of capital made by the assessee. The Ld. Departmental Representative (DR) submitted before us that the Ld. CIT (A) has wrongly deleted the addition ignoring the fact that the assessee did not produce any documentary evidence to substantiate its claim that the assessee had given advances during the FY 2008-09 to Sh. Dharmesh Chheda, who is a farmer by profession. During the year relevant to the assessment year under consideration Sh. Dharmesh returned the said loan in cash and the same was introduced in the capital. The Ld. DR further submitted that the assessee has failed to adduce any evidence to substantiate its claim. Further, the assessee has failed to establish that the assessee had sold gold bracelet studded with diamond to the Dinesh Shah during FY 1998-99 which was given as loan to Sh. Ramji S Satra, Kesarben S Satra and Dharmesh P Chheda, the said persons returned the loan amount in the AY 2008-09 which was further transferred to Mr. Dharmesh. Since, the assessee has failed to prove the alleged transactions, the Ld. CIT (A) ought to have confirmed the addition made by the AO.

On the other hand, the Ld. counsel for the assessee relying on the order passed by the Ld. CIT (A) submitted that the assessee has produced the confirmations of loan by the parties. Moreover, the assessee had produced the copy of income tax return and explained the source of the amount which establish that the jewellery was sold and the gains arising on the same were 4 Assessment Year: 2010-11 offered to tax and the tax were paid. The Ld. counsel further submitted that since the AO had made the addition wrongly rejecting the contention of the assessee and ignoring the evidence on record, the Ld. CIT (A) has rightly deleted the addition made by the AO. We have gone through the entire material on record including the orders passed by the authorities below. The Ld. CIT (A) has deleted the addition holding as under:- “3.3 I have carefully considered the facts and the submission. It is seen that the Appellant has submitted that he had sold his old jewellery and the monies received on the sale were advanced as loans. The parties to whom the loans were advanced belong to a very small village and accordingly, the cash was being handed over to them for development of their agricultural land. These advances were then recovered and again advanced to Mr. Dharmesh Chheda. The Appellant has filed all the loan confirmation of the respective parties. It may be noted that Smt. Kesarben Satra is an old lady and that she cannot sign and accordingly, her thumb print was impressed on the loan confirmation. The Appellant provided a copy of the income tax return as the source document which clearly evidences that the jewellery was sold and the gains arising on the same were offered to tax and necessary taxes were paid on the same. Also, the Appellant submitted that the sale proceeds were advanced as loans and which then subsequently received were credited to the capital account. Further, considering the old age of Smt. Kesarben Satra, it can be considered that she would not be able to sign and would affix the thumb impression only. It is a well settled position in law that once the taxes are paid on the income, no further taxes can be levied unless the said income gives rise to another income. In the instant case, the Appellant has duly disclosed the gains/los arising on the sale of jewellery and the proceeds thereof were utilized to advance the loans. As these loans were received back, the same were credited to the capital 5 Assessment Year: 2010-11 account. The appellant has proved the source of money and genuineness of the transaction. Accordingly, I hereby direct the AO to delete the addition made of Rs. 10,00,000/- towards the capital introduction. This ground of appeal is allowed.”

We notice that the Ld. CIT (A) has deleted the addition holding that the assessee has proved the source of money and genuineness of the addition. As pointed out by the Ld.CIT (A), the assessee has submitted the confirmation of the parties to whom the loans were advanced by the assessee. Moreover, the assessee has produced the return of income tax pertaining to the relevant assessment year to prove that the ornaments were sold and the gains arising from the sale were offered to tax. Since, the assessee has established the source of amount credited to the capital account, we do not find any infirmity in the order of the Ld. CIT (A). In our considered view, the findings of the Ld. CIT (A) are based on the evidence on record. We therefore uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue. Vide Ground No. 2 to 4, the revenue has challenged the action of the Ld. CIT

Per contra, the Ld. counsel for the assessee relying on the order passed by the Ld. CIT (A) submitted that even if the assessee has failed to prove the transaction of purchase, the AO has admitted the sales of the assessee. Once the sales is admitted the entire amount of purchased cannot be disallowed. Moreover, the assessee has submitted the necessary documents relating to purchases made including the copies of bills payment details etc. The Ld. CIT (A) has restricted the addition to 13.71% keeping in view the gross profit ratio of the appellant. Hence, there is no infirmity in the order of the Ld. CIT (A) to interfere with.

We have gone through the material on record including the orders passed by the authorities below. The Ld. CIT (A) has restricted the addition to 13.71% of the total amount of the purchases in question as against the 100% addition made by the AO. The operative part of the order reads as under:- “4.3 I have considered the above submissions of the appellant, material available on record and the impugned assessment order on this issue. The list of the suspicious dealers and hawala parties is as available with the sales tax department. The Appellant has unable to prove the genuineness of the transactions by producing the parties or getting the confirmations from these parties. No reply or confirmation has been obtained to the notices issued u/s 133(6) of the Income Tax Act, 1961. a. Further, considering that the sales of the Appellant are genuine and has not been under doubt, the entire amount of purchases cannot be disallowed. The Appellant has also submitted the necessary documents relating tp the purchases made including the bill copies, payment details, etc. The Gross profit margin of the Appellant is as under- Particulars AY AY AY 2008-09 2009-10 2010-11 Gross Profit 12.87% 15.45% 12.8% Ratio 7 Assessment Year: 2010-11 The gross profit margin for the current year is 12.8% and the average gross profit of the last three years is 13.71%. Accordingly, I do hereby direct to disallow only the sum of Rs. 7,82,957/- being the gross profit margin on the total purchases of Rs. 57,10,853/- being from the parties covered under hawala of Rs. 38,45,758/- and from M/s National Trading Co of Rs. 18,65,085/-. In view of these facts, the entire additions made by the AO of Rs. 51,10,853/- (Rs. 38,45,758 + 18,65,085) is not justified and accordingly I direct the AO to restrict the addition to the extent of gross profit margins at Rs. 7,82,957 made as unexplained expenditure. This ground of appeal