NIBR BULLION P. LTD,MUMBAI vs. DCIT CC 3, MUMBAI

Arora. Shri Ajay C. Arora, Shri Harmesh Arora and Shri Anil C. Arora are the directors of the assessee company.

Notice under section 143(2) of the Act and thereafter notice under section 142(1) along with questionnaire were issued/served upon the assessee. The assessee attended the proceedings from time to time and furnished the relevant documents, bank account and other details before the Ld. Assessing Officer. The Ld. Assessing Officer made addition of Rs.4,91,607/- by estimating the gross profit @ 1% of the purchases amounting to Rs.10,30,624/- for purchase of silver.

3.2. On appeal before the Ld. Commissioner of Income Tax (Appeal), the addition made by the Ld. Assessing Officer was upheld, which is under challenge before this Tribunal. to 5524/Mum/2011 5 NIBR Bullion Pvt. Ltd.

3.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we have already mentioned the facts in earlier paras and detailed facts along with the submissions of the assessee have been narrate in the impugned order. The gist of the submissions have been narrated in para-26 of the impugned order, wherein, it has been mentioned that the payments were made through banking channel, the copies of the purchase and sale bill clearly mentions the description of goods, rate and the total amount paid by the parties and on the date of purchase of silver from a particular party, identically similar purchases were made from other parties and the assessee furnished the comparative rate chart. It is observed that the rate from the concerned parties is lower than the purchases made from other vendors which fortifies the case of the assessee and it is a factual position that the transaction of purchase and sales are duly recorded in the books and returns have been filed on which applicable VAT of 1% has to 5524/Mum/2011 6 NIBR Bullion Pvt. Ltd. been paid to the VAT authorities. The transactions are duly recorded in the stock register and every purchase can be identified with the corresponding sales. It seems that the addition has been made on the basis of statement tendered by Shri S. K. Bajaj and that statement was retracted on 21/11/2008. The cross examination was never provided to the assessee and the whole addition is based upon estimation only, thus, considering the factual matrix and interest of Revenue, we deem it appropriate to adopt the gross profit @ 0.7 minus already GP declared by the assessee and against 1% estimated by the Ld. Assessing Officer. Thus, this ground of the assessee is partly allowed.

Our aforesaid conclusion/order will also cover identical grounds for the Assessment Year 2007-08 (ITA No.5523/Mum/2011) and Assessment Year 2008-09 (ITA No.5524/Mum/2011) also. Thus, this ground is partly allowed.

by the assessee pertains to sustaining the addition of Rs.5,15,312/- made under section 69C of the Act on account of alleged commission paid on purchase of silver bills. The crux of the argument is to 5524/Mum/2011

7. NIBR Bullion Pvt. Ltd. that the commission was estimated by the Ld. Assessing Officer @0.5%, which may be reduced to 0.2%. Our attention was invited to page -8 of the paper book (para 7.4) and also para-16 (page-8) of the impugned order.

However, the Ld. CIT-DR defended the estimation of payment of commission by the Ld. Assessing Officer.

4.1. We have considered the rival submissions and perused the material available on record. It is noted that during search proceedings, statement of Shri S. K. Bajaj was recorded on 25/09/2008, where he allegedly confess that he merely issued sale bills to the assessee without actual delivery of goods and he received cheque against the bills and he received Rs.50 to 60 as commission per Kg. of silver. He further tendered that he was filing sales tax return also. However, the statement was later on retracted and initially even he did not accept that he was giving accommodation entries. It is noted that silver was purchased from M/a Art Jewellery @ Rs.23,011/- per kg on 07/05/2008 and on the same day also purchased from M/s Krishna Trading Company @ Rs.23,000/- per kg.

Similarly, Silver was purchased from the bank of Nova to 5524/Mum/2011 8 NIBR Bullion Pvt. Ltd.

Scotia @ Rs.22,584/- per kg on 25/04/2008 and on 26/04/2008 @ Rs.22,222/- per kg and similarly on 26/04/2008 from M/s Krishna Trading Company @ Rs.22,638/- per kg. These purchases clearly indicate that the prices of bullion may vary on day to day basis and even within hours/minutes. The purchases are made through banking channel and the purchase and the sales are also recorded in the books, thus, the purchases are made at prevailing market rates. The commission has been estimated by the Ld. Assessing Officer @ 0.5%, which as

per the assessee is highly excessive, considering the totality of facts, we deem it appropriate that the estimation depends upon the state of mind and individual perception and there is always a scope of variation from individual to individual. Thus, considering the totality of facts it will meet the end of justice, if the commission is estimated at the rate of 0.3%, in place of 0.5% made by the Ld. Assessing Officer and 0.2% requested by the Ld. counsel for the assessee. The Ld. Assessing Officer is directed accordingly. This ground of the assessee is partly allowed.

Our aforesaid conclusion/order will also cover identical to 5524/Mum/2011 9 NIBR Bullion Pvt. Ltd. grounds for the Assessment Year 2007-08 (ITA No.5523/Mum/2011) and Assessment Year 2008-09 (ITA No.5524/Mum/2011) also. Thus, this ground is partly allowed in the respective appeals.

5. Grounds numbers 4 & 5 pertains to confirming the disallowance of Rs.1,92,114/-, being 1/6th of car and telephone expenses and further disallowance at the rate of 15% of entertainment expenses for personal use.

5.1. During hearing the ld. counsel for the assessee contended that it is a case of company wherein no disallowance can be made on the basis of personal use for which reliance was placed upon the decision of Hon'ble Gujarat High Court in Sayaji Iron & Engg. Co. vs .Commissioner of Income-tax (253 ITR 749) and Dinesh Mills Ltd. v. Commissioner of Income-tax [2002] 122 Taxman 384 (Gujarat). However, the Ld. CIT-DR defended the disallowance made by the Ld. Assessing Officer by contending that personal use cannot be ruled out.

5.2. We have considered the rival submissions and perused the material available on record. In view of the to 5524/Mum/2011 10 NIBR Bullion Pvt. Ltd. above, we are reproducing hereunder the relevant portion from the decision in the case of Sayaji Iron & Engg.

Company vs CIT ((supra)) for ready reference and analysis:-

“At the instance of the assessee, the following question has been referred to this Court for its opinion under the provisions of section 256(1) of the Income-tax Act, 1961 ('the Act'), by the Tribunal, Ahmedabad Bench 'C' : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in disallowing 1/6th of the total car expenses and depreciation claimed by the assessee because of the personal use of the car entrusted to the director by it ?"

2. The learned advocate Shri Manish Shah for Mr. J.P. Shah has appeared for the applicant-assessee whereas learned advocate Shri Bharat Naik has appeared for the respondent.

3. The assessee is a private limited company. For the purpose of its business, it owned several vehicles. For the assessment year 1979-80, the assessee had incurred expenditure to the tune of Rs. 96,653 on the vehicles maintained by it. The assessee had claimed the said amount as business expenditure, but the Assessing Officer came to the conclusion that all the vehicles of the assessee-company were not exclusively used for the business and as the directors were also using the vehicles of the company for their personal use, the Assessing Officer disallowed 1/6th of the expenditure incurred by the assessee on the vehicles.

4. Being aggrieved by the said order, the assessee filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) dismissed the appeal. The assessee thereupon filed second appeal before the Tribunal but the Tribunal also confirmed the disallowance and dismissed the appeal.

5. The learned advocate Shri Manish Shah, appearing for the assessee, has submitted that the disallowance to the extent of 1/6th of the expenditure is not justified for the reason that the assessee-company, by way of perquisite, had permitted its directors to use the vehicles. He has submitted that as part of salary and perquisites to the directors of the company, the directors were entitled to use the vehicles of the company and, therefore, it cannot be said that the directors were using the vehicles for their personal use and, therefore, disallowance of part of the expenditure incurred by the company for the maintenance of the vehicles was not justified. He has also submitted that without having recourse to the provisions of sections 40(c) and 40A of the Act, the Assessing Officer should not have disallowed the expenditure in question.

6. It has also been submitted by the learned advocate appearing for the assessee that except for the assessment year 1979-80, for all other to 5524/Mum/2011 11 NIBR Bullion Pvt. Ltd.

assessment years the expenditure incurred by the assessee-company towards the vehicles was allowed in toto. It has also been submitted that whenever any expenditure incurred by the assessee towards maintenance of vehicles was disallowed by the Assessing Officer, the disallowance was finally set aside. It has been submitted by the learned advocate that as the expenditure was incurred for the purpose of business by way of salary and perquisites given to the directors, the said expenditure ought not to have been disallowed.

7. On the other hand, the learned advocate Shri Bharat Naik, appearing for the revenue, has submitted that the directors of the assessee-company were using the vehicles for their personal use and as the directors were not using the vehicles exclusively for the purpose of the business of the company, the Tribunal was justified in disallowing 1/6th expenditure of the cars and depreciation claimed by the assessee. He has, therefore, submitted that the view expressed by the Tribunal regarding disallowance of 1/6th of the expenditure is justified.

to 5524/Mum/2011 12 NIBR Bullion Pvt. Ltd.

9.1 There is one more aspect of the matter which requires to be considered. The assessee which is a private limited company is a distinct assessable entity as per definition of 'person' under section 2(31) of the Act. Therefore, it cannot be stated that when the vehicles are used by the directors, 'even if they are personally used by the directors' the vehicles are personally used by the company, because a limited company by its very nature cannot have any 'personal use'. The limited company is an inanimate person and there cannot be anything personal about such an entity. The view that we are adopting is supported by the provisions of section 40(c) and section 40A(5) of the Act. 9.2 It is pertinent to note that except for the assessment year in question, for no other assessment year the expenditure in question has been disallowed. We see no reason for the Tribunal to take a different view for this assessment year, especially when it is an undisputed fact that in the past all such disallowances were deleted by the Tribunal and the said decision was not challenged. 9.3 The Tribunal has, in our view unfortunately, upheld the order of the Commissioner (Appeals) wherein the Tribunal's earlier orders in the assessee's own case have been distinguished by giving reasons which are, to say the least, unwarranted. The earlier orders of the Tribunal are distinguished by stating that even if there is no personal user of cars by the company, it would yet be user for 'non-business purpose'. As already stated hereinbefore once the expenditure in question is in terms as provided in sections 309 and 198 of the Companies Act, 1956, there cannot be any 'non business' purpose insofar as the assessee-company is concerned. 9.4 In relation to the aforesaid approach of the Commissioner (Appeals) and the Tribunal, we cannot do better than reiterate what the Madras High Court has stated in the case of CIT v. L.G. Ramamurthi [1977] 110 ITR 453 : "No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the Courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities. to 5524/Mum/2011 13 NIBR Bullion Pvt. Ltd.

If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a Single Judge takes a view different from the one taken by another judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly, if a Division Bench differs from the view taken by another Division Bench, it does not express disagreement and pronounces its different views, but has the matter posted before a Fuller Bench for considering the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more members for which there is provision in the Income-tax Act itself." (p. 453) We are in respectful agreement with the aforesaid view.

10. In the circumstances, in our opinion, the Tribunal was wrong while disallowing 1/6th of the total car expenditure and depreciation claimed by the assessee on account of the personal use of the cars which were used by the directors. We, therefore, answer the question in the negative, i.e., in favour of the assessee and against the revenue.

11. The reference is disposed of, accordingly, with no order as to costs. 5.3. Likewise, Hon'ble Gujarat High Court in the case of Dinesh Mills Ltd. vs CIT ((supra)), vide order dated 05/12/2001 held as under:-

“The Tribunal, Ahmedabad Bench 'A' has referred the following questions at the instance of the assessee as well as Commissioner under section 256(1) of the Income-tax Act, 1961 ('the Act') : At the instance of assessee : Assessment year : 1977-78 only in (R.A. No. 223) (Ahd.) of 1987. "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in disallowing the embezzlement loss of Rs. 7,80,000 ?" (For assessment years : 1979-80 and 1980-81) (In R.A. Nos. 224 and 225) (Ahd.) of 1987. "2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in disallowing the commission paid to the to 5524/Mum/2011 14 NIBR Bullion Pvt. Ltd.

Directors as perquisite in the assessment years 1979-80 and 1980-81, for the purposes of section 40(c) of the Act ?" At the instance of revenue : (Assessment years 1977-78, 1979-80 and 1980-81) (R.A. Nos. 241, 242 and 243) (Ahd.) of 1987 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law to hold that sum of Rs. 20,000 out of motor car expenses in each of the assessment years 1977-78, 1979-80 and 1980-81 was not disallowable as personal and non-business use of motor car in the hands of the assessee ?" For assessment year 1979-80 : (R.A. No. 242) (Ahd.) of 1987 : "2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to the depreciation as claimed and 1/7th portion of the depreciation of motor car was not disallowable ?"

the Commissioner (Appeals), the whole amount of embezzlement had to be considered as comprising of two parts, viz., the part which could reasonably be estimated to be recoverable and the other part, if any, which could not be reasonably expected or estimated to be recoverable. This position had to be ascertained at the end of the previous year, viz., as on 31-12-1976. Based on this line of reasoning, the Commissioner (Appeals) held that a sum of Rs. 7,20,000, the assessee could have reasonably hoped to recover while the balance of Rs. 6,20,000 was lost by the assessee for all time to come. Accordingly, he granted deduction to the tune of Rs. 6,20,000 in the assessment year 1977-78.

assessment year 1981-82, any deduction from the balance of loss was allowed, the petitioner-assessee would not raise any objection and surrender the same for the purpose of taxability.

8. In view of the fact that Mr. Shah has made a statement to the effect that no deduction has been allowed in any subsequent year, we hold that the assessee would be entitled to deduction of loss during the year under consideration as this is the year in which the loss on account of embezzlement was, in fact, discovered. There is no dispute as to the fact that the loss is incidental to business carried on by the assessee. The Tribunal while giving effect to this judgment shall ascertain the allowability or otherwise of the loss in light of the aforesaid statement made by Mr. Shah and then allow deduction of the balance amount of loss in the year under consideration.

9. Insofar as the question No. 2 at the instance of the assessee, pertaining to assessment years 1979-80 and 1980-81 is concerned, Mr. Shah has not pressed the said question and, hence, it is not necessary to answer the same.

they were personally used by the directors', the vehicles were personally used by the company, because a limited company by its very nature cannot have any 'personal use'.

The limited company is an inanimate person and there cannot be anything personal about such an entity. The view was supported by the provision of section 40(c) and section 40A(5) of the Act. Once the expenditure in question was in terms as provided in sections 309 and 198 of the Companies Act, there could not be any 'non-business' purpose insofar as the assessee-company was concerned.

While coming to the aforesaid conclusion, Hon'ble High Court followed the decision from Hon'ble Madras High Court in CIT vs L.G. Ramamurthi (1977) 110 ITR 543 (Mad.). No contrary decisions or facts were brought to our notice by the Revenue. Thus, respectfully following the aforesaid decision from Hon'ble High Court, these grounds of the assessee are allowed. Our aforesaid conclusion/order will also cover identical grounds for the Assessment Year 2007-08 (ITA No.5523/Mum/2011) and Assessment Year 2008-09 (ITA No.5524/Mum/2011) also. Thus, these grounds are allowed in the respective appeals. to 5524/Mum/2011 18 NIBR Bullion Pvt. Ltd.

6. The last ground pertains to levy of interest under section 234B of the Act was not argued by the Ld. counsel for the assessee, however it will be consequential in nature.

Finally, the appeals of the assessee are partly allowed.

This order was pronounced in the open court in the presence of the ld. representative from both sides at the conclusion of the hearing on 17/07/2018.