SAHAI & SONS (I) LTD.,CHENNAI vs. DCIT, CHENNAI

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:-

Appeal of the assessee Shri. Nagesh Prasad Agarwal is

directed against an order dated 28.03.2017 of ld. Commissioner of

Income Tax (Appeals)-19, Chennai for assessment years 2006-07 to

2012-2013. Revenue has also filed appeals for all these years against

the very same order. Apart from these, there are appeals filed by

ITA Nos. 1447, 1448, 1988, :- 3 -: 1989, 1449 to 1455, 1485 to 1491/17.

another assessee named M/s. Shiv Sahai & Sons (India) Ltd, which is

against an order dated 02.05.2017 of very same ld. Commissioner of

Income Tax (Appeals) for assessment years 2011-2012 and 2012-

2013. Revenue has filed appeals for these years against this order

as well. Since all the appeals and cross appeals are based on same

set of facts, these appeals are disposed off through a consolidated

order.

Before adverting to the grounds taken by the assessee and 2.

revenue in these appeals, it will be appropriate to encapsulate the

related facts. Assessee, Shri. Naresh Prasad Agarwal was the

proprietor of a business concern called M/s. Shiv Sahai & Sons,

trading in gold and silver bullion. Prior to this, he was trading in

jewellery. However, in all the previous years relevant to impugned

assessment years, assessee was doing only bullion business. In

September, 2010, the business hitherto before run as proprietorship

was taken over by a limited company called M/s. Shiv Sahai & Sons

(India) Ltd. Assessee and his son Shri. Ganesh Agarwal were directors

of the latter company. Main location of the business of the assessee

was in Chennai. It had branches in Salem, Coimbatore, Trichy,

Madurai, Jaipur, Ahmedabad and Indore. Key personnel conducting the

business were assessee and his son Shri. Ganesh Agarwal. Assessee

ITA Nos. 1447, 1448, 1988, :- 4 -: 1989, 1449 to 1455, 1485 to 1491/17.

Shri. Naresh Prasad Agarwal had originally filed his returns for

impugned assessment years, declaring following income.

Assessment year Amount

2006-07 27,34,700

2007-08 60,20,920

2008-09 2,65,78,640

2009-10 5,10,37,770

2010-11 5,73,77,152

2011-12 1,95,28,380

2012-13 (4,53,089)

Assessee M/s. Shiv Sahai & Sons (India) Ltd, had filed its return for the

impugned assessment years declaring following income.

Assessment year Amount

2011-12 1,25,51,610/-

2012-13 3,37,17,950/-

There was a search under section 132 of the Income Tax 3.

Act, 1961 (in short the ‘’Act’’) in the premises of the assessees on

06.01.2012 and what has been termed as a follow-up search on

ITA Nos. 1447, 1448, 1988, :- 5 -: 1989, 1449 to 1455, 1485 to 1491/17.

02.03.2012. Pursuant to the search, notices u/s.153A of the Act,

were issued. In the returns filed pursuant to such notice, income

returned by the assessee Shri. Naresh Prasad Agarwal were as under:-

Assessment year Amount

2006-07 27,34,698

2007-08 60,20,917

2008-09 2,65,78,640

2009-10 5,10,37,774

2010-11 5,73,77,154

2011-12 4,75,43,369

Income shown by assessee M/s. Shiv Sahai & Sons (India) Ltd in the

returns filed pursuant to such notice were as under:-

Assessment year Amount

2011-12 (2,58,88,090)

Assessment year 2012-2013 being the assessment year relevant to the

previous year in which search was conducted, assessment proceedings

were under Section 143(3) of the Act. For all the other years,

ITA Nos. 1447, 1448, 1988, :- 6 -: 1989, 1449 to 1455, 1485 to 1491/17.

proceedings for assessment which are under challenge before us, were

u/s.153A r.w.s. 143(3) of the Act.

accounts of the assessee and two diaries numbered as ANN/SSK/SSS/

B & D/S-46 and ANN/VJ/ Diary/GA/S-1 were seized. Statements were

recorded from Shri. Naresh Prasad Agarwal u/s.132(4) of the Act.

During the course of pursuant assessment proceedings, assessees

produced books of accounts, in a pen drive. These books were

maintained in tally software. Assessee also furnished a print out of

cashbook. When assessee was required to produce purchase invoices

and sales bills, it produced such bills only for the previous relevant to

assessment year 2011-2012, that too only for Chennai, Salem and

Coimbatore branches. Ld. Assessing Officer on verification of the sales

bills issued by the assessee, found that bills raised for cash sales were

at rates below the rates fixed by Madras Diamond and Jewellery

Merchants Association (hereinafter ‘’Association’’). Quantum of sale of

gold and silver bullion, done by the assessee during the relevant

previous years were prepared by the ld. Assessing Officer. Such data

as compiled by the ld. Assessing Officer read as under:-

ITA Nos. 1447, 1448, 1988, :- 7 -: 1989, 1449 to 1455, 1485 to 1491/17.

Amount in Crores

SHIV SAHAI & SONS Shiv Sahai & Sons India Ltd Description 06-07 07-08 08-09 09-10 10-11 11-12 11-12 12-13

GOLD

Sales 567 2229 3159 5079 9371 4263 11464 16860

GP Amount 1.63 1.87 0.97 (6.38) 11.5 (7.12) 14.79

GP rate 0.29 0.08 0.09 (0.13) 0.12 (0.17) 0.13

SILVER

Sales 129 191 466 635 750 623 929 1702

GP Amount (0.89) 1.16 (0.63) 8.03 0.82 5.73 (19.37)

GP rate (0.69) 0.61 (0.14) 1.26 0.11 0.92 (2.08)

Bulk of the purchases made by the assessee were from 5.

M/s.Metals and Minerals Trading Corporation (hereinafter ‘’MMTC’’) and

M/s.State Trading Corporation (hereinafter ‘’STC’’). For effecting

purchases, assessee deposited the price of the gold and silver bullion

required with MMTC in advance. MMTC placed such sum in fixed

deposits with banks. On the security of such fixed deposits, MMTC

issued letters of credit for importing gold. Payments due on the

ITA Nos. 1447, 1448, 1988, :- 8 -: 1989, 1449 to 1455, 1485 to 1491/17.

imports were made through these letters of credit. Later these credits

were squared up by MMTC using the proceeds of the fixed deposits.

From the interest earned on such fixed deposits, M/s. MMTC met the

expenses relating to the import and shared the surplus with assessee

and its other customers. Credits received by the assessee, as share of

such surplus was known as buyers credit.

As already mentioned at para 4 above, Ld. Assessing Officer 6.

found that assessee was selling gold and silver bullion in cash, at rates

below the market rate fixed by the Association. Ld. Assessing Officer

analyzed the sales effected by the assessee and classified it into

three categories. These were cash sales, sales to jewelers and sales

to others. As per the ld. Assessing Officer, though assessee mentioned

only two categories of sales i.e. cash and credit sales, in its books,

what was termed by the assessee as credit sales were sales to

jewelers and sales to others. Ld. Assessing Officer required the

assessee to explain why it sold bullion in cash, at rates lower that its

sales to jewelers. As per the ld. Assessing Officer rates at which

assessee sold in cash was lower than the rates at which sales were

made to jewelers and there was no good reason for such variance.

Ld. Assessing Officer also pointed out to the assessee that diaries

seized at the time of search mentioned bullion bookings at

ITA Nos. 1447, 1448, 1988, :- 9 -: 1989, 1449 to 1455, 1485 to 1491/17.

rates higher than the rate at which cash sales were made. Ld.

Assessing Officer further brought to assessee’s notice rates furnished

by another bullion dealer named M/s. Riddhi Siddhi Bullion, based in

Mumbai, which were more than the rates at which assessee had sold

bullion in cash. Reply of assessee was that what were mentioned in

the diary were the rates for 0.999 purity gold whereas what were

sold by it was 0.995 purity gold. Further, as per the assessee it could

quote a lower rate for cash sales, considering the buyers credit

received from MMTC. Assessee also stated that it was following

London Bullion Market (hereinafter ‘’LMB’’) for fixing rates and not

following association rates. As per the assessee the rates were moving

every minute and was never static. According to the assessee, it made

its own calculation and adjustment for import duties and other

expenses while fixing the rates.

However, ld. Assessing Officer did not buy any of the above 7.

arguments of assessee. He rejected assessee’s contention that lower

rates for cash sales, were due to buyer credits or due to rate

difference on account of disparity in purity. Ld. Assessing Officer also

did not accept the contention of the assessee that it was guided by

LMB rates. According to the ld. Assessing Officer, the categories of

billings done by the assessee were as under:-

ITA Nos. 1447, 1448, 1988, :- 10 -: 1989, 1449 to 1455, 1485 to 1491/17.

‘’(a) Cash bills sales made by collecting cash which is entered in the cash book. Names of customers are not recorded in these bills. (b) Bills in the names of Jewellers sales bills issued in the name of Jewellers by taking money otherwise than by cash. e.g. RTGS, bank transfer, etc. (c) Others — sales bills containing only the names and stations of purchasers, or blank Bills or with the word credit/cheque sales, etc, For which cash has not come into the cash book directly. e.g direct deposit of cash in assessee’s bank account, etc. –

Further, as per the ld. Assessing Officer, assessee himself had stated

that payments were made by its customers before delivery and there

were no credit sales in its line of business. Thus, according to ld.

Assessing Officer, assessee itself never made any distinction between

sale for cash and sales to jewelers. As per the ld. Assessing Officer,

sales to jewelers though classified by the assessee as credit sales,

were not actually credit sales, but sales against receipts through bank.

Relying on the statement of one Shri. Vijayababu who was working as

a sales clerk of the assessee, ld. Assessing Officer came to a

conclusion that the business of the assessee was personally controlled

by the assessee and his son and they had purposefully kept their

employees oblivious of the rates at which gold was sold. Further, as

per the Ld. Assessing Officer, Sales Tax authorities had issued a show

cause notice on 24.02.2012, pointing out the rate disparity between

sales effected in cash and sales made to jewelers. According to the

ITA Nos. 1447, 1448, 1988, :- 11 -: 1989, 1449 to 1455, 1485 to 1491/17.

ld. Assessing Officer, apart from the above anomalies, assessee also

paid commission to few brokers, which indicated higher profit margin

than what was admitted in the books of accounts. Further, as per

the ld. Assessing Officer, assessee had knowingly desisted from

producing the diary for years prior to assessment year 2011-2012.

Conclusions of the ld. Assessing Officer with regard to the sales

effected by the assessee, as appearing at para 7.18 of his order is

reproduced hereunder:-

‘’(i) Assessee has not replied to the ADIT (lnv.)’s letter dated 28-5-2012 furnishing instances of billing below Association rate (ii) Assessee has misled the Dept. regarding Sales Tax show cause notice (iii) Assessee has misled the Dept. regarding high —low selling rates (iv) Assessee has not produced the diary for 5 years including for 2012 (v) Assessee has furnished limited billing data, in non- analysable format, during the last fortnight of March (vi) Assessee has manipulated the allocation of expenses in A.Y. 2009-10 to prevent probe into gross loss in gold (vii) Assessee has manipulated in preparing the bill-diary matching chart for July 2011 (viii) Assessee is manipulating its sales bills to circumvent the provisions of Sec.139A (ix) Sales Tax authorities have found that his method of raising the tax invoice is defeating the object and reasons of introduction of Tamil Nadu Value Added Tax Act

ITA Nos. 1447, 1448, 1988, :- 12 -: 1989, 1449 to 1455, 1485 to 1491/17.

(x) Sales Thx authorities have found that his GP is less than normal GP in bullion trade (xi) Sales Tax authorities have found that his selling rates are below purchase rates (xii) The Accounts Manager in Salem has admitted that no bills are issued for cash sales (xiii) For sales in branches, bills are prepared in Chennai (xiv) Customers in Salam have to call up Mr. Ganesh Agarwal if they want bills (xv) Customers in Chennai have to wait till the billing clerk comes at 11-30 am, to get the bill for the purchases they have made earlier through Mr. Ganesh Agarwal who comes at 9.00 am. (xvi) The rates at which commission is paid for sales are much more than his own profit rates (xvii) Many cash bills meant for customers issued months ago were found in office and seized (xviii) It was admitted that the uncollected customers bills will be filed along with the office copy (xix) Assessee has not replied to the instance of raising a bill for Rs.990099 dated 16-12- 2008 when the Association rate was Rs. 1193000. (xx) Assessee has not replied to the four bills raised with Zero values listed in the statement u/s 131 on 12-3-2014. (xxi) Since only businessmen make the cash bill purchases from the assessee they do not require the bills to claim them as purchases since it would then be entirely disallowed u/s 40A(3). (xxii) There is no difference while fixing the rates for cash sales and credit sales (sales to jewellers and others) (xxiii) There is no system in the office by which the billing clerk can know what is the cash collected for each and every cash bill prepared by him.

ITA Nos. 1447, 1448, 1988, :- 13 -: 1989, 1449 to 1455, 1485 to 1491/17.

(xxiv) Billing clerk prepares the bill as and when required by Shri. Ganesh Agarwal and at the rates informed by Shri. Ganesh Agarwal. (xxv) When there is no difference between the selling rates for cash bills and bills to jewelers there is no reason for the huge difference between the average billing rate for jewelers and cash bills’’.

Ld. Assessing Officer thereafter concluded that four options 8.

were available to him and listed them as under:

(i) Reject the books and estimate gross profit. (ii) Make a gross profit addition. (iii) Disallow the loss claimed for the years where such claim was made. (iv) Make an addition for suppression of sales on account of lower billing on cash sales for assessment years 2006-07 to assessment year 2009-2010.

Out of the above, ld. Assessing Officer chose to follow the 9.

last mentioned method, for assessment years 2006-07 to assessment

year 2009-10. For assessment year 2011-12, in the case of M/s.Shiv

Sahai & Sons (India) Ltd, ld. Assessing Officer chose the third

method. There were no addition for suppression of sales in the hands

of the assessee Shri. Naresh Prasad Agarwal for assessment year

2010-11, 2011-12 and 2012-13 or in hands of the assessee M/s.Shiv

Sahai & Sons (India) Ltd for assessment year 2012-13. Computation

ITA Nos. 1447, 1448, 1988, :- 14 -: 1989, 1449 to 1455, 1485 to 1491/17.

of sales suppression as made by the ld. Assessing Officer read as

under:-

Asst. Year Average Average Average Cash bill Others bills rate of bills rate of cash rate of amount is amount is in the bills others lower by lower by names of jewelers (per kg)

2006-07 646020 643795 644877 2225 1143

2007-08 920719 915575 917248 5144 3471

2008-09 1028939 946440 930829 82499 98110

2009-10 1227703 1201087 1192193 26616 35510

COMPUTATION OF SUPPRESSION IN SALES

A.Y Cash Bills Others Total difference Diff. Qty Difference Diff. Qty Difference from amount from amount amount jewell jewellery ery rate rate 06-07 2225 4782 10639950 1143 39 44577 10684527

07-08 5144 20190 103857360 3471 124 430404 104287764

08-09 82499 23670 1952751330 98110 495 48564450 2001315780

09-10 26616 28618 761696688 35510 395 14026450 775723138

2892011209

ITA Nos. 1447, 1448, 1988, :- 15 -: 1989, 1449 to 1455, 1485 to 1491/17.

Ld. Assessing Officer thereafter made a close analysis of 10.

the books of accounts of the assessee and found that it was receiving

cash advance from its customers on booking bullion and crediting

such money to an account called bullion margin account. As per the

ld. Assessing Officer, huge sums of money were received by the

assessee from its customers, as advance which were deposited by it in

its bank account and thereafter transferred to accounts of MMTC/STC

for purchasing bullion. When bullion was received and delivered to the

customers the bullion margin account was debited and sales credited.

Such sales were done either on the same day as receipt of cash or on

immediately subsequent days when bullion was received from MMTC.

As per the ld. Assessing Officer, assessee, though it recorded the

cash receipts from its customers, did not reveal the identity of the

customer. Further, as per the ld. Assessing Officer, identity of the

buyer was not available in the cash bills as well. According to ld.

Assessing Officer, whatever remained as balance in the bullion margin

account at each year-end was fully liquidated by crediting the sales

account. Anomalies noted by the ld. Assessing Officer as it appear

at para 8.5 of his order are reproduced hereunder:-

‘’8.5 When this account was further analyzed certain interesting facts came to light: (i) cash brought in on a single day went upto 21.5 crores (on 25-1-2011). But the narration is simply “Bullion Margin account.

ITA Nos. 1447, 1448, 1988, :- 16 -: 1989, 1449 to 1455, 1485 to 1491/17.

(ii) the cash brought in was not immediately or in the subsequent days adjusted. It remained in the account for very long periods. e.g from 24-1-2011 to 31-1-2011 a sum of Rs.69.12 crores cash was brought in. Out of this, 68.72 crores was adjusted from 1-2-2011 to 7-3-2011. But before 7-3-2011 further 39.99 crores cash was brought in from 4-2-2011 to 5-3- 201 1 and part of it could have also been adjusted within the figure of 68.72 crores

(iii) Generally on 31st March the, moneys remaining were adjusted. But on 31-3- 2012 (in the hands of company) huge sum of Rs.17,38,74,036, which was outstanding, was withdrawn. But that day’s sales was only Rs,14,87,77,889.

(iv) Some days even negative balance was seen in the account, E.g on 11-11-2010 it shows a negative balance of 54.93 lakhs and it goes up to 7.42 crore negative balance on 25-31-2010’’.

Ld. Assessing Officer put the assessee on notice as to why 11.

credits in the bullion margin account for impugned assessment years,

should not be considered for addition u/s.68 of the Act. Summary of

the peak credits in such bullion margin account prepared by the ld.

Assessing Officer read as under:-

Asst. Year Total credits Highest increase over Date of highest in the year Balance last year balance

2006-07 643867143 77969000 NA 18.06.2005

2007-08 2320305797 218876558 140907558 01.01.2007 2008-09 2497679137 310424595 91548037 21.03.2008 2009-10 5062727648 362670511 52245916 23.08.2008 2010-11 6377436056 696890948 334220437 28.11.2009 2011-12 3589304039 4262789094 Nil 31.08.2010

ITA Nos. 1447, 1448, 1988, :- 17 -: 1989, 1449 to 1455, 1485 to 1491/17.

Ld. Assessing Officer proposed to make addition for the incremental

increase in peak bullion margin account, on an year to year basis, and

such amounts proposed for addition were as under:-

Asst. Year Addition u/s.68

2006-07 77969000

2007-08 140907558

2008-09 91548038

2009-10 52245916

2010-11 334220437

Total 696890948

advances were always converted to cash sales and what was credited

in the such account was part consideration for sale and not a loan or

advance. Assessee also stated that it was not possible to maintain

records like name, address and PA number for each of its customers

since there were no credit sales. As per the assessee it was not

obliged to do so under law and was also not practicable. According to

the assessee, money received from its clients, credited to bullion

ITA Nos. 1447, 1448, 1988, :- 18 -: 1989, 1449 to 1455, 1485 to 1491/17.

margin money account had to be considered only as sales and not as

credit. As per the assessee, such amounts were fully reflected in

sales, and there was no occasion to make an addition u/s.68 of the

Act.

However, ld. Assessing Officer was not impressed by the 13.

above arguments. Ld. Assessing Officer refused to accept the

explanation given by the assessee and held that amounts listed at

table in para 11 above were unexplained cash credits u/s.68 of the

Act. Specific reasons mentioned by the ld. Assessing Officer appear at

para 8.9 of his order and these are reproduced hereunder:-

‘’8.9 The reply was considered. The reply is vague and does not answer any of the questions asked in the statement recorded u/s 131 from Shri. Naresh Prasad Agarwal or in the pre assessment notice which are as under:

(i) Huge amounts of cash were brought in on a single day. Single day’s inwards went upto 21.5 crores (on 25-1 -2011). But the narration is simply ‘Bullion Margin account It has been admitted that no other records were maintained for this account. The assessee has not answered as to how without any customer-wise break-up for this amount he will adjust the amount when the customer comes again after 2 or 3 days and pays the balance.

(ii) The cash brought in was not immediately or in the subsequent days adjusted. It remained.in the account for very long periods. e.g from 24-1-2011

ITA Nos. 1447, 1448, 1988, :- 19 -: 1989, 1449 to 1455, 1485 to 1491/17.

to 31-1-2011 a sum of Rs.69.12 crores cash brought in. Out of this, 68.72 crores was adjusted from 1-2-2011 to 7-3-2011. ‘F3Lbef.g(e 7-3-2011 further 39.9o7s cash was brought in from 4-2-2011 to 5-3-2011 and part of t could have also been adjusted within the figure of 68.72 crores. If It is Customers’ money how they will wait for so long without collecting the gold bars when its price also fluctuates heavily. The assessee has not explained as to how he will be able to adjust the money paid by each and every customer if he comes after one month or more than one month without maintain any record.

(iii) Generally on 31 March the moneys remaining were adjusted. But on 31-3-2012 (in the hands of company) huge sum of Rs,17,38,74,036, which was outstanding, was withdrawn. But that day’s sales was only Rs.14,87,77,889. The assessee did not explain as to how he allowed all his customers to get refund of the money advanced by them for purchase of gold on a single day. In fact in his statement he replied that the refunds are very rare.

(iv) The assessee has not explained as to how there can be negative balance in the customers’ advance account. E.g on 11-11-2010 it shows a negative balance of 54.93 lakhs and it goes up to 7.42 crore negative balance on 25-11-2010’’.

peak credits with the suppression in sales worked out by him, for

assessment years 2006-07 to 2009-2010.

Ld. Assessing Officer also harboured a doubt that assessee 15.

was not fully accounting the credit notes issued by MMTC and was

ITA Nos. 1447, 1448, 1988, :- 20 -: 1989, 1449 to 1455, 1485 to 1491/17.

charging expenses in its account in the guise of debit notes issued by

M/s. MMTC. Assessee was given a copy of its account in the books of

MMTC for previous years relevant to assessment years 2007-08 to

2012-2013 and was required to reconcile it with its own books.

Assessee thereupon through its letter dated 18.03.2014 submitted to

the ld. Assessing Officer that a number of debit/credit notes claimed to

have been issued by MMTC during the previous year relevant to

assessment years 2006-07, 2007-08 and 2008-09 were never received

by it. Further, as per the assessee, such notes issued by MMTC were

arbitrary in nature and was so issued only with an ulterior intention of

showing huge dues from the assessee to MMTC. Assessee also

submitted that there were large number of entries which were

reversed by MMTC in their books, without any narration. As per the

assessee, if what was stated by the MMTC was true, huge amounts

would have been due to it from MMTC, whereas MMTC had raised a

demand of �12 Crores as due from assessee before the Joint Director

of Income Tax, �89 Crores as due from assessee before CBI and �170

Crores as due from the assessee before Hon’ble Jurisdictional High

Court.

However, ld. Assessing Officer was of the opinion that he 16.

could not be saddled with an onus to reconcile the difference between

ITA Nos. 1447, 1448, 1988, :- 21 -: 1989, 1449 to 1455, 1485 to 1491/17.

books of the assessee and that of M/s. MMTC. He rejected all the

objections of the assessee, and made additions for credit notes not

accounted by the assessees. Such additions in the case of the

assessee Shri. Naresh Prasad Agarwal were as under:-

Assessment Year Amount

2007-08 16,64,45,906

2008-09 49,78,94,044

2009-10 34,92,26,800

2010-11 72,74,17,770

In the hands of the assessee M/s. Shiv Sahai & Sons (India) Ltd, the

addition came to �19,64,38,107/- for assessment year 2011-12 and

�35,79,23,486/- for assessment year 2012-2013. Latter amount was

termed by the ld. Assessing Officer as interest due from M/s. MMTC to

the assessee, not accounted by it.

rate fluctuation of �7,53,46,987/- for assessment year 2008-09 which

was an expenditure claimed by the assessee, allegedly based on oral

instruction from M/s. MMTC. There was also an addition for

ITA Nos. 1447, 1448, 1988, :- 22 -: 1989, 1449 to 1455, 1485 to 1491/17.

�4,93,69,063/- for suppression of 30 kg of gold in closing stock for

assessment year 2010-2011, claimed to have been not supplied by

M/s. MMTC, against a particular bill. There were also disallowance for

diversion of interest bearing funds towards interest free loans,

disallowance u/s.40(a)(ia) of the Act, disallowance for want of

evidence for 80G donations, disallowance for personal usage of cars,

disallowance u/s.40A(3) of the Act, addition for want of confirmation

from loan creditors, disallowance for unpaid liabilities u/s.43B of the

Act, disallowance for interest on TDS/Service Tax, disallowance of

salary, addition for unexplained investments in properties for various

years and addition for low drawings.

In the hands of the assessee M/s. Shiv Sahai & Sons (India) 18.

Ltd, apart from the disallowances/ additions of the nature mentioned

in the preceding para there were additions for sundry debtors

reflecting negative balance for want of confirmation, disallowance for

VAT payment and an addition for under valuation of closing stock for

assessment year 2012-2013. Summary of the additions /disallowance

made by the ld. Assessing Officer are reproduced in the table

hereunder:-

38,79,23,486 ASSESSEE- M/s. SHIV SAHAI 3,37,17,950 ITA 1448/17 5,88,000 & 1989/17 143(3) A.Y.12-13 & SONS (India) Ltd ---- ---- NA ---- ---- ---- 1989, 1449 to 1455, 1485 to 1491/17. - 23 - ITA Nos. 1447, 1448, 1988, 19,35,05,195 77,07,76,868 19,64,38,107 1,25,51,610 4,31,50,000 ITA 1447/17 r.w.143(3) 2,58,88,090 5,88,000 4,11,563 & 1988/17 A.Y.11-12. 10,000 153A (-) ITA 1455/17 & (4,53,089) 29,48,676 143(3) ---- ---- ---- A.Y.12-13 NA 1491 ---- ---- ---- 4,75,43,369 1,95,28,380 5,69,97,153 r.w.143(3) ITA 1454 & A.Y.11-12 153A 1490/17 ---- ---- ---- ---- ---- ---- ASSESSEE :NARESH PRASAD AGARWAL 33,42,20,437 72,74,17,770 5,73,77,154 5,73,77,152 r.w.143(3) 59,54,533 ITA 1453 & A.Y.10-11 153A 1489/17 ---- ---- ---- ---- 34,92,26,800 5,10,37,774 5,10,37,770 5,22,45,916 r.w.143(3) 59,71,343 &1488 /17 44,51,445 A.Y.09-10 ITA 1452 153A ---- ---- ---- 49,78,94,044 2,65,78,640 2,65,78,640 9,15,48,037 r.w.143(3) 16,49,846 &1487/17 A.Y.08-09 153A ITA 1451 ---- ---- ---- ---- 14,09,07,558 16,64,45,906 r.w.143(3) 60,20,917 60,20,920 38,90,061 A.Y. 07-08 &1486/17 153A ITA 1450 ---- ---- 5,001 ---- 7,79,69,000 r.w.143(3) 27,34,698 27,34,700 3,72,452 2,51,000 ITA 1449 & A.Y. 06-07 153A ---- ---- ---- ---- 1485/17 4. Pro-rata Interest on Income as per regular 5. Sundry debtors with bullion margin money Income returned in 3. MMTC credit notes without confirmation return pursuant to from preceding year Assessment u/s. diversion of interest negative balance – account – increase Additions:- assessment years 2. Peak credit in not accounted by Cross appeals & 1.Claim of Loss return 7. Section 43B 153A bearing funds 6. Donations disallowance disallowed assessee

10,91,095 30,00,000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 1989, 1449 to 1455, 1485 to 1491/17. ITA Nos. 1447, 1448, 1988, 19,00,874 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 4,30,000 7,240 ----- ----- ----- ----- ----- ----- ----- ---- ---- ---- 1,36,558 4,09,277 99,884 23,67,150 65,000 24,436 ----- ----- ---- ----- ----- ---- 4,93,69,063 3,03,35,736 11,22,638 1,60,657 41,393 18,393 ----- ----- ----- ----- ----- -----

7,17,55,285 77,57,23,138 :- 24 -: 17,68,301 3,30,000 1,89,007 6,14,540 ----- ----- ----- ---- ---- ---- 200,13,15,780 5,60,42,731 7,53,46,987 25,00,000 7,00,000 2,22,362 1,47,186 ----- ----- ----- ---- ---- 10,42,87,764 1,64,05,327 6,37,593 5,80,000 1,45,966 2,37,420 ----- ----- ----- ----- ---- ---- 1,06,84,527 5,38,516 6,80,000 1,71,724 57,850 ----- ----- ----- ----- ----- ---- ---- 11. Suppression of sale investment in property 15.STC reconciliation / disallowance for cash 19 Salary/ PF/ Bonus interest Commission valuation difference 18.Interest on TDS, fluctuation debit on 13. Personal use of 9. Legal expense, 10. Loans without vehicle expenses, 16.Exchange rate VAT, Service Tax 50% disallowed 8. Closing stock 14. Sec. 40A(3) credit notes not oral instruction 17.Unexplained 12. Insufficient confirmation u/s.40(a)(ia) accounted. payments drawings cars

- 25 - ITA Nos. 1447, 1448, 1988, 1989, 1449 to 1455, 1485 to 1491/17.

Aggrieved, both the assessees moved in appeal before ld. 19.

Commissioner of Income Tax (Appeals). Ld. CIT(A) dealt with the

appeal of the assessee Shri. Naresh Prasad Agarwal on the following

lines:-

On the issue of addition for suppression of sales and 20.

rejection of loss, ld. Commissioner of Income Tax (Appeals) held in

favour of the assessee. Reason why ld. Commissioner of Income Tax

(Appeals) held in favour of the assessee as it appears in paragraphs 14

to 17 of his order is reproduced hereunder:-

‘’14. The issue is considered and analyzed carefully. The assessee has submitted the books of maintained by him for all the years. The said books have in fact been seized by the department during the course of search conducted. These are the same books submitted by the assessee year on year for audit. The book results have been accepted by the department for all these years after due verification for some of the years. The assessee has submitted his books for statutory audit and has submitted the audit reports under section 44AB of IT Act. If the AO had any definite reasons for doubting the audited books he could have subjected the books for special audit. This has not been done. Instead, the AO has picked some holes in the books and has arbitrarily accepted the book results for some years rejecting the book results for other years. The AO has accepted profits and rejected losses. This selective pick and choose approach is not proper. Moreover, the assessee has submitted the orders of sales tax authorities accepting the book results declared by the assessee. 15. The assessee runs a large business with high value transactions. The turnover figures run into several thousand crores year on year. It would not be possible for the assessee also to run a business without proper maintenance of books at least for his own purpose. Without this internal control mechanism, the whole edifice of assessee’s business would

ITA Nos. 1447, 1448, 1988, :- 26 -: 1989, 1449 to 1455, 1485 to 1491/17.

collapse under its own weight. If the books maintained for IT purposes are not the authentic ones, then the assessee should have been found maintaining any other set of ‘parallel’ set of books of accounts. This is precisely the purpose for which a search action u/s 132 is conducted. After two searches in the premises of the assessee the search party has not found any parallel set of books. 16. The AO has come to a conclusion that the assessee has been under selling bullion for extra cash which is not reflected in the books of accounts. The assessee has given detailed explanations for why the selling rate could be lesser than the invoice purchase rate on account of various discounts and schemes from suppliers as well as on account of interest earned on substantial margin money deposits. In this large turnover based business, the assessee has demonstrated that instead of losing money for interest on operating capital, the assessee has been earning interest on surplus operating capital enjoyed on account of peculiar nature of business. The net of credits received for margin moneys left with supplier (M/s MMTC) has also helped the assessee to sell his goods at rates less than the invoice purchase price. The AO has not understood this crucial aspect and has forced himself to come to a wrong conclusion. 17. The AO has computed a large amount of surplus undeclared profits for several years and has disallowed losses for some years. This would amount to the assessee understating his profits by several hundreds of crores. However, having conducted search in the premises of the assessee on two occasions, the search party has been unable to detect any concealed assets/wealth/cash of the assessee. The detection of escaped assets of the assessee is in lakhs of rupees where as the addition to returned incomes is in hundreds of crores. This high pitched nature of addition cannot be seconded. The additions to the returned incomes have not been supported by strong evidence as well as corresponding matching assets. The addition of profits and rejection of losses has been based on surmises, conjectures and guess work. The computation of undeclared profits and rejection of losses as per paragraphs 7.20 and 7.22 of the assessment order is deleted. Assessee’s grounds of appeal are allowed on this issue’’.

ITA Nos. 1447, 1448, 1988, :- 27 -: 1989, 1449 to 1455, 1485 to 1491/17.

On the issue of cash credits (bullion margin money 21.

accounts), ld. Commissioner of Income Tax (Appeals) upheld the

order of the ld. Assessing Officer with the following observations:-

‘’The objections filed by the assessee are noted. The assessee has explained the practice of accepting cash advances for cash/credit sales made. The advances/part-sale-considerations are accepted on day 1 whereas the sales/delivery was made on day 3 or day 4. Based on the advances received, the assessee would further place orders from his suppliers, procure the same on day 3 or day 4 and handover the gold bullions to the purchaser while collecting the balance consideration. However, the assessee did not want to part with the names and addresses of the buyers. This leaves a crucial link in accounting exposed. The assessee ought to have maintained names and addresses of all the persons to whom cash sales are made. The assessee has the responsibility of providing the names and addresses of persons from whom margin monies have been accepted and pending to be squared up. The AO has specifically called for the same and has been refused by the assessee. The assessee has also made an attempt to circumvent providing names and addresses of margin money advance payees on the last day of the financial year also. The assessee has achieved this by booking the margin money outstanding against corresponding sales made on the last day of the financial year. To this extent, the assessee would have understated the presumed closing stock as on the last day of the financial year for all the years. The duty cast on the assessee to maintain names and addresses of the margin money advance payees and declare the same cannot be condoned. I am of the considered view that the onus of proving the credits in the margin money account lies with the assessee. The AO is correct in bringing the peak cash credit for five assessment years as below:-

Asst. Year Addition u/s.68

2006-07 77969000

2007-08 140907558

2008-09 91548038

2009-10 52245916

2010-11 334220437

Total 696890948

ITA Nos. 1447, 1448, 1988, :- 28 -: 1989, 1449 to 1455, 1485 to 1491/17.

The addition brought to tax u/s.68 of the I.T. Act for the five assessment years is sustained on account of detailed reasons given as above.

Nevertheless, ld. Commissioner of Income Tax (Appeals), 22.

while confirming the addition made u/s.68 for bullion margin money

account, allowed telescoping of such addition with the accounted

sales of the assessee, since it had squared up the bullion margin

account by correspondingly increasing its sales.

Viz-a-viz addition made for difference in credit/debit notes of 23.

MMTC accounted by the assessee, ld. Commissioner of Income Tax

(Appeals) though he confirmed such addition directed the ld.

Assessing Officer to recompute the amount by netting the aggregate

value of the credit notes with the aggregate value of the debit notes

issued by M/s. MMTC. Directions given by the ld. Commissioner of

Income Tax (Appeals) as it appear at para 26 of its order is

reproduced hereunder:-

‘’26. The submissions made by the AR are considered. The action of the AO in bringing the incomes arising to the assessee on account of credit/debit notes by M/s MMTC is completely justified. The Department cannot take note of credit notes ignoring the existence of debit notes. As per the remand report dated 19.12.2017, the AO has clarified that only credit notes were considered. The assessee has pleaded before the undersigned that if at all the AO is considering adopting accounts provided by M/ s MMTC, and

ITA Nos. 1447, 1448, 1988, :- 29 -: 1989, 1449 to 1455, 1485 to 1491/17.

then it should be adopted in full. The AO cannot blow hot and cold at the same time. The assessee is following a mercantile system of accounting and as such the incomes arising on account of net of credit and debit notes should be offered to tax year on year on the basis of receipt of credit/debit notes. The receivables arising to the assessee on account of credit notes are set off against the liabilities arising on account of debit notes received. The credit notes as well as debit notes are very much on record and have been documents submitted before arbitrator as well as High Court of Madras in the dispute between assessee and M/ s MMTC. The AO is directed to give relief to the liabilities arising to the assessee on account of debit notes and set off the same against the incomes receivable as per the credit notes raised by M/s MMTC. The AO shall compute the net of credit notes over and above the debit notes and bring only the net amount for taxation. The assessee gets partial relief on this account’’.

Viz-a-viz, addition made for exchange fluctuation loss of 24.

�7,53,46,987/- in assessment year 2008-09, ld. Commissioner of

Income Tax (Appeals) upheld the order of the ld. Assessing Officer. He

was of the opinion that assessee was unable to produce any evidence

for any instruction received from M/s. MMTC in this regard.

On the addition of �4,93,69,063/-for difference in closing 25.

stock, ld. Commissioner of Income Tax (Appeals) confirmed the order

of the ld. Assessing Officer noting as under:-

‘’Difference in closing stock (AY.2010-11): In your letter dated 5.3.2012 to the ADIT(Inv), you have admitted, in para 4, that as against 50438 kg gold for which MMTC issued bills, the quantity received was only 50405 kg and that 30 kg, gold was still to be received as on 31.3.2010. Vide questionnaire u/s.143(1) dated 27.1.2014 served on 29.1.2014 you were requested to furnish closing stock

ITA Nos. 1447, 1448, 1988, :- 30 -: 1989, 1449 to 1455, 1485 to 1491/17.

inventory (branch-wise) and the method and the ba.sis for the valuation. But vide your reply dated 10.3.2014 you have merely reproduced the closing stock figures in the return. In the absence of required details it is not possible to verify whether the 30kg stock was included in your closing stock figures. Hence it is proposed to make and addition of Rs. 4,93,69,063 @ Rs. 1645635 per kg at which rate purchase of 5121 kg gold from MMTC was entered in your item register on 31.3.2010. Vide its reply assessee requested as under: There are no mistakes or error in recording the correct figures of stock that has come in. The error pointed out is only typing error in the bill quantity raised. There is no extra addition in purchase or in closing stock. Hence this addition may kindly be dropped”. No evidence was produced in support of its claim. The addition is made as proposed’’. The Assessee had been given an opportunity to explain the said difference in closing stock. However, the assessee has not been able to explain the same. The Assessing Officer has also confirmed the inability of the assessee to explain the same as per remand report forwarded. Considering the same, this amount of ₹4,93,69,063/- is upheld as addition sustained for a.y. 2010-2011.

On the addition made for diversion of interest bearing funds, 26.

to provide interest free loans, ld. Commissioner of Income Tax

(Appeals) held that assessee had substantial capital built over various

years and was also having substantial interest free advances

available with it. As per the ld. Commissioner of Income Tax (Appeals)

there was nothing on record to show that any interest bearing funds

were diverted for giving any interest free loans or for making any

ITA Nos. 1447, 1448, 1988, :- 31 -: 1989, 1449 to 1455, 1485 to 1491/17.

investments. Observations of the ld. Commissioner of Income Tax

(Appeals) on this issue were as under:-

‘’32. This merits of the issue are examined. During the course of assessment, the assessee has explained in as many details that the loans given were business advances and that the assessee has had very substantial own capital as well as interest free advances received. The details of advances given without interest as well as advances received without interest are given by the AO as under.

Asst. Year Total of Total of interest investments and free advances interest free received. advances given

2006-07 1,19,68,000 10,02,87,876

2007-08 2,43,35,309 11,38,61,202

2008-09 1,37,48,719 40,31,39,884

2009-10 4,97,61,208 176,36,06,437

2010-11 4,96,21,125 103,71,82,314

2011-12 47,49,76,293 52,55,17,515

2012-13 2,45,72,314 10,82,92,320

The assessee has also had substantial own capital over the years. As seen above, the assessee is well within his lending capacity to advance monies without charging interest out of own capital as well as interest free advances received. The disallowance of interest has been done cursorily without taking note of interest debited for corresponding years, the net amount of advances made as well as fund flow statement of the assessee. Considering the same, the disallowance of interest would be unjustified. The interest disallowed for all the years is deleted’’.

ITA Nos. 1447, 1448, 1988, :- 32 -: 1989, 1449 to 1455, 1485 to 1491/17.

Viz-a-viz, the additions made for low drawings, ld. 27.

Commissioner of Income Tax (Appeals) upheld the order of the ld.

Assessing Officer.

want of deduction of tax at source, ld. Commissioner of Income Tax

(Appeals) sought a remand report from the ld. Assessing Officer. In

the remand report, ld. Assessing Officer stated as under:-

After considering the payments of interest covered by form 15G, the following interest payments are still disallowable u/s.40(a)(ia)

Name of the loan creditor Interest paid without TDS/form 15G Babitha Agarwal 6648

Nilesh Kothari 35,358

Pushpa Devi Agarwal 58,998

Sunil Kumar Gupta 39,299

Total 1,40,303

Based on the remand report, ld. Commissioner of Income Tax

(Appeals) restricted the disallowance u/s.40(a)(ia) of the Act to

�1,40,303/- for assessment year 2006-07, while confirming such

disallowance for assessment years 2007-08, 2010-11 and 2011-2012.

ITA Nos. 1447, 1448, 1988, :- 33 -: 1989, 1449 to 1455, 1485 to 1491/17.

On the disallowance made for personal use of two cars, ld. 29.

Commissioner of Income Tax (Appeals) was of the opinion that such

disallowance was not warranted considering the vast nature of the

business of the assessee.

On the disallowance made u/s.40A(3) of the Act, ld. 30.

Commissioner of Income Tax (Appeals) confirmed the order of the ld.

Assessing Officer. According to the ld. Commissioner of Income Tax

(Appeals), assessee was unable to demonstrate any exceptional reason

for incurring expenditure in cash in excess of the limits laid down

under the said section.

Vis-à-vis the addition made for unexplained loan creditors, 31.

which is relevant for assessment years 2008-09 and 2010-2011, ld.

Commissioner of Income Tax (Appeals) was of the opinion that

assessee could not produce any confirmation. He specifically noted

the failure of the assessee, in the following word, while confirming the

order of the ld. Assessing Officer.

‘’Though called for vide notice u/s. 142(1) served on 4.2.2014 you have not yet furnished the confirmation letters from the following new loan creditors. (i) Mecotronics P Ltd (2 crores) (ii) Rama L.Makwani (250042). The loan amounts are proposed to be added for want of confirmation letters.

ITA Nos. 1447, 1448, 1988, :- 34 -: 1989, 1449 to 1455, 1485 to 1491/17.

On the disallowance under section 43B of the Act for non 32.

remittance of TDS �52,956/- and taxes �43,98,489/- aggregating

�44,51,445/-, ld. Commissioner of Income Tax (Appeals) was of the

opinion that assessee was unable to produce any evidence even in the

remand proceedings. He confirmed such disallowance.

For the disallowance of �18,393/- being interest on TDS 33.

debited the assessment year 2010-2011, interest on service tax

�24,436/- debited in assessment year 2011-2012 and VAT of �7,240/-

ITA Nos. 1447, 1448, 1988, :- 35 -: 1989, 1449 to 1455, 1485 to 1491/17.

debited in assessment year 2012-2013, ld. Commissioner of Income

Tax (Appeals) confirmed the order of the ld. Assessing Officer noting

that these were penal in nature.

bonus claimed for assessment year 2011-2012, ld. Commissioner of

Income Tax (Appeals), while deleting such disallowance noted that

business activity of the assessee run as proprietorship though taken

over by M/s. Shiv Sahai & Sons (India) Ltd, continuity of business

could not be doubted.

Viz-a-viz addition of �23,67,150/- made for assessment year 35.

2011-2012 and �6,14,540/- made for assessment year 2009-2010 for

unexplained investments in property, ld. Commissioner of Income Tax

(Appeals) held that such investment were not reflected in the balance

sheets of the assessee for the respective years, and thus remained

unexplained.

Ld. Commissioner of Income Tax (Appeals) also confirmed 36.

the order of the ld. Assessing Officer disallowing the claim for carry

forward loss on sale of shares of �.4,54,814/- for assessment year

2010-2011 and �19,44,450/- for assessment year 2012-2013, with the

following observations:-

ITA Nos. 1447, 1448, 1988, :- 36 -: 1989, 1449 to 1455, 1485 to 1491/17.

‘’41. The AO has also disallowed loss on sale of shares of Rs.4,54,814 for AY.2010-11 and Rs.19,44,450 for AY.2012-13 and has not allowed cay forward of loss. The assessee has not produced any evidence to the contrary in the appeal proceedings. Considering the same, the disallowance of loss claimed is sustained’’.

Order of the ld. Commissioner of Income Tax (Appeals) in 37.

the appeal of M/s. Shiv Sahai & Sons (India) Ltd, also went on similar

lines as in the case of Shri. Naresh Prasad Agarwal. Ld. Commissioner

of Income Tax (Appeals) deleted the rejection of loss of

�2,58,88,090/- claimed by the assessee for assessment year 2011-

2012 while upholding the addition of �77,07,76,868/- u/s.68 of the Act

for unexplained credits in bullion margin money account. He allowed

the claim of the assessee for telescoping the latter addition with its

sales. Manner in which ld. Commissioner of Income Tax (Appeals)

dealt with other additions/disallowances made in the hands of M/s.

Shiv Sahai & Sons (India) Ltd are explained in the succeeding paras.

On the addition made for reconciliation difference in the 38.

account of the assessee with M/s. MMTC, ld. Commissioner of Income

Tax (Appeals), while upholding the order of the ld. Assessing Officer in

this regard directed him to give relief for debit notes issued by M/s.

MMTC. These directions were similar to those made by him in the

case Shri. Naresh Prasad Agarwal also.

ITA Nos. 1447, 1448, 1988, :- 37 -: 1989, 1449 to 1455, 1485 to 1491/17.

For assessment year 2011-12, one other issue raised by the 39.

assessee M/s. Shiv Sahai & Sons (India) Ltd before the ld.

Commissioner of Income Tax (Appeals) was on an addition of

�4,31,50,000/- made for negative balance in sundry debtor’s account.

These were in the name of four persons listed hereunder:-

Ld. Commissioner of Income Tax (Appeals) called for a remand

report from the ld. Assessing Officer. Ld. Assessing Officer stated as

under in his remand report:-

‘’As regards the addition of Rs.4,31,55,000 it was made because the credit balances in the names of the above four persons were shown under the group ‘sundry debtors” and nor “sundry creditors” or ‘loan creditors“ and even though the confirmation letters from these parties were called for they were not furnished during the course of assessment proceedings. Even now the confirmation letters have not been produced. These huge amounts were shown as opening credit balances as on 1.4.2011 and they were adjusted against sales only on 11.4.2011 r 12.4.2014, i.e. 11 or 12 crs. The assessee did not furnish the ledger account copies for the FY. 2010-11 to see on what dates these amounts were actually credited in their name. No person will pay cash In advance and wait for 12 or more days to receive the gold. Only if their addresses are furnished the following points can be verified (a) Whether the parties are assessed to tax or not (b) 1f purchased for business purposes — whether the persons had so much cash balance in their books of account, and if so, whether the sources for the same are genuine.

ITA Nos. 1447, 1448, 1988, :- 38 -: 1989, 1449 to 1455, 1485 to 1491/17.

(c) If purchased for personal purposes. the sources for the same and whether they are reflected in WT returns. (d) Whether the actual flow of cash has happened directly from the persons concerned or not

By not furnishing the confirmation letters and withholding the identity of these four persons, the assessee is preventing the Department from getting its due taxes( IT and WT) from them if the money really belongs to them. Therefore the additions may be upheld”.

Ld. Commissioner of Income Tax (Appeals) after examining the

remand report held that assessee failed to give the whereabouts of

the four persons in whose name the negative balances were

appearing. Ld. Commissioner of Income Tax (Appeals) thus upheld the

addition.

Viz-a-viz, claim of donation, ld. Commissioner of Income Tax 40.

(Appeals) noted that assessee was unable to produce any certificate as

required u/s.80G of the Act from the recipient. He confirmed such

disallowance.

Viz-a-viz, disallowance made for VAT shown as payable, ld. 41.

Commissioner of Income Tax (Appeals) held that assessee could not

furnish any evidence for remittance of such VAT payable as on

31.03.2011. He confirmed the disallowance.

ITA Nos. 1447, 1448, 1988, :- 39 -: 1989, 1449 to 1455, 1485 to 1491/17.

Viz-a-viz, addition made for suppression of closing stock 42.

relevant for assessment year 2011-2012, ld. Commissioner of Income

Tax (Appeals) noted that ld. Assessing Officer had not made a detailed

analysis of the stock value. He held as under at paras 38 & 39 of his

order:-

‘’38 This issue was taken up with the assessee. Vide letter dated 20.10.2014, the assessee has submitted as under. “Addition on account of difference in closing stock value: The Ld. AO added huge amount ft the ‘due of the dosing stock based on the value of the last purchase made without appreciating the fact that the closing stock value would be decided based on cost of market value whichever is low on the closing date. We could not provide the market closing rate during the course f assessment proceedings due to dearth in true, however we have now provided all the details to prove that the value adopted by us is correct and based on the accounting policy we follow. The comments on the same is expected from the assessing officer on this also”. 39. The addition made to the value of closing stock is considered. The AO has taken the purchase made of 3251 Kgs a n 31.3.2011 as against the closing stock of 24,500 Kg of gold declared a closing stock inventory. The purchase values of the balance stock on dates prior to 31.3.2011 are not a available. The assessee has been continuously maintaining the same method ft r valuing stock as in cost or market value whichever is lower. The notings of the AO are cursory and full facts of the issue are not explained. No detailed aa1ysis of the stock value has been made. The AO has accepted the method of stock valuation of the same business for all the earlier and later years. The explanation given by the assessee has also not been countered. Considering the s me, it is viewed that any variation to the stock value given by the assessee is not warranted. In view of the same, the addition on account of variation in closing stock value to the extent of Rs.19,00,874 is deleted’’.

ITA Nos. 1447, 1448, 1988, :- 40 -: 1989, 1449 to 1455, 1485 to 1491/17.

Viz-a-viz, vehicle maintenance expenditure of �2,67,095/- 43.

disallowed for want of deduction of tax at source, ld. Commissioner of

Income Tax (Appeals), based on the remand report of the ld.

Assessing Officer deleted such disallowance. On disallowance of legal

expense of �8,24,000/- made for the same reason, ld. Commissioner

of Income Tax (Appeals) again based on a remand report of the ld.

Assessing Officer restricted the disallowance to �8,01,500/-.

On the addition of �30,00,000/-, considered as an 44.

unsubstantiated loan from one Shri. Pista Bai, ld. Commissioner of

Income Tax (Appeals) sought a remand report from the ld. Assessing

Officer. Said remand report stated as under:-

“An addition of Rs.30,00,000 was resorted to since the assessee did not file a confirmation letter from this loan credit as the amount was shown as outstanding as on 31.3.2012. The assessee has furnished a letter along with ledger extract explaining that originally M/s. Shiv Sahai & Sons had advanced an amount of Rs.30,00,000 to Pista Bai on 1.4.2009. Subsequently, Pista Bai is shown to have repaid this amount in two instalments on 3.6.2011 and 14.6.2012 during the FY.2011-12 to M/s. Shiv Sahai & Sons (I) Ltd. The assessee submits that since Pista Bai who was a debtor to M/s. Shiv Sahai & Sons had subsequently become a creditor to M/s. Shiv Sahai & Sons (I) Ltd. But since the transaction was squared off on 14.6.2011, Pista Bai cannot be a creditor in the books of M/s. Shiv Sahai & Sons( lndia) Ltd. as on 31.3.2012. Since she continues to be a creditor in the books of M/s. Shiv Sahai & Sons (India) Ltd as on 31.3.2012, it is submitted that the Hon’ble CIT(A) may uphold the action of the AO in treating this credit entry as unexplained ”.

ITA Nos. 1447, 1448, 1988, :- 41 -: 1989, 1449 to 1455, 1485 to 1491/17.

Ld. Commissioner of Income Tax (Appeals) held that assessee had

properly explained the credit entries, since such entries only squared

up the debit balance in the name of the said person appearing in the

books of the proprietorship earlier running the business.

In the backdrop of above, we first take up the appeals and 45.

cross appeals of the assessee Shri. Naresh Prasad Agarwal. First of

the impugned assessment years is assessment year 2006-07 and the

grounds taken by the assessee are reproduced hereunder:-

3.The learned CIT (A) failed to understand the fact that there were huge errors in the statement of accounts as provided by M/s.MMTC and the erroneous accounts as provided by M/s. MMTC cannot be considered as the basis for finalization of appellant's accounts.

4.The learned CIT (A) failed to appreciate the fact that both the appellant and M/s. MMTC were disputing each other and that the matter was pending before Hon'ble Madras High Court.

5.The learned CIT(A) erred in upholding the adhoc drawings fixed by the learned assessing officer.

6.Margin money addition: The learned CIT(A) failed to appreciate the fact that the amounts collected in margin

ITA Nos. 1447, 1448, 1988, :- 42 -: 1989, 1449 to 1455, 1485 to 1491/17.

account represented part sale consideration these were received from prospective buyers and on receipt of the balance the margin money was accounted as sales.

The learned CIT(A) though provided relief from double taxation but failed to understand the fact that names, address, and other KYC norms was not applicable for sales below 2 lakhs and hence the appellant did not maintain the same, hence confirming the addition on account of unexplained credits is bad in law.

For these and other grounds that may be adduced during the course of hearing, it is hereby prayed that the arbitrary additions and disallowances may kindly be deleted and thus render justice.

Ground No.1 among the above grounds, is general needing 46.

no specific adjudication.

Ld. Counsel for the assessee submitted that grounds 2 to 4 47.

were not relevant for assessment year 2006-07 since there were no

addition made for difference in credit notes in that year. Accordingly,

these grounds are dismissed as ill conceived.

Adverting to ground No.5, ld. Counsel for the assessee 48.

submitted that adhoc drawings for personal expenditure fixed by the

ld. Assessing Officer was without considering the facts and

circumstances of the case. According to him, there were only four

members in assessees family and drawings shown by the assessee

were sufficient for meeting the personal expenditure.

ITA Nos. 1447, 1448, 1988, :- 43 -: 1989, 1449 to 1455, 1485 to 1491/17.

Per contra, ld. Departmental Representative strongly 49.

supported the order of the ld. Commissioner of Income Tax (Appeals).

We have considered the rival contentions and perused the 50.

orders of the authorities below. Drawings shown by the assessee for

the years in which additions were made for insufficiency were as

under:-

Name 2006-07 2007-08 2008-09 2009-10 2012-13

Naresh Prasad 135475 170556 195505 558725 377263 Agarwal Ganesh Agarwal 48000 113699 69138 70000 244120

Munni Devi 48000 48000 54000 54000 60000

Babitha Agarwal 48000 48000 54000 66000 84000

Total 279475 380255 372643 748725 765383

Claim of the assessee is that the above drawings were sufficient for

meeting the living cost of its family. Addition proposed by the ld.

Assessing Officer which was confirmed by the ld. Commissioner of

Income Tax (Appeals) was �6,80,000/- for assessment year 2006-07.

In our opinion, nothing was brought on record by the ld. Assessing

Officer to justify how he considered the drawings shown by the

assessee to be inadequate. Claim of the assessee that his family

consisted of only four persons was not rebutted by the Revenue. Only

conclusion that can be drawn is that the addition was made on a

ITA Nos. 1447, 1448, 1988, :- 44 -: 1989, 1449 to 1455, 1485 to 1491/17.

surmise. These assessments, having been done pursuant to a search

u/s.153A of the Act, there was no scope for such addition. We

therefore delete the additions made for inadequate drawings. Ground

No.5 of the assessee stands allowed.

Alluding to ground No.6, ld. Counsel for the assessee 51.

submitted that what was added u/s.68 of the Act represented the

cash sales of the assessee. According to him, there was no KYC

requirement for cash sales, during the impugned assessment years.

Contention of the ld. Authorised Representative was that there was no

necessity to record the name of the customer or his PA Number. As

per the ld. Authorised Representative, there were no credit sales in the

line of the business done by the assessee. According to him, margin

money collected from customers when they placed orders were all

part of the sale consideration. As per the ld. Authorised

Representative, when customers paid such margin money a small chit

noting the amount, was issued. In the evening of the day or the day

after, when delivery of bullion was made, the slips were returned by

the customer and the balance cash due on the sale, was received from

the customer. As per the ld. Authorised Representative, taxing the

peak credit in bullion margin would be equivalent to taxing the gross

sales. According to him, on the closing date of every financial year,

ITA Nos. 1447, 1448, 1988, :- 45 -: 1989, 1449 to 1455, 1485 to 1491/17.

the amounts standing under bullion margin money account was

transferred to the sales account. This entry by itself, as per the ld.

Authorised Representative, proved the nature of the transaction.

According to him, Section 68 of the Act had no applicability when

money was received on sale of goods. Contention of the ld. Authorised

Representative was that KYC norms being not applicable for the cash

sales, since the value of the related transaction did not transgress the

limits under the said norms, as long as cash receipts were duly

accounted as sales, an addition u/s.68 of the Act would result in

double addition.

Per contra, ld. Departmental Representative strongly 52.

supporting the orders of the lower authorities submitted that once

assessee credited cash in its books, whatever be the nomenclature, it

was bound to record the name of the person who advanced the money

and to prove the source. Contention of the ld. Departmental

Representative was that assessee was having no records to show the

details or source of the persons from whom the money was received.

Contention of the ld. Departmental Representative was that profits

suppressed by underpricing its sales, was ploughed back as bullion

margin money. According to him, additions made by the lower

authorities were only for the peak in such bullion margin money

ITA Nos. 1447, 1448, 1988, :- 46 -: 1989, 1449 to 1455, 1485 to 1491/17.

account. As per the ld. Departmental Representative, if Section 68 of

the Act was strictly applied, every receipt of margin money, for which

assessee failed to give any confirmation or details, an addition ought

have been made. As per the ld. Departmental Representative, ld.

Commissioner of Income Tax (Appeals) was justified in confirming the

additions made under Section 68 of the Act. Nevertheless, as per the

ld. Departmental Representative, ld. Commissioner of Income Tax

(Appeals) fell in error in allowing telescoping of such peak bullion

margin money, with the recorded sales. As per the ld. Departmental

Representative, telescoping was already allowed by the ld. Assessing

Officer, against suppressed sales. Ld. Departmental Representative

pointed out that Department, in its appeal was assailing the direction

given by the ld. Commissioner of Income Tax (Appeals) for setting off

the peak in bullion margin money with the disclosed sales of the

assessee.

We have considered the rival contentions and perused the 53.

orders of the authorities below. Contention of the assessee is that its

modus operandi of operation required it to accept cash as margin

when customers placed order and this was squared up when bullion

was supplied to the customer later in the day or next few days. As per

the assessee, bullion was always supplied to the customer either by

ITA Nos. 1447, 1448, 1988, :- 47 -: 1989, 1449 to 1455, 1485 to 1491/17.

the end of the very same day or within a few days from the receipt of

advance. Further, as per the assessee, considering the volume of

transactions it was not possible for it to maintain separate record for

each buyer. Relevant observation of the ld. Assessing Officer has been

reproduced by us at para 11, supra. Ld. Assessing Officer found

negative balance in bullion margin account at least on two days viz

11.11.2010 and 25.11.2010 to the tune of �54.93 lakhs and �7.42

Crores. As per the ld. Assessing Officer, these were not properly

explained by the assessee. Asessee had all along stated that it was

not indulging in any credit sales but doing only cash sales. There is

no dispute that money standing in credit in the bullion margin account

was consistently transferred to sales. Commissioner of Income Tax

(Appeals) has recognized this when he allowed set-off of peak credit

bullion margin account with the accounted sales of the assessee,

though Department is aggrieved on such set- off. There is also no

dispute that there was no balance in the bullion margin money account

at the end of any financial year, since all credits in such account stood

transferred to sales. Books of accounts of the assessee relied on by

the Assessing Officer, for making the assessments under Section 153A

of the Act, were the same as produced by the assessee during original

assessment proceedings. It was not a set of parallel books maintained

by the assessee. Incriminating documents relied upon by the ld.

ITA Nos. 1447, 1448, 1988, :- 48 -: 1989, 1449 to 1455, 1485 to 1491/17.

Assessing Officer, which has been referred by ld. Commissioner of

Income Tax (Appeals) at para 5 of his order, are only two diaries

numbered as ANN/SSK/SSS/ B & D/S-46 and ANN/VJ/ Diary/GA/S-1.

These records did not go counter to the books of accounts, except for

the rate difference in cash sales, when compared to the rates

mentioned in the seized diary. The seized diaries pertained to

calendar years 2010 and 2011, and there was no seizure of any diaries for earlier or subsequent year. Assessee’s assertion that there

were no diaries for earlier years were never disproved by the Revenue.

If at all such diaries were there for the earlier years, in every

probability it would have been found at the time of search. Revenue

has not pointed out anything in the seized diaries which could help

reach a conclusion that margin money received from customers for

bullion were wholly unexplained credits. Presumption under Section

132(4A) of the Act can support the claim of the assessee that bullion

margin money was only a part consideration received for its sales.

The entries transferring the sums standing in credit in the bullion

margin money account to sales account were never found to be bogus

nor rejected by Revenue. All these, in our opinion indicate that credits

in bullion margin money account could have been part of sale

consideration.

ITA Nos. 1447, 1448, 1988, :- 49 -: 1989, 1449 to 1455, 1485 to 1491/17.

Section 68 of the Act is which apposite here is reproduced 54.

hereunder:-

‘’Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year’’.

The lacunae in the explanation offered by the assessee was its

inability to give the identity of each of its customers. However,

explanation of the assessee that receipts were nothing but part

consideration received for sales has not been found incorrect. In the

facts and circumstances, we cannot say that the explanation given by

the assessee was unsatisfactory. Though Section 68 of the Act was

rightly invoked considering the failure of the assessee to give the

identity of its customers, who gave advance in cash, and purchased in

cash, such addition has to be restricted to extent it is not reflected in

sales. Taxing the credits in bullion margin money account and sales,

would be equivalent to taxing the same amount two times. Hence,

Section 68 of the Act, in our opinion can be invoked only for those

amounts which are not reflected in sales. Thus, while holding that the

ld. Commissioner of Income Tax (Appeals) was justified in confirming

the addition for credits in bullion margin money account, we direct the

ITA Nos. 1447, 1448, 1988, :- 50 -: 1989, 1449 to 1455, 1485 to 1491/17.

ld. Assessing Officer to rework such addition by excluding margin

money credits, to the extent accounted in sales, in the same financial

years. In the result, ground No.6 of the assessee is partly allowed.

2006-2007.

Grounds taken by the Revenue are reproduced hereunder:- 56.

‘’1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The learned CIT(Appeals) erred in deleting the addition of Rs. 1,06,84.527/- made towards suppression of sale amounts of gold bullion made by the AO, in the assessment order passed u/s 143(3) r.w.s 153A of the Income Tax Act, 1961, for A.Y 2006-07 in the assessee's case. 2.1 The Id.CIT(A) ought to have appreciated the fact that the assessee has deliberately under invoiced its cash sales made to buyers without bills as compared with sales made to jewellers with bills resulting in huge difference between the two when both the sales were made in cash. 2.2. The learned CIT(A) erred in allowing relief on the ground that the AO has not subjected the books of account to special audit, overlooking the modus operandi of the assessee, discussed in detail in the assessment order, and also the reasons recorded by the AO for non-rejection of books of account in para 7.19 of the assessment order for A.Y 2011-12, on the basis of which, addition was made in the assessment order for A.Y. 2006-07 in the assessee's case. 2.3. The learned CIT(A) is not justified in allowing relief on the basis of sales tax orders submitted during the appeal proceedings as an additional evidence, without giving an opportunity to the AO under Rule 46A of the IT Rules, 1962. 2.4. Having held that parallel set of books of accounts were not found in the assessee's case, the learned CIT(A) ought to have appreciated that in the modus operandi employed

ITA Nos. 1447, 1448, 1988, :- 51 -: 1989, 1449 to 1455, 1485 to 1491/17.

by the assessee there is no need for "parallel" set of books since the exact quantum of suppression of cash sales amount and the amount introduced in bullion margin account was known only to the assessee or his son and the fact of suppression of cash sales was entirely within their knowledge 2.5. The learned CIT(A) having deleted the addition by accepting the explanation of the assessee as to why the selling rate could be lesser than invoice purchase rate when the real issue at hand was why the selling rate as per cash bills was less than that of selling rate as per bills to jewellers (to be accounted by purchasers) when there is no difference between them while fixing the rates as per seized diaries and as admitted by the assessee u/s 131 that "in bullion trade there is no credit sales in the normal meaning" (with higher margin when compared to cash sales) 2.6 The Id.CIT(A) ought to have appreciated the various circumstantial evidences and facts gathered by the AO in the form of obtaining the rates from various Registered Professional Jewellers' Associations, the Sales Tax Authorities as well as from the sworn statements of the assessee's staff to prove the fact of deliberate suppression of sales by the assessee through such non-genuine business transactions and ought to have confirmed the addition made in the assessment for A.Y 2006-07 in this case. 3. The learned CIT(A) erred in directing the AO to reduce the "sales accounted towards margin money in the corresponding years" while confirming the addition of Rs. 7,79.69,000/- made by the AO u/s 68 of the I.T Act, towards peak credit on account of margin money received by the assessee. in the assessment for A.Y 2006-07 in the assessee's case 3.1 The Id.CIT(A) ought to have appreciated that while computing the peak credit (as per detailed working sheets, for the AY.s 2006-07 to. 2010-11 annexed to the assessment order for AY 2011-12) the adjustments have already been taken into account by the AO and there is no double addition as claimed by the assessee. 3.2. The Id.CIT(A) has erred in directing to allow relief from the sales without appreciating that the peak credit addition made is towards unexplained credits introduced i.e for the

ITA Nos. 1447, 1448, 1988, :- 52 -: 1989, 1449 to 1455, 1485 to 1491/17.

reasons that no details from whom received etc were furnished by the assessee with respect to such buyers from whom the amounts were stated to have been received. 3.3. The Id.CIT(A) ought to have appreciated that the fact that the said amounts were also accounted for as sales, does not absolve the assessee from the liability of proving the source of such credits irrespective of whether the same were adjusted against sales or any other transactions thereafter upon such receipt. 4. The Id. CIT(A) erred in deleting the disallowance of proportionate interest of Rs.3,72,452/- on the interest bearing funds diverted for interest free advances, made by the AO, in the assessment order passed u/s 143(3) r.w.s. 153A of the IT Ad for the AY. 2006-07 in the assessee's case. 4.1 Having held that the assessee was well within his lending capacity to advance monies without charging interest out of own capital as well as interest free advance received, the Id. CIT(A) ought to have appreciated that the assessee has not furnished the details of the availability of interest free funds as on the date of making the interest free advance. 5. The learned CIT(A) erred in deleting the disallowance of car maintenance expenses of RS.171 ,724/- made by the AO, towards personal nature involved, in the assessment order passed u/s 143(3) r.w.s. 153A of the IT Act for the AY. 2006-07 in the assessee's case, on the ground that considering the vast business of the assessee, the disallowance of expenses incurred towards running and maintenance of cars appears unwarranted. 5.1 The Id.CIT(A) ought to have appreciated that the assessee himself had admitted to using the cars for personal benefit in his sworn statement u/s 131 of IT Act, recorded on 12-3-2014 and therefore ought to have upheld the disallowances made towards this account. 6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored’’.

ITA Nos. 1447, 1448, 1988, :- 53 -: 1989, 1449 to 1455, 1485 to 1491/17.

Grounds No.1 and 6 are general needing no specific 57.

adjudication.

Adverting to ground No.2, ld. Counsel for the Revenue 58.

submitted that assessee had effected cash sale of bullion at a rate

below the association rates for the impugned assessment years. As

per the ld. Departmental Representative, there was deliberate under

invoicing of cash sales and there was no justification for selling at a

rate lower than the rate at which sales were made to jewellers. As

per the ld. Departmental Representative, ld. Commissioner of Income

Tax (Appeals) placed undue reliance on sales tax assessment orders

produced by the assessee, which was never produced before the ld.

Assessing Officer. According to him, there was clear violation of Rule

46A of the Income Tax Rules, 1962 as well. Further, as per the ld.

Departmental Representative, assessee had deliberately avoided

production of diaries for years prior to assessment year 2011-2012.

Such diaries as per the ld. Departmental Representative, indicated the

rates to be higher than what were billed for cash sales. According to

him, assessee’s books did not reflect the actual transactions. There

were a number of defects pointed out by the ld. Assessing Officer.

Contention of the ld. Departmental Representative was that ld. AO

had carefully verified the rates at which assessee sold gold to

ITA Nos. 1447, 1448, 1988, :- 54 -: 1989, 1449 to 1455, 1485 to 1491/17.

jewelers and found it to be higher than the rate at which cash sales

were effected. As per the ld. Departmental Representative, no good

reason was shown by the assessee for selling bullion in cash at a rate

which was �5/- to �10/- lower per gram when compared to the sales

to jewellers. As per the ld. Departmental Representative, assessee

had in his statement given to the ld. Assessing Officer, acknowledged

that there were no credit sale in bullion trade and no differential rates

were ever applied. In such a scenario, as per the ld. Departmental

Representative, the ld. Assessing Officer had many options available

with him, including the option of rejecting the books and making an

addition for gross profit. However, according to him, ld. Assessing

Officer had opted to apply the rate charged by assessee on its sales

to jewelers, on its across the counter sales, for quantifying the

suppression. Contention of the ld. Departmental Representative was

that this was the most appropriate method which could be used, for

computing the suppression in sales under the facts and circumstances

of the case. As per the ld. Departmental Representative, ld.

Commissioner of Income Tax (Appeals) fell in error in deleting the

additions which were correctly worked out by the ld. Assessing Officer.

Per contra, ld. Authorised Representative, strongly 59.

supporting the order of the ld. Commissioner of Income Tax (Appeals)

ITA Nos. 1447, 1448, 1988, :- 55 -: 1989, 1449 to 1455, 1485 to 1491/17.

submitted that books relied on by the ld. Assessing Officer for making

the additions were the very same which were produced by the

assessee before the ld. Assessing Officer during the course of original

assessment proceedings. According to him, there were no

incriminating materials found at the time of search. As per the ld.

Authorised Representative, re-computation of profit was made by the

ld. Assessing Officer purely on surmises. Ld. Authorised

Representative submitted that assessee was not following association

rate for selling bullion but was following LMB with adjustments for

exchange rate difference, import duty etc. According to him, sales

made to jewelers based on cheques received from them, required a

couple of days atleast for collection, whereas across the counter cash

sales brought in immediate realization of money. This as per the ld.

Authorised Representative, always encouraged the assessee to offer

slightly lower rates for cash sales.

Adverting to the difference between rates mentioned in the 60.

diary and rate charged for cash sales, ld. Authorised Representative

submitted that LMB rates noted in the diary was for 0.999 purity

gold, whereas gold traded by the assessee was of 0.995 purity.

According to him, bullion trading was different from other business

and assessee could not share all the secrets with its employees. As

ITA Nos. 1447, 1448, 1988, :- 56 -: 1989, 1449 to 1455, 1485 to 1491/17.

per the ld. Authorised Representative, employees were given

information based on the need to know principle. Vis-à-vis the

argument of the ld. Authorised Representative that sales tax

assessment orders relied on by the ld. Commissioner of Income Tax

(Appeals) was never placed before the ld. Assessing Officer,

submission of the ld. Authorised Representative was that sales tax

assessments were not the sole reason for Commissioner of Income

Tax (Appeals) deleting the addition. According to him, it was

considered only as a collateral evidence. Ld. Authorised Representative

pointed out sales bills 1107 & 1117 dated 12.08.2010 and 397 and

614, dated 3.12.2010, which reflected sales in cash at rates more than

what was charged to jewelers. Thus, according to him, finding of the

ld. Assessing Officer was incorrect. Further, as per the ld. Authorised

Representative, ld. Assessing Officer fell in error in relying on a

statement taken from one of the employees, while making this

estimated addition. According to the ld. Authorised Representative,

ld. Commissioner of Income Tax (Appeals) was justified in deleting the

addition made for suppression of sale.

We have considered the rival contentions and perused the 61.

orders of the authorities below. Method adopted by the ld. Assessing

Officer for calculating the alleged suppression in cash sales, has been

ITA Nos. 1447, 1448, 1988, :- 57 -: 1989, 1449 to 1455, 1485 to 1491/17.

reproduced by us at para 9 above. There are four main reasons cited

by the ld. Assessing Officer for disbelieving the rate at which cash

sales were effected by the assessee. These are higher rate charged

to jewelers, rates being lower than Association rates/ rates quoted by

M/s. Riddhi Siddhi Bullion, Mumbai, rates noted in seized diary being

higher and the deposition of Shri. Vijayababu who stated that the

proprietor kept all matters regarding rates to himself and never shared

it with his employees. Let us take these one by one. Rates charged

for cash sales, as per assessee, were lower since they discounted the

buyers margin and followed LMB rates. We find there were a number

of instances where assessee had charged lesser on its jewellery

customers than for cash sales. Invoice number 8861, dated

26.07.2010 placed at PB 30 and invoice number 941, dated

26.07.2010, placed at PB 31 are example. Former is a cash bill and

rate per kg of gold is shown as �18,81,188.12, whereas latter is a

credit bill and rate per kg is shown as �18,21,782.18. Similar invoices

with lower rate for cheque sale is available for 12.08.2010 also (PB

pages 45 & 46). Assessee as well as Assessing Officer are one in that

assessee had no credit sale and what was termed as credit sales were

sale to jewellery for which payments were received by cheque or

through bank. That apart realization of money on cheque sales do

have a time lag which can stretch to a couple or more days and there

ITA Nos. 1447, 1448, 1988, :- 58 -: 1989, 1449 to 1455, 1485 to 1491/17.

is nothing which stopped the assessee from incentivizing cash sales,

since such sales brought in immediate cash. There is also nothing on

record to show that assessee’s claim of following LMB rates were

incorrect. It is the choice of the seller whether to follow association

rate or LMB or rates followed by another bullion dealer or a rate which

it thought best fit for it, considering the nature of its business.

Revenue cannot force an assessee to sell his product at a particular

rate. Coming to the notings in the diary, admittedly the diaries seized

were of calendar years 2010 and 2011. It is an admitted position that

no other diaries were found at the time of search nor any evidence

brought in by the Revenue that there indeed were any diaries for

earlier years, against assessee’s assertion that no such diaries were

there for earlier years. Thus the rates mentioned in the diary even if

presumed as correct would have been relevant for assessment year

2010-2011 and assessment year 2011-2012. Admittedly, there were

no additions for suppression of sales for both these years. No doubt

there could have been a spill over of three months of the calendar year

2010 for assessment year 2009-2010. However, this also in our

opinion will not justify extrapolating the rates mentioned in the diary

to an earlier or subsequent year. Now coming to statement given by

Shri. Vijayababu one of the employees of the assessee, what has been

stated by him is reproduced hereunder:-

ITA Nos. 1447, 1448, 1988, :- 59 -: 1989, 1449 to 1455, 1485 to 1491/17.

02 Please identity yourself. Ans.2 I am Vijayababu, presently working as Tally Clerk in M/s.Shiv Sahai & Sons (India) Ltd.. I was working in the same capacity in Mls. Shiv Shai & Sons since March, 2007. I am a BBA graduate, having passed from Madras University My contact /Jo.044-42277404 (office) 9710318570 (mobile) .. My e-meii id is vijaybabujames @ yehoo.com. 03 Please tell me about your nature of work and the work of your colleagues in your office. A 3 I am preparing the sale bills. There is only one computer for preparing sale bills. Either myself or Smt. Sumithra, Accountant; will prepare the sale bills. No other person will prepare the bills. We are preparing the sale bills for Chennai, Salem, Coimbatore, Madurai end Trichy. For other branches outside Tamilnadu, sale bills are not prepared from our office at Chennai. The sale bills are prepared in a software which we call "Shiv package". Accounts are not prepared in this package. I am not preparing the accounts. Smt. Sumithra is doing the accounts. Smt. Thulasi is the Accounts Assistant assisting Sl17t. Sumithra. Sbri. Mahendran and Shri. Srinivasan are in cash section. They receive the cash from the customers. Shri. Ashok Kumar Gupta is in Charge for strong room where gold bars are stored. There are no separate persons for delivery of gold. It will be handed over either by Shri. Ashok Kumar Gupta himself er by cash section officials. Q. 4 What are the working hours for you and for Smt.. Sumithra .A. 4 For billing section the working hours are 11-30 a.rn, to 9-00 p.m For accounts Q 5. When will the directors (or earlier the proprietor) come and leave? A 5 Shri. Ganesh sir or Shri. Naresh sir will normally come at 9-00 a.m. and leave at 4.00pm

ITA Nos. 1447, 1448, 1988, :- 60 -: 1989, 1449 to 1455, 1485 to 1491/17.

Q 5 What are the working hours during which a customer can come any gold bars A The customers can come and buy gold bar when Shri. Genesh sir is available in office.

Q. 6 Please tell me the step by step procedure when a customer comes to buy gold bar A. 6 .The customers will meet Shti. Ganesh Agarwal, Director. They will get a slip from the Director as to the amount of cash to be paid. They will go to the cash counter and pay the cash. The cashier will count the cash in front of the customer using the cash counting machine. The cashier will go to Khazana, which is near the Manager's table, and take the gold bar and hand over to tile customer. No signature will be taken against delivery of the gold. Khazana is an iron chest, kept near Manager's table from where the gold bars will be taken and delivered to the customers. Any remaining unsold bars will be stored in the strong room after closure of business for the day.

Q. 7 There are 4 separate categories of bills for each branch with bill numbers starting with 1 on 1st April. 1. For gold - cash bill 2 For gold - credit bill 3. For silver- cash bill 4. For Silver- credit bill.

Q. 8 How will you know as to which type of bill to be prepared, and for which branch? A. 8 Shri. Ganesh Sir or Shri. Neresh sir or Shri. Ashok Sir call me over phone and ask me to prepare a bill for a particular branch - Chennai, Coimbatore, Salem, etc. They will also tell whether it is a cash bill or credit bill. In case of credit bill, name of the buyer will also be told. Then I will prepare the bill. Manager will sign the bill. Two copies of cash and credit bill will be taken. Both the copies of credit bills will be handed over to Manager along with one acknowledgement form. He will hand over to the customer (messenger from (he Jeweller) who will bring back one copy and the

ITA Nos. 1447, 1448, 1988, :- 61 -: 1989, 1449 to 1455, 1485 to 1491/17.

acknowledgement for receipt of gold after impressing the seals of his company.

Q. 9 Please tell me about the bills prepared for other branches: A. 9 When Ganesh sir asks me to prepare - the bill for other branches I will prepare and I will send a mail through team-viewer.

Q.9 Please tell about the bills prepared by you today A. 9 I would have prepared about 40 bills, all of them for Salem branch cash bill. Shri. Ganesh sir told me to prepare the bills. Approximately 200 kg @ about RS.44500 The bills will normally be sent by mail. The bills were prepared me at about 3.00pm. The mail was not sent till I left office today.

0.10. Please tell me about preparation of cash bills at Chennai A 10 Two copies will be prepared - one for the customer and one for us. No signature will be obtained from the customer in the bill as in the case of credit bill. Q.11. I am reminding you that you are on oath. At what point of time do you prepare the cash bill for Chennai office. What do you then do with the bill. A.11 When Shri. Ganesh Sir asks me to prepare the bill I will prepare the bill. I will collect the signature of the Manager and will hand over the bill if the customer comes and asks for bill. But all customers do not ask for bill.

Q.12 What do you do with the bills whicfl,f1le:QlfsJomers do not ask for? A 12 From the year 2013, I am not taking two copies of cash bill. Only for credit bill two copies are taken. Only when the customers asks i will take a print out.

ITA Nos. 1447, 1448, 1988, :- 62 -: 1989, 1449 to 1455, 1485 to 1491/17.

I will take out pit a daily statement of bills.

Q. 12 Before 2013 what were you doing with the customer's copy which were not collected by them. A 12 Both copies will be filed together

Q.13 I am showing you a statement given by Shri. M. Jayaprakash, Accounts Manager in your Salem branch on 6·1·2012. Please sign in page 3 in token of having read the statement. In his reply to Q.2, he has slated, in page 3, that ‘’ for cash purchase no bills are issued by our company. What do you say? A 13 I was preparing cash bills for Salem branch. I was also sending them by mail. Probably he would not have taken printout of the bill. Even yesterday Salem branch called at 5.00 pm and asked for a cash bill. Ganesh Sir laid me at about 4.00 p.m. to prepare cash and credit bills. I prepared the credit bill at 4-30 pm and mailed it. I prepared the cash bill at 5.00 pm only after getting (he call from Salem. So whenever the customer at Salem wants the cash bill they will call Shri. Ganesh sir who will in turn ask me to prepare the bill.

Q 14. In your reply to 0.5 you have stated that Shri Genesh: sir will come at 900 A.M.. You or Smt. Sumithra comes only at 11-30. That means that for sales made between 9.00 am and 11-30 a.m. bills will be prepared only after 11-30 am. Is it rnot A 14 Yes. Only after we reach office, Shri. Ganesh sir will ask either me or in my absence Smt. Sumithra to prepare the bill. So if any sales were made before 11- 30 am the customers who want bills will wait and collect it.

0.15 In your reply to Q.8 you have stated that you will get instructions over phone from Shri. . Ganesh sir or Shri. Neresh sir or Shri. Ashok sir for preparation of bills. Will he tell the quantities, rates and amounts?

ITA Nos. 1447, 1448, 1988, :- 63 -: 1989, 1449 to 1455, 1485 to 1491/17.

A 15 He will tell only the quantity and the rate. Amounts will come in the billing package

Q 16. Is there any system in your office by which you know what is the cash collected for each and every cash bill prepared by you. A. 16 There is no system. If Shri. Ganesh Sir asks me to prepare the bill I will prepare the bill.

Shri. Vijayababu has nowhere stated the assessee was selling bullion in

cash at lower rates and it was done for suppression of income. There

is strength in the argument of the assessee that in the nature of its

trade, information and data were shared on ‘’need to know’’ basis.

Thus in our opinion none of the reasons cited by the Assessing Officer

would justify the substitution of rates for cash sales with the average

rates for jeweller over the year. As already mentioned by us, the soft

copy of the books of accounts found at the time of search was not a

parallel set of account but were only regular accounts maintained by

the assessee, based on which it was filing its regular returns. We are

therefore of the opinion that ld. Commissioner of Income Tax

(Appeals) was justified in deleting the addition made for suppression in

sales. In the result, ground No. 2 of the revenue is dismissed.

ITA Nos. 1447, 1448, 1988, :- 64 -: 1989, 1449 to 1455, 1485 to 1491/17.

Vide its ground No.3, grievance of the Department is that ld. 62.

Commissioner of Income Tax (Appeals) fell in error in directing the ld.

Assessing Officer to reduce the peak credit in bullion margin money

account with the sales accounted by the assessee.

We have at para 61 above upheld the order of the ld. 63.

Commissioner of Income Tax (Appeals) deleting the addition for

suppression in cash sales. Since the credits in Bullion margin money

account were transferred as sales, ld. Commissioner of Income Tax

(Appeals) directed the Assessing Officer to reduce the peak credit

considered for addition under Section 68 of the Act, from sales

accounted by the assessee. As mentioned by us at para 53 and 54

above, it is an undisputed position that credits in bullion margin money

account were generally transferred to sales account. Addition of credit

in bullion margin money account has been sustained by us, only to

the extent not transferred/accounted in the sales. Otherwise, it will

result in double addition of the same amount. In such circumstances,

we are of the opinion that ld. Commissioner of Income Tax (Appeals)

was justified in giving direction to set off of credit in bullion margin

money account with sales accounted by the assessee, so that double

addition was avoided. Ground No. 3 of the Revenue is dismissed.

ITA Nos. 1447, 1448, 1988, :- 65 -: 1989, 1449 to 1455, 1485 to 1491/17.

Vide its ground No.4, grievance of the Revenue is that ld. 64.

Commissioner of Income Tax (Appeals) deleted the disallowance for

interest free advances made by the assessee.

orders of the authorities below. What was held by the ld.

Commissioner of Income Tax (Appeals) on this issue has been

reproduced by us at para 26 above. He has given a clear finding that

assessee had more than sufficient own funds for giving the interest

free advances. When assessee was having sufficient own funds, we

cannot say that any interest bearing funds were diverted for giving

interest free advances. That apart, ld. Departmental Representative

was unable to show what were the interest bearing funds that were

held by the assessee which were diverted. We do not find any reason

to interfere with the finding of the ld. Commissioner of Income Tax

(Appeals) in this regard. Ground No.4 of the Revenue is dismissed.

Adverting to ground No.5, ld. Departmental Representative 66.

submitted that ld. Commissioner of Income Tax (Appeals) deleted the

disallowance made for personal use of car despite assessee admitting

such use.

ITA Nos. 1447, 1448, 1988, :- 66 -: 1989, 1449 to 1455, 1485 to 1491/17.

We have considered the rival contentions and perused the 67.

orders of the authorities below. Ld. Commissioner of Income Tax

(Appeals) had deleted this disallowance with a finding that business of

the assessee was vast. Ld. Assessing Officer on the other hand had

made the disallowance for personal use of cars based on the

admission of the assessee. We are of the opinion that ld. Assessing

Officer was justified in making such disallowance since it was made on

an admission of the assessee. Order of ld. Commissioner of Income

Tax (Appeals) on this issue is set aside and the disallowance made by

the ld. Assessing Officer is reinstated. Ground No.5 of the Revenue is

allowed.

Now we take up the cross appeals Mr.Naresh Prasad 68.

Agarwal for assessment year 2007-08, in that order:-

Grounds taken by the assessee are reproduced hereunder : 69.

ITA Nos. 1447, 1448, 1988, :- 67 -: 1989, 1449 to 1455, 1485 to 1491/17.

Ground No.1 is in general, needing no specific adjudication.

Adverting to Grounds No.2 to 4, ld. AR submitted that 70.

lower authorities went by the version of M/s.MMTC while taxing the

net credit based on their creditor notes. As per the ld.AR, the ld.

Assessing Officer took a view that the assessee had not accounted

many of the credit notes issued by the M/s.MMTC and was charging

ITA Nos. 1447, 1448, 1988, :- 68 -: 1989, 1449 to 1455, 1485 to 1491/17.

expenses incurred by M/s.MMTC purportedly on behalf of the assessee,

without any debit note being issued by M/s.MMTC. Contention of

ld.A.R was that there was an on-going dispute between the assessee

and M/s.MMTC on reconciliation of balances, credit notes and debit

notes issued by M/s.MMTC. As per the ld.AR, M/s.MMTC had arbitrarily

issued debit as well as credit notes, which was impossible to reconcile.

Many of these credit notes of M/s.MMTC, as per the ld.AR, were never

received by the assessee. Contention of the ld.AR was that Ld.CIT(A)

had confirmed this addition despite assessee pointing out accounting

all the credit notes on which tax was deducted at source. As per the

ld.AR, the difference in the balances as shown in the accounts of the

M/s.MMTC and in the books of assessee, was due to the credit notes

and debit notes issued by M/s.MMTC without any basis.

Continuing his submissions ld.AR pointed out that MMTC 71.

officials were under investigation by C.B.I for fraudulent maintenance

of their accounts. As per the ld. Authorised Representative, CBI had

arraigned the assessee Shri. Naresh Prasad Agarwal also as an

accused for frauds perpetuated by the officials of M/s. MMTC but

Hon’ble Jurisdictional High Court through its judgment dated

17.04.2017 in Criminal Original Petition No.21438 of 2014 and

Criminal Revision Petition No.1991 of 2015 had discharged him from

ITA Nos. 1447, 1448, 1988, :- 69 -: 1989, 1449 to 1455, 1485 to 1491/17.

the proceedings, finding no evidence against Shri. Naresh Prasad

Agarwal. As per the ld. Authorised Representative, this judgment also

confirmed falsification of accounts by MMTC officials. Hence according

to him, credit notes issued by such officials based on fraudulent and

falsified accounts would not result in accrual of any income to the

assessee. Further as per the ld. Authorised Representative, many of

the credit notes issued by M/s. MMTC, mentioned in their letters dated

28.12.2011 & 14.02.2013 related to the earlier assessment years,

entries for which were entered by M/s.MMTC in their books for

financial year 2011-12. As per the ld.AR, the Ld.CIT(A), though he

directed the ld. Assessing Officer to reduce the value of debit notes

from the value of credit notes, fell in error, in confirming the addition

without taking cognizance of the appointment of Arbitrator on

differences between M/s.MMTC and the assessee. Relying on a

Memorandum of understanding dated 02.04.2008 entered by the

assessee with M/s.MMTC, ld.AR submitted that it contained clear

stipulation under which they were to supply bullion to the assessee. As

per the ld.AR, assessee had preferred an Arbitration Petition invoking

clause-11 of the MOU. Contention of the ld.AR was that M/s.MMTC

had delivered lower quantity of gold than what were mentioned in

the delivery note and invoice, which proved the fraudulent nature of its

transactions. Relying on paper book page-14, which is a part of the

ITA Nos. 1447, 1448, 1988, :- 70 -: 1989, 1449 to 1455, 1485 to 1491/17.

Arbitration claim statement filed by the assessee under the Arbitration

And Conciliation Act, 1996, ld.AR submitted that assessee had sought

direction from Arbitral Tribunal for giving details of all the transactions,

as well as various debit notes and credit notes issued by M/s.MMTC.

Referring to a few of Debit notes issued by M/s.MMTC placed at pages

32-33 of paper book and few of Credit notes issued by M/s.MMTC

placed at pages 45 to 49 of paper book, ld.AR submitted that

narration in these notes were vague. As per the ld.AR, narration in

many of the debit notes were “claim recoverable- pending

reconciliation” and in many of the Credit Notes “Reserve for bad and

doubtful debts” Submission of the ld.AR was that nothing could be

made out from these Debit & Credit notes, and assessee could not be

put in peril, for difficulties in reconciling the accounts of the assessee

in the books of M/s.MMTC with that of M/s.MMTC in books of

assessee. Ld.AR placing reliance on a letter dated 28.03.2014 from

assessee addressed to the ld. Assessing Officer, submitted that all

these facts were brought to the notice of ld. Assessing Officer, but still

the ld. Assessing Officer took the aggregate value of credit notes and

subjected it to an addition. As per the ld. Authorised Representative,

ld. Commissioner of Income Tax (Appeals) fell in error in confirming

the addition for credit notes without appreciating the facts.

ITA Nos. 1447, 1448, 1988, :- 71 -: 1989, 1449 to 1455, 1485 to 1491/17.

Per contra, ld.DR strongly supporting the order of Ld.CIT(A), 72.

insofar as it confirmed the addition for credit notes issued by

M/s.MMTC, to the extent not accounted by the assessee, submitted

that very existence of the credit notes indicated assessee’s right to

recover such amounts mentioned therein from M/s.MMTC. Assessee,

as per the ld. DR, in the alternative could set off such credits from its

dues to M/s.MMTC. Hence, according to him, aggregate value of the

credit notes, not accounted by the assessee was rightly considered for

the addition by the ld. Assessing Officer, and confirmed by Ld.CIT(A).

However, according to him, Ld.CIT(A) fell in error in directing the A.O

to set off the aggregate value of debit notes while calculating the

addition. As per the ld. DR, both credit as well as debit notes were

considered by the ld. Assessing Officer while calculating the addition

required for unaccounted credit notes. Submission of the ld.

Departmental Representative was that ld. Assessing Officer had

mistakenly stated the addition to be aggregate of credit notes alone in

the remand report. Hence, as per the ld. Departmental Representative

value of debit notes having already been deducted, direction of ld.

Commissioner of Income Tax (Appeals) in this regard was superfluous.

ITA Nos. 1447, 1448, 1988, :- 72 -: 1989, 1449 to 1455, 1485 to 1491/17.

We have heard the rival submissions. What was held by the 73.

Ld.CIT(A) on the question of credit notes subject to addition has been

reproduced by us at para 23 above. There is no case for the Revenue

that assessee was maintaining more than one account in the name of

M/s.MMTC in its books. It is also not probable that M/s.MMTC was

having more than one account in the name of the assessee in its

books. Thus, all entries relating to transactions entered by the

assessee with M/s.MMTC had to be reflected in these accounts. The

effect of non accounting of credit / debit notes issued by M/s.MMTC, if

it was legitimately done, would result in a difference in the balances

as per M/s.MMTC account and as per the assessee’s account. Claim of

assessee all along was that a number of credit notes were not received

by it and if the aggregate of credit notes were considered, than huge

amounts would have been due from M/s.MMTC to the assessee

whereas it was vice-versa. What we find is that the Arbitration

proceedings were initiated by the assessee against M/s.MMTC, in

which allegations are there on various counts like difference on

amounts received as buyer’s credit, on quantity of gold delivered, on

excess payment made by the assessee, on legitimacy of various debit

and credit notes issued by M/s.MMTC etc. Relevant paras of this

petition is reproduced here under:

ITA Nos. 1447, 1448, 1988, :- 73 -: 1989, 1449 to 1455, 1485 to 1491/17.

“11.The Claimants state that the Respondent has indulged in the following among other malpractices/deficiencies, to the determent of the Claimants: a. During the period 2009-10, the Claimants received Delivery Notes for 50,438 Kgs., of Gold, but the actual deliveries were only for 50,403 Kgs., of Gold. There was a deficit of 35 Kgs., Based on today’s price, it works out to `10,95,00,000/-.

b. Excess invoiced (generally) and specifically: i) On 31/01/2011 vide invoice No.d109/003907/di-I the Respondent raised an invoice for `21,15,38,550/-, whereas the actual transaction was only for `2,18,31,555/-. Excess invoice raised by respondent was for `18,97,06,995/-.

ii) On 22/04/2010 vide invoice No.#d109/00344/di-I vide raised an invoice for `5,10,85,532/-, when the acual transaction was only for `1,37,00,000/-. Excess invoice raised by Respondent was for `3,73,85,532/-. iii) Total excess invoice made was for `22,70,92,527/- (`18,97,06,995 + `3,73,85,532)”

“13. As detailed above, the excess funds of Claimants retained by the Respondnet are 58,78,00,000/-(Rupees Fifty Eight Crores Seventy Eight Lakhs only), which the Respondnet is liable to pay the Claimants along with interest. The Claimants provide the day- to-day details of the Bullion purchases, eschange rate of US Dollar fixed with the Respondent/ their Bankers and payments made by the Claimants vide cheques. The details available and being filed herewith are:

a. Bullion Purchased andForex fixed for the years 2009-10, 2010- 11 & 2011-12

b. Payments made for the Bullion purchased for the years 2008- 09, 2009-10, 2010-11 and 2011-12

c. Quantity of Bullion received by the Claimants from the Respondent for the years 2009-10, 2010-11 & 2011-12.”

“e. The Claimants seek appropriate orders from this Hon’ble Tribunal directing the Respondent to submit the accounts it has for each transaction it had with the Claimants regardingthe so called Buyer’s Credit facility along with the other details listed herein after. Once the Respondent submits the accounts and other details, Claimants will check and reconcile the accounts and records that may be submitted by the Respondent with the accounts and records maintained by the

ITA Nos. 1447, 1448, 1988, :- 74 -: 1989, 1449 to 1455, 1485 to 1491/17.

Claimants. Only if the accounts and details as requested herein are submitted by the Respondent, it will be possible to arrive at the amount which is due by the Respondnet to the Claimants because all the details are in the total exclusive knowledge and possession of the Respondent only.”

“16. Respondent by its mail dated 28th Dec.,2011, sent one further debit note and two credit notes towards interest on loan against deposits for the financial years 2008-09, 2009-10 and 2010-11. The Debit Note No.AR09/001110/DN-11 dated 28.12.2011 was for 3 `5,76,47,862/-; the Credit Note No.AR09/000265/CN-11 dated 28.12.2011 was for `1,24,72,384/-; and the Credit Note No. AR09/000266/CN-11 dated 28.12.2011 was for `61,59,901/-. The Respondent demanded the Claimants to pay an amount of `33,90,15,577/-(Rupees Thirty Three Crores Ninety Lakh Fifteen Thousand Five Hundred Seventy Seven Only) under the Debit Note after adjusting the amounts payable to the Claimants under the credit notes (i.e. `35,76,47,862/- minus `1,24,72,384/- minus `61,59,901/-) along with 18% interest per annum. As per the note, given at the bottom of the said debit note, it is allebged that it is related to interest on loan against fixed deposits purportedly paid to the banks and purportedly not debited & recovered from the Claimants during the year 2008-09. Obviously the Debit Note is baseless, untenable, highhanded, illegal and barred by limitation. Additionally, the amount debited was again under the A.C Head “HOR suspense Account” of the Respondent. As stated earlier, no copy of the alleged “HOR suspense Account” was ever furnished to the Claimants. It was not known how the amount, which was related to the interest on loan against fixed deposits and pertaining to a period which was more than 3 years old was suddently debited to the Claimants’ account in December 2011. As stated elsewhere, the Claimants never opened any fixed deposits and it is the obligation of the Respondents to open fixed deposits, that too in the name of the Respondent. Only the Respondent could avail loans if any, depending on the necessity of the Respondent. The Claimants had nothing to do with the fixed deposits nor did it authorize any loan to be taken against any fixed deposit. As the Claimants were not the fixed deposit holders, it was impossible for the Claimants to avail any loan on the basis of the fixed deposits. The Respondent is exclusively responsible, liable and answerable regarding each and every transaction.”

M/s.MMTC had filed an appeal, assailing the arbitration. Bickerings

between M/s.MMTC and the assessee reached Hon’ble Madras High Court

ITA Nos. 1447, 1448, 1988, :- 75 -: 1989, 1449 to 1455, 1485 to 1491/17.

and their Lordships in O.S.A No.244 of 2014, through judgment dated

28.10.2014 took note of these disputes. Para-12 of the judgment reads

as under:-

“12. Insofar as the first two respondents are concerned, they moved an application u/s.8 of the Arbitration and Conciliation Act, 1996, alleging arbitration agreement inter se the parties in the Memoradum signed bythe parties. The Memorandum of understanding dated 02.04.2008 contains clause 11 as under:-

M/s.MMTC did not stop here but preferred to move Hon’ble 74.

Apex Court against the judgment of Hon’ble jurisdictional High Court.

Their Lordships in this appeal numbers as Civil Appeal No.11148 of

2017 held as under:-

“The Parties agree that the plaint in the suit betreated as claim of the appellants and the claim petition filed by the respondents

ITA Nos. 1447, 1448, 1988, :- 76 -: 1989, 1449 to 1455, 1485 to 1491/17.

before the Arbitrator be treated as counter claim. The said documents will be furnished by the appellant to the learned Arbitrator within a period of two weeks from today. The venue of the arbitration can be at place convenient to the Arbitrator. However, the seat of the Arbitrator will be taken to be at Chennai. The Arbitrator will be at liberty to take any expert assistance.”

We also find that assessee was chargesheeted by CBI for 75.

connivance with officials of M/s. MMTC in falsifying their accounts and

causing wrongful loss to them. Assessee had challenged this before

Hon’ble Jurisdictional High Court. Hon’ble Jurisdictional High Court

while quashing the proceedings clearly held that the dispute between

assessee and MMTC was civil in nature and approved arbitration

proceedings initiated under clause 11 of MOU dated 02.04.2008. What

was held by their lordships in the judgment dated 17.04.2017 in

Criminal Original Petition no. 21243 of 2014 and Criminal Revision

case No.1191 of 2015 is reproduced hereunder:-

‘’213. The Memorandum of Understanding dated 02.04.2008 and clause 11 thereof would clearly indicate that the entire transaction is civil in nature. It is to be noted that the MMTC Ltd., Chennai had also filed a Civil Suit in C.S.No.249 of 2013, which is still pending on the file of this Court for recovery of certain amounts from the petitioners and the first accused. If a business decision had resulted in loss even as per the prosecution case, (as found in the charge sheet in the middle of page No.5) it would be in the account of the customer. Claiming the same, debit notes were raised by MMTC Ltd Chennai and arbitration proceedings were initiated by M/s. Shiv Sahai and Sons. . All the above facts would clearly indicate and prove that the entire transaction which took place between MMTC

ITA Nos. 1447, 1448, 1988, :- 77 -: 1989, 1449 to 1455, 1485 to 1491/17.

Ltd., and M/s. Shiv Sahai and Sons are completely civil in nature. 214. This Court takes the risk of repetition, that in the charge sheet the loss towards foreign exchange was quantified as Rs.36.02 crores, the interest on Loan against Fixed Deposit which was not passed on the customer was fixed as Rs.36.18 crores, and a loss of a sum of Rs.18.42 crores was fixed towards usance of LC charges. The total amount thus covered under the charge sheet is Rs. 90.52 crores. However, it seems that there are a lot of variations with reference to the quantum of loss shown in the First Information Report as well as in the charge sheet. 215. A cursory reading of the averments of page no.6 of the charge sheet which runs over the next page would go to show � that out of 132 bullion consignments eight buyer s credit resulted in gain but, major number of consignments during the relevant period resulted in loss. 216. It could be seen from document No. 51 which is a tour report, that there was an acute man power shortage and the report suggested to engage sufficient man power to complete the task and to reconcile all the imports of bullion. The report of M/s.Purushothaman and Company, Auditors for the year ending 31st March, 2009 would also go to show that the internal mechanism needs to be strengthened and proper utilisation of the BTS Software to account the bullion trading to be done effectively. 217. As rightly argued by Mr. Muralikumaran, learned counsel for the petitioner, the prosecution did not produce even a single scrap of paper to show that Mr.V.Gurumoorthi was either authorised person or the only person authorised to make deposits and to take loans from foreign banks. 218. It is therefore clear that it is the duty of the prosecution to � put forth some documents such as Board s resolution, its guidelines, norms and authorisations pertaining to making of deposits and availing of loans from the deposits for the purpose of making out a prima facie case. In the absence of such documents, it can easily be presumed that the prosecution has miserably failed to make out a prima facie case as against the petitioners. 219. On careful examination of the materials placed before this Court, this Court finds that there is no investigation on the line as to how, crores and crores of deposits were made in banks out of the sale proceeds without paying the suppliers and how loans

ITA Nos. 1447, 1448, 1988, :- 78 -: 1989, 1449 to 1455, 1485 to 1491/17.

were taken and how the banks were chosen for deposits as well as for taking loans and why for the serious lapses no bank officials were made liable?. Moreover, no documents were produced by the respondent-police (CBI) which led to the making of deposits and taking of loans. 220. Even as per the Special Audit Report, the entire problem was due to the placing of fixed deposits for a longer period. It could be seen from page no.66 of the Special Audit Report which proceeds to say that the Fixed Deposits as well as LADs were in excess to the extent of Rs.776 crores/Rs.885crores. 221. The Investigating Officer has miserably failed to find an answer for the question: ‘’as to whether the allocation of duties and responsibilities including the delegation of powers at various levels of management is fair/proper/justifiable and the same have been adequately defined by the prosecution? 222. This Court from the related materials is able to find that the Comptroller and Auditor General of India came down heavily on MMTC Ltd., pointing out that there was failure to adhere to the instructions and non-realisation of dues on the avoidable loss towards interest. 223. On perusal of the averments made in the first information report as well as in the charge sheet this Court is of considered view that M/s.Shiv Sahai and Sons had resisted the claim made by M/s. MMTC Ltd., Chennai and ultimately, if, in the arbitration, it is proved that the loss occurred to MMTC Ltd., Chennai was due to the negligence on the part of the officials of MMTC Ltd., they would be held liable independently. As discussed in the beginning paragraphs of this Order, there is no legality or genuineness in the complaint. 224. As contemplated under Section 233A of the Companies Act, the Special Audit can be appointed only by the Central Government. This , so called Special Audit was not appointed by the Central Government nor by the Comptroller and Auditor General of India In so far as the case on hand is concerned, as could be seen from the reply given for the RTI, by the Comptroller and Auditor General of India, the so called Special Audit Report was not placed before the Comptroller and Auditor General of India for his comments and observations. 225. It could be seen from the report of the Comptroller and Auditor General of India, that the matter was reported to the Ministry in March 2013 and it is stated that the reply is awaited.

ITA Nos. 1447, 1448, 1988, :- 79 -: 1989, 1449 to 1455, 1485 to 1491/17.

The report of the Comptroller and Auditor General of India will be a very crucial issue as to how, the Ministry wanted the matter to be dealt with because under Section 619A read with Section 233A sub clause 6 of the Companies Act, the Central Government is empowered to take action on such reports. 226. The Special Audit Report says that the maintenance of accounting system is improper. There was inadequate strength at the official level for maintaining the accounts with reference to the financial transactions. 227. On a careful perusal of the entire records placed before this Court, it is found that no incriminating materials are available as against the petitioners to show that they had indulged in the practice of fraud in connivance with the Mr. V. Gurumoorthi (1st accused). The allegations of fraud were made only against the first accused Mr.V. Gurumoorthi and not against the petitioners. It is to be noted that even as per the prosecution case, the first accused Mr.V.Gurumoorthi in connivance and in collusion with the petitioners had fudged the accounts and caused loss to the MMTC Ltd., Chennai From this language, it could be easily understood that no serious allegations of fraud were made against the petitioners because the petitioners could not have had access to the accounts maintained by the MMTC Ltd., Chennai as they were supposed to have handled only by the officials of MMTC Ltd., Chennai. 228. A perusal of the entire charge sheet it would go to show that no prima facie case is made out as against the petitioners to continue the prosecution. Even if the case against the petitioners is allowed to proceed further by way of trial, the chance of conviction would be bleak. 229. It is to be noted that taking into consideration the entire allegations made in the charge sheet, this Court is of firm view that all the allegations are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the petitioners. 230. With reference to Section 120B IPC, it provides punishment of criminal conspiracy. Section 120A IPC defines � � the term criminal conspiracy . The opening portion of the First Information Report reads that during the period from 2007 to 2010 at Chennai and at other places Mr. S.Gurusamy (A1 as per FIR),former Chief General Manager, South Zone, MMTC Ltd., Chennai Regional Office, Chennai, Mr. V.Gurumurthy (A- 2 as per FIR), former General Manager (Finance & Accounts), MMTC Ltd., Chennai Regional Office, Chennai and unknown officials of MMTC Ltd., Regional Office, Chennai had entered

ITA Nos. 1447, 1448, 1988, :- 80 -: 1989, 1449 to 1455, 1485 to 1491/17.

into a criminal conspiracy with Mr. N.P.Agarwal, (A3 as per FIR) Proprietor M/s.Shiv Sahai and Sons and with unknown officials of Union Bank of India Main Branch, Chennai to cheat the MMTC Ltd.,in the matter of bullion trading through buyers Credit Scheme. � � 231. Conspiracy in terms of Section 120B of the Code is an independent offence. The ingredients of criminal conspiracy as laid down by the Apex Court in R.Venkatakrishnan V CBI (2009 11 SCC 737):AIR 2010 SC 1812: 2009 (11) SCALE 102: (2009) 13 SCR 762 are: (i) an agreement between two or more persons; (ii) the agreement must relate to doing or causing to be done either (a) an illegal act; (b) an act which is not illegal in itself but is done by illegal means. In Lennart Schussler vs Director of Enforcement, New Delhi (1971 ) 1 SCJ 199): (1971) 1 33 Mad LJ (SC 33), the Apex Court has held that : ‘’The gist of the offence under Section 120A is that agreement between two or more persons to do or cause to be done an illegal act or a legal act by illegal means subject to the proviso that the agreement does not except agreement to commit offence, amount to a conspiracy unless it is followed by an overt act done by one or more persons in pursuance of such an agreement. An agreement to do an illegal act which amounts to a conspiracy will continue as long as the members of the conspiracy remain in agreement and as long as they are acting in accord and in furtherance of the object for which they entered into the agreement.’ ’ 232. In the charge sheet it is stated that during the period 2008- 2009 A1 to A3 (as per charge sheet) (1) Mr.V.Gurumurthy, former General Manager (Finance & Accounts), MMTC Ltd., Chennai Regional Office, Chennai and unknown officials of MMTC Ltd., Chennai Regional Office, Chennai (2) Mr. N.P.Agarwal, Proprietor M/s.Shiv Sahai and Sons and (3) Mr. Ganesh Agarwal (A3 as per charge sheet) had entered into a criminal conspiracy at Chennai and other places to do or cause to be done certain illegal acts., viz., to cheat MMTC Ltd., Chennai (A Government of India Undertaking) in the matter of � purchase of gold under the Buyer s Credit Scheme. 233. One can easily infer and understand the contradiction and inconsistency between the First Information Report and the charge sheet with reference to the alleged offence of conspiracy.

ITA Nos. 1447, 1448, 1988, :- 81 -: 1989, 1449 to 1455, 1485 to 1491/17.

ITA Nos. 1447, 1448, 1988, :- 82 -: 1989, 1449 to 1455, 1485 to 1491/17.

‘’whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to �cheat’’. � Explanation A dishonest concealment of facts is a deception within the meaning of this section Section 416 IPC deals with Cheating by personation Section 417 IPC is the penal provision for cheating. It reads that whoever cheats shall be punished with imprisonment of either description for a term which may extend to one year, or with fine, or with both. Section 418 IPC deals with Cheating with knowledge that wrongful loss may ensue to person whose interest offender is bound to protect. Section 420 deals with Cheating and dishonestly inducing delivery of property. It enacts as under: ‘’ whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, � and shall also be liable to fine. Simple cheating is punishable under Section 417 IPC, but where there is delivery or destruction of any property or alteration or destruction of any valuable property resulting from the act of a person deceiving this section (420 IPC) comes into operation. For an offence under this Section, it must be proved that the complainant parted with his property acting on a representation which was false to the knowledge of the accused and that the accused had a � dishonest intention from the outset. (See Moharik Ali s case (1958 SCR 328: AIR 1957 SC 857) The offence under Section 420 IPC has the following essentials: (i) There must be deception i.e. the accused must have deceived some one: (ii) That by the said deception. The accused must induce a person: (a) to deliver any property; or (b) to make, alter or destroy the whole or part of the valuable Security or anything

ITA Nos. 1447, 1448, 1988, :- 83 -: 1989, 1449 to 1455, 1485 to 1491/17.

which is signed or sealed and which is capable of being converted into a valuable property; (iii) That the accused did so dishonestly. 239. For a person to be convicted under Section 420 IPC, it has to be established not only that he has cheated someone but also that by doing so he has dishonestly induced the person who was cheated to deliver any property etc., The alleged deceit when arises out of breach of business contract which was purely civil transaction, it does not create any criminal liability. This principle is laid down in Vinar Ltd., V Chenab Textile, 1989 Crl.L.J. 1858 (J & K) 240. In the given case on hand, as it is seen from the final report, that in pursuance of the conspiracy A1 to A3 had speculated in Indian rupee-US Dollar Foreign Exchange fluctuation and they had intentionally omitted to take forward cover for the purchases � made and availed foreign exchange loan under Buyer s Credit Scheme and thereby caused wrongful loss of Rs.113.38 crores to the MMTC Ltd., Chennai and corresponding wrongful gain to the petitioners. In order to substantiate these allegations no substantial or adequate grounds are available against the petitioners. Admittedly, the transaction between the complainant MMTC Ltd., and the petitioners is a commercial transaction. In the absence of proof of conspiracy and the criminal intention to cheat the MMTC Ltd., it could not be heard to say that the petitioners have committed the offence of cheating. Everything is borne out by records as stated in the Special Audit Report. The failure, on the part of the officials of MMTC Ltd., to maintain proper accounting system could not rise to the commission of any offence much less the offence of cheating. Therefore, the alleged charges leveled against the petitioners under Section 120B r/w Section 420 IPC are liable to be quashed, as no case of cheating is made out. 241. The next charge levelled against the petitioners is under Section 477A IPC. At the outset, this Court would say that the charge under Section 477A of IPC as well as under Section 13(2) r/w 13(1)(d) of Prevention of Corruption Act, 1988 could not be made against the petitioners, as they are not concerned with this offence. The reason why is that the offence under Section 477A IPC is relating to falsification of accounts and the offence under Section 13(1)(d) of Prevention of Corruption Act, 1988 is relating to criminal misconduct by a public servant.

ITA Nos. 1447, 1448, 1988, :- 84 -: 1989, 1449 to 1455, 1485 to 1491/17.

Section 13(1)(d) of Prevention of Corruption Act, 1988 enacts that a public servant, if said to commit the offence � of criminal misconduct, ���� (a) . ���� (b) . ���� (c) . � (d) if he, (i) by corrupt or illegal means, obtains for himself or for any other person any valuable thing or pecuniary advantage; or (ii) by abusing his position as a public servant, obtains for himself or for any other person any valuable thing or pecuniary advantage; or (iii) while holding office as a public servant, obtains for any person any valuable thing or pecuniary advantage without any public interest; The offence under Section 13(1)(d) of Prevention of Corruption Act, 1988 certainly cannot be connected with the petitioners because Mr. N.P.Agarwal (A2) being the proprietor of M/s.Shiv Sahai and Sons is one of the parties to the Memorandum of Understanding, dated 02- 04-2008. The MMTC Ltd., is also one of the parties. However, the third accused Mr. Ganesh Agarwal is not a party to the contract. Since the petitioners are third parties to the administration of MMTC Ltd., the offences under Sections 477A and Section 13(1)(d) of the Prevention of Corruption Act, 1988 cannot be linked with them. Section 13(2) of the Prevention of Corruption Act, 1988 is the penal provision for the offences under Section 13(1)(a)(b)(c)(d)&(e) of the Prevention of Corruption Act, 1988. Therefore, since they are not connected with the above said charges under Section 13(1)(d) of the Prevention of Corruption Act, 1988 they cannot be punished even if the charge is proved against them under Section 13(2) of the said Act. 242. For the foregoing reasons the charges under Section 477A IPC and Section 13(2),r/w 13(1)(d) of the Prevention of Corruption Act, 1988 would not be attracted as against the petitioners, as no prima facie case is made out against them’’.

ITA Nos. 1447, 1448, 1988, :- 85 -: 1989, 1449 to 1455, 1485 to 1491/17.

Thus, in our opinion, there is much strength in the argument of the

assessee that credit and debit notes issued by M/s. MMTC could not be

taken at face value and could have been raised by them to cover-up

their own misdeeds.

That apart, as pointed out by the ld.AR, debit notes as well 76.

as credit notes issued by M/s.MMTC were vague and carried narrations

like ‘claim pending reconciliation’, ‘reserve for bad and doubtful debts’,

‘incompletion of VTS under ERP software system’, ‘exchange rate

difference’, ‘notional entries passed as per AS-11’ etc. However, these

credit/debit notes do not show how assessee became entitled for the

credit or assessee was bound by the debits. In such a situation, in our

opinion, assessee could not have been saddled with the onus of

reconciling the differences in accounts. No way, it can be said that

credit notes were assessee’s income or debit notes, were assessee’s

expenses. The outcome of the arbitration proceedings, in our opinion

will have a great bearing on the quantum of reconciliation difference

for which assessee, if at all is liable. In such circumstances, we are of

the opinion an addition for difference in accounting credit and debit

notes could not have been made for impugned assessment years. Even

if there is some income arising to the assessee, it will crystallized only

in the year in which the arbitration proceedings reach a finality.

ITA Nos. 1447, 1448, 1988, :- 86 -: 1989, 1449 to 1455, 1485 to 1491/17.

Revenue may, if it choose, take cognizance of the Arbitral award, in

the year in which the arbitration is complete and proceed according to

law. We therefore set aside the additions made for credit /debit notes

and differences in reconciliation with M/s. MMTC for the impugned

assessment year. Ground 2 to 4 of the assessee is allowed.

in its ground No.5, the grievance raised by assessee is on 77.

additions made by the ld. Assessing Officer for inadequate drawings,

which was confirmed by the Ld.CIT(A). Similar ground has been raised

by the assessee in its appeal for assessment year 2006-07 also as

Ground No.5. We have already held at para 50 that such additions

were not warranted in the facts and circumstances of the case.

Addition for impugned assessment year also stands deleted. Ground

No.5 of the assessee is allowed.

Vide its ground No.6, assessee is aggrieved on an addition of 78.

`1,64,05,327/- for difference in M/s.State Trading Corporation

(M/s.STC) account. On a perusal of the impugned assessment order,

we find that the ld. Assessing Officer had made this with the following

narration.

“for the detailed reasons discussed in the assessment order of even date for assessment year 2011-12, a disallowance of

ITA Nos. 1447, 1448, 1988, :- 87 -: 1989, 1449 to 1455, 1485 to 1491/17.

`1,64,05,327/- is made towards income from M/s.STC for this year credited in assessment year 2010-11”.

Contention of ld. Authorised Representative, before us is that there

was nothing in the assessment orders as to the reason why the

addition was made On a perusal of the assessment order for

assessment year 2011-12, we find that there is no discussion

whatsoever regarding any reconciliation difference or income from STC

credited in assessment year 2010-11 or in any other year. No doubt

ld. Departmental Representative has pointed out para No.8.1 of the

assessment order which according to him hints on such income from

M/s. STC. Said para is reproduced hereunder:-

‘’The assessee’s business is such that he has to pay the cost of the gold bars in advance to MMTC/ STC/ Other banks. Huge sums of money are required to be paid to MMTC/STC/ banks through banking channel. That is the reason why, as admitted by Shri. Naresh Prasad Agarwal, there is no credit sales in his business as per normal commercial meaning. Individuals or jewelers have to pay the cost of god in advance either by cash or by account transfer or RTGS. Availability of adequate cash/bank balance is an absolute necessity to purchase the gold bars’’.

We do not find anything in the above para to show what was the

nature of the income sought to be added as from STC. Discussion in

the assessment order for assessment year 2011-12 is only on

ITA Nos. 1447, 1448, 1988, :- 88 -: 1989, 1449 to 1455, 1485 to 1491/17.

difference with regard to M/s.MMTC credit/debit notes and

reconciliation. The order of Ld.CIT(A), also does not deal with any

issue regarding addition made by the ld. Assessing Officer for income

from M/s.STC. Only conclusion we can reach is that the addition

made by the ld. Assessing Officer was purely on a surmises. The said

addition stands deleted. Ground No.6 of the assessee is allowed.

In its ground No.7, grievance raised by assessee is on the 79.

addition made for bullion Margin Money account. This issue has been

considered by us at para Nos.53 & 54 above order in relation to

Ground No.6 raised by the assessee in its appeal for assessment year

2006-07. For the very same reasons as mentioned in these paras, we

give similar directions here also. Ground No.7 of the assessee is partly

allowed.

Now we take up cross-appeal of the Revenue for assessment 80.

year 2007-08. Grounds taken by the Revenue are reproduced

hereunder :-

ITA Nos. 1447, 1448, 1988, :- 89 -: 1989, 1449 to 1455, 1485 to 1491/17.

2.1 The ld.CIT(A) ought to have appreciated the fact that the assessee has deliberately under invoiced its cash sales made to buyers without bills as compared with sales made to jewellers with bills resulting in huge difference between the two when both the sales were made in cash.

2.2. The learned CIT(A) erred in allowing relief on the ground that the AO has not subjected the books of account to special audit, overlooking the modus operandi of the assessee, discussed in detail in the assessment order, and also the reasons recorded by the AC for non-rejection of books of account in para 7.19 of the assessment order for A.Y 2011-12, on the basis of which, addition was made in the assessment order for A.Y. 2007-08 in the assessee’s case.

2.3. The learned CIT(A) is not justified in allowing relief on the basis of sales tax orders submitted during the appeal proceedings as an additional evidence, without giving an opportunity to the AO under Rule 46A of the IT Rules, 1962.

2.4. Having held that parallel set of books of accounts were not found in the assessee’s case, the learned CIT(A) ought to have appreciated that in the modus operandi employed by the assessee there is no need for “parallel” set of books since the exact quantum of suppression of cash sales amount and the amount introduced in bullion margin account was known only to the assessee or his son and the fact of suppression of cash sales was entirely within their knowledge.

2.5. The learned CIT(A) having deleted the addition by accepting the explanation of the assessee as to why the selling rate could be lesser than invoice purchase rate when the real issue at hand was why the selling rate as per cash bills was less than that of selling rate as per bills to jewellers (to be accounted by purchasers) when there is no difference between them while fixing the rates as per seized diaries and as admitted by the assessee u/s 131 that “in bullion trade there is no credit sales in the normal meaning” (with higher margin when compared to cash sales).

2.6 The ld.CIT(A) ought to have appreciated the various circumstantial evidences and facts gathered by the AO in the form of obtaining the rates from various Registered Professional Jewellers’ Associations, the Sales Tax Authorities as well as from the sworn statements of the assessee’s staff to prove the fact of deliberate suppression of sales by the assessee through such

ITA Nos. 1447, 1448, 1988, :- 90 -: 1989, 1449 to 1455, 1485 to 1491/17.

non-genuine business transactions and ought to have confirmed the addition made in the assessment for A.Y 2007-08 in this case.

3.1 The ld.CIT(A) ought to have appreciated that while computing the peak credit (as per detailed working sheets for the A.Y.s 2006-07 to 2010-11 annexed to the assessment order for AY 2011-12) the adjustments have already been taken into account by the AO and there is no double addition as claimed by the assessee.

3.2. The ld.CIT(A) has erred in directing to allow relief from the sales without appreciating that the peak credit addition made is towards unexplained credits introduced i.e for the reasons that no details from whom received etc were furnished by the assessee with respect to such buyers from whom the amounts were stated to have been received.

3.3. The ld.CIT(A) ought to have appreciated that the fact that the said amounts were also accounted for as sales, does not absolve the assessee from the liability of proving the source of such credits irrespective of whether the same were adjusted against sales or any other transactions thereafter upon such receipt.

4.1 The ld.CIT(A) ought to have appreciated that the addition made in the assessment order for A.Y 2007-08 in the case of the assessee, was based on the findings of the AO in para 9.3 of the assessment order u/s 143(3) r.w.s 153A of the IT Act for A.Y 2011-12 in the assessee’s own case, which clearly establishes that the debit notes were taken into consideration while arriving at the net of credit notes.

ITA Nos. 1447, 1448, 1988, :- 91 -: 1989, 1449 to 1455, 1485 to 1491/17.

4.2 The ld.CIT(A) ought to have appreciated that as per the chart of reconciliation furnished by the assessee during the course of assessment proceedings, the net of credit notes (i.e., total amount of credit notes minus total amount of debit notes) issued by MMTC was higher than the net income (i.e. income minus expenses) from transactions with MMTC as per assessee’s books of account and since, this difference (excess) was not accounted in the books of account of the assessee, the addition was made in the assessment for A.Y 2007-08 in the assessee’s case.

5.1 Having held that the assessee was well within his lending capacity to advance monies without charging interest out of own capital as well as interest free advance received, the Id. CIT(A) ought to have appreciated that the assessee has not furnished the details of the availability of interest free funds as on the date of making the interest free advance.

6.1 The ld.CIT(A) ought to have appreciated that the assessee himself had admitted to using the cars for personal benefit in his sworn statement u/s.131 of I.T Act, recorded on 12-03-2014 and therefore ought to have upheld the disallowances made towards this account.

ITA Nos. 1447, 1448, 1988, :- 92 -: 1989, 1449 to 1455, 1485 to 1491/17.

Grounds Nos.1 & 7 are in general, needing no specific 81.

adjudication. Ground No.2 is similar to ground No.2 raised by the

Revenue for assessment year 2006-07. We have already held at para

61 above, that Ld.CIT(A) was justified in deleting the sales

suppression estimated by the ld. Assessing Officer. For the very same

reasons mentioned therein, we dismiss ground No.2 of the Revenue.

Ground No.3 of the Revenue assails the direction of the 82.

Ld.CIT(A) to reduce the peak bullion margin money amount from the

sales accounted by the assessee. We have at para 63 above, in

relation to a similar ground, raised by Revenue for assessment year

2006-07, held that the directions given by Ld.CIT(A) was justified,

since otherwise there will be duplication. Accordingly Ground No.3 of

the Revenue is dismissed.

Ground No.4 of the Revenue assails the direction of the 83.

Ld.CIT(A) to reduce the value of debit notes also while taxing the

aggregate of credit notes. We have already held at paras 73 to 76

above, in relation to assessee’s grounds Nos.2 to 4, that there could

have been no addition for such reconciliation differences considering

the disputes between the assessee and MMTC. Since the addition as

such has been deleted by us, the directions given by ld. Commissioner

ITA Nos. 1447, 1448, 1988, :- 93 -: 1989, 1449 to 1455, 1485 to 1491/17.

of Income Tax (Appeals) in this regard has become superfluous. In the

result, Ground No.4 of the Revenue is dismissed as infructuous.

Ground No.5 raised by the Revenue for the impugned 84.

assessment year is similar to its ground 4 for assessment year 2006-

07, which assails the deletion of disallowance made by the ld.

Assessing Officer for pro-rata interest on the interest bearing funds

diverted for interest given free advances. We have already held at

para 65 above, that the disallowance was not warranted. For the very

same reasons mentioned thereon, we uphold the order of the

CIT(Appeals) deleting such disallowance. Ground No.5 of the Revenue

stands dismissed.

In its ground No.6, Revenue assails the deletion of 85.

disallowance of �1,45,966/- for personal use of car. This issue has

also been dealt by us in Revenue’s appeal for assessment year 2006-

07 against its ground No.5. We have already held at para-67 above,

that such disallowance was rightly made by the ld. Assessing Officer

based on the admission of the assessee and ld. Commissioner of

Income Tax (Appeals) fell in error in deleting it. The addition is re-

instated. Accordingly, ground No.6 of the Revenue is allowed.

ITA Nos. 1447, 1448, 1988, :- 94 -: 1989, 1449 to 1455, 1485 to 1491/17.

Now, we take up the cross-appeals of the assessee and the 86.

Revenue for assessment year 2008-09 in that order.

Grounds taken by the assessee are reproduced hereunder:- 87.

ITA Nos. 1447, 1448, 1988, :- 95 -: 1989, 1449 to 1455, 1485 to 1491/17.

The learned CIT(A) though provided relief from double taxation but failed to understand the fact that names, address, and other KYC norms was not applicable for sales below Rs.2/- lakhs and hence the ap0t did not maintain the same, hence confirming the addition on account of unexplained credits is bad in law.

Out of the nine grounds, Ground No.1 is general, requiring 88.

no specific adjudication.

Grounds 2 to 4 are similar to grounds Nos.2 to 4 raised by 89.

the assessee in its appeal for assessment year 2007-08. It assails the

order of Ld.CIT(A) confirming the addition made for credit notes issued

by M/s.MMTC not accounted by assessee. We have already held at

para 73 to 76 above that the addition was not justified and deleted

such addition. Reasons for taking this view has also been stated in

these paras. Accordingly, grounds 2 to 4 of the Assessee is allowed.

year is similar to its ground 5 raised for assessment year 2006-07,

assailing the addition made for low drawings. We have already held at

para 50 that such addition was not warranted in the facts and

ITA Nos. 1447, 1448, 1988, :- 96 -: 1989, 1449 to 1455, 1485 to 1491/17.

circumstances of the case. Accordingly, the addition for impugned

assessment year is also deleted. Ground No.5 of the assessee is

allowed.

�7,53,46,987/- made for exchange rate fluctuation debited in its

account based on alleged instructions from M/s.MMTC.

Ld.AR submitted that debit for exchange fluctuation loss was 92.

made based on instructions from M/s.MMTC. As per the ld.AR, such

expenditure was reversed in assessment year 2011-12. Contention of

ld.A.R was that there were ongoing dispute between M/s.MMTC and

the assessee with regard to various entries passed by M/s.MMTC in

assessee’s account and the matter was being considered by the

Arbitral Tribunal. Ld.A.R submitted that it was premature at this stage

to disallow exchange fluctuation of �7,53,46,987/- debited by the

assessee under instructions from M/s.MMTC. Contention of ld.A.R was

that the Ld.CIT(A) confirmed the disallowance without considering the

submissions made by the assessee.

Per contra, ld.D.R supported the orders of ld. Assessing 93.

Officer and Ld.CIT(A).

ITA Nos. 1447, 1448, 1988, :- 97 -: 1989, 1449 to 1455, 1485 to 1491/17.

We have heard the rival submissions and perused the orders. 94.

Dispute between M/s.MMTC and the assessee on reconciliation

difference, credit/debit notes isused by M/s.MMTC are all under

arbitral proceedings before the Arbitral Tribunal. As mentioned above

at para 73 to 76 above, in relation to assessee’s appeal for

assessment year 2007-08, there were a number of debit /credit notes,

which did not give any meaningful narration. If M/s.MMTC had charged

on the assessee, exchange fluctuation loss of �7,53,46,987/-, it would

definitely appear in the account of the assessee with M/s.MMTC. We

have already held that ld. Assessing Officer can take a wholesome

view considering the reconciliation differences, if any, between the

assessee and the M/s.MMTC,once the Arbitral Tribunal reaches its

conclusion, in the year which such proceedings are complete.

Assessee in our opinion could not have claimed such amount in the

impugned assessment year when all along its argument was that

credit/debit notes issued by M/s. MMTC were fraudulent. Lower

authorities were in our opinion, justified in disallowing the claim.

Ground No.6 of the assessee is dismissed

Ground No.7 of the assessee for the impugned assessment 95.

year which assails the addition for credits from STC stands is similar to

ground No.6 of its appeal for assessment year 2007-08. We have held

ITA Nos. 1447, 1448, 1988, :- 98 -: 1989, 1449 to 1455, 1485 to 1491/17.

at para-78 above that the addition was without any basis. The

addition stands deleted for the impugned assessment year also.

Ground No.7 of the assessee is allowed.

regarding an addition of `25/- lakhs for want of confirmation from a

creditor, named Duraikannau.

We have perused the orders and heard the rival 97.

submissions. Ld. Assessing Officer had required the assessee to file a

confirmation letter from Duraikannau for the sum of �25 lakhs claimed

to have been received from him. Assessee was unable to file any such

confirmation letter. We find that assessee was given a number of

opportunity during the course of assessment proceedings and also in

the remand proceedings for substantiating the credit. It seems,

assessee could not produce any evidence before the ld. Assessing

Officer. In such situation, we are of the opinion that the Ld.CIT(A)

was justified in confirming the addition of �25 lakhs. Ground No.8 of

the assessee stands dismissed.

ITA Nos. 1447, 1448, 1988, :- 99 -: 1989, 1449 to 1455, 1485 to 1491/17.

Ground No.9 for the impugned assessment year assails the 98.

addition made for bullion margin money u/s.68 of the Act. Similar

ground No.6 raised by the assessee in its appeal for assessment year

2006-07 stands adjudicated by us at paras 53 & 54 above. We give

similar directions for impugned assessment year also. Ground number

9 stands partly allowed.

Now we take up the Revenue’s appeal for assessment year 99.

2008-09.

Grounds 1 & 7 are general needing no adjudication. Grounds 100.

2 to 6 taken by the Revenue are similar to grounds 2 to 6 taken by it

for the assessment year 2007-08. Directions given by us at paras 61,

63, 83, 65 and 67 for assessment years 2006-07 & 2007-08 will

mutatis mutandis apply here also. Accordingly, ground 6 is allowed,

whereas its grounds 2,3,4 & 5 are dismissed.

Now, we take up cross-appeals of the assessee and the 101.

Revenue for assessment year 2009-10, in that order.

hereunder:-

ITA Nos. 1447, 1448, 1988, :- 100 -: 1989, 1449 to 1455, 1485 to 1491/17.

‘’1. The order of Commissioner of Income Tax (Appeals)- 19 is against the facts of the case and principles of nature justice.

The learned CIT(A) though provided relief from double taxation but failed to understand the fact that names, address, and other KYC norms was not applicable for sales below 2 lakhs and hence the appellant did not maintain the same, hence confirming the addition on account of unexplained credits is bad in law’’.

Out of the above, Ground No.1 is general, needing no 103.

specific adjudication.

ITA Nos. 1447, 1448, 1988, :- 101 -: 1989, 1449 to 1455, 1485 to 1491/17.

Grounds Nos.2 to 4 of the assessee are similar to its grounds 104.

Nos.2 to 4 of its appeal for assessment year 2007-08. We have

already held at para 73 to 76 above that the addition for credit notes

from MMTC was unjustified and deleted it. Grounds Nos.2 to 4 of the

Assessee for assessment year 2009-10 are allowed.

Ground No.5 of the assessee for the impugned 105.

assessment year is similar to its ground 5 of its appeal for assessment

year 2006-07. We have already held at para 50 above that addition

for low drawings was not warranted under the facts and circumstances

of the case. Ground No.5 of the assessee is allowed..

Ground No.6 of the assessee assails an addition for M/s.STC 106.

Credit notes. Similar issue has been raised by the assessee as Ground

No.6 in its appeal for assessment year 2007-08. We have at para-78

deleted such addition. For very same reasons mentioned in the said

para, addition made for impugned assessment year is also deleted.

Ground No.6 of the assessee is allowed.

its appeal for assessment year 2006-07. We have dealt with this issue

at paras 53 & 54 supra. Similar directions are given here also.

Accordingly, Ground 7 of the assessee is partly allowed.

ITA Nos. 1447, 1448, 1988, :- 102 -: 1989, 1449 to 1455, 1485 to 1491/17.

Now we take up the cross-appeal of the Revenue for 108.

assessment year 2009-10. Grounds taken by the Revenue is

reproduced hereunder :-

2.1 The ld.CIT(A) ought to have appreciated the fact that the assessee has deliberately under invoiced its cash sales made to buyers without bills as compared with sales made to jewellers with bills resulting in huge difference between the two when both the sales were made in cash.

2.2. The learned CIT(A) erred in allowing relief on the ground that the AO has not subjected the books of account to special audit, overlooking the modus operandi of the assessee, discussed in detail in the assessment order, and also the reasons recorded by the AO for non-rejection of books of account in para 7.19 of the assessment order for A.Y 2011-12, on the basis of which, addition was made in the assessment order for A.Y. 2009-10 in the assessee’s case.

2.3. The learned CIT(A) is not justified in allowing relief on the basis of sales tax orders submitted during the appeal proceedings as an additional evidence, without giving an opportunity to the AC under Rule 46A of the IT Rules, 1962.

2.4. Having held that parallel set of books of accounts were not found in the assessee’s case, the learned CIT(A) ought to have appreciated that in the modus operandi employed by the assessee there is no need for “parallel” set of books since the exact quantum of suppression of cash sales amount and the amount introduced in bullion margin account was known only to the assessee or his son and the fact of suppression of cash sales was entirely within their knowledge.

2.5. The learned CIT(A) having deleted the addition by accepting the explanation of the assessee as to why the selling

ITA Nos. 1447, 1448, 1988, :- 103 -: 1989, 1449 to 1455, 1485 to 1491/17.

rate could be lesser than invoice purchase rate when the real issue at hand was why the selling rate as per cash bills was less than that of selling rate as per bills to jewellers (to be accounted by purchasers) when there is no difference between them while fixing the rates as per seized diaries and as admitted by the assessee u/s 131 that “in bullion trade there is no credit sales in the normal meaning” (with higher margin when compared to cash sales)

2.6 The ld.CIT(A) ought to have appreciated the various circumstantial evidences and facts gathered by the AO in the form of obtaining the rates from various Registered Professional Jewellers’ Associations, the Sales Tax Authorities as well as from the sworn statements of the assessee’s staff to prove the fact of deliberate suppression of sales by the assessee through such non-genuine business transactions and ought to have confirmed the addition made in the assessment for A.Y 2009-10 in this case.

3.1 The ld.CIT(A) ought to have appreciated that while computing the peak credit (as per detailed working sheets for the A.Y.s 2006-07 to 2010-11 annexed to the assessment order for AY 2011-12) the adjustments have already been taken into account by the AD and there is no double addition as claimed by the assessee.

3.2. The ld.CIT(A) has erred in directing to allow relief from the sales without appreciating that the peak credit addition made is towards unexplained credits introduced i.e for the reasons that no details from whom received etc were furnished by the assessee with respect to such buyers from whom the amounts were stated to have been received.

3.3. The ld.CIT(A) ought to have appreciated that the fact that the said amounts were also accounted for as sales, does not absolve the assessee from the liability of proving the source of such credits irrespective of whether the same were adjusted against sales or any other transactions thereafter upon such receipt.

ITA Nos. 1447, 1448, 1988, :- 104 -: 1989, 1449 to 1455, 1485 to 1491/17.

3.4 The learned CIT(A) ought to have taken note that out of total peak credit of Rs.69,68,90,948 for 5 assessment years (AY 2006-07 to 2010-11) confirmed by him, the peak credit amount in the A.Y 2009-10 has not been separately added but telescoped into the additions on account of suppression of cash sales figures in that year and the ld.CIT(A) ought to have given a direction that consequent to the deletion of addition on account of sales suppression, the telescoped amount of peak credit for A.Y 2009-10 is to be treated as confirmed additions:

4.2 The ld.CIT(A) ought to have appreciated that as per the chart of reconciliation furnished by the assessee during the course of assessment proceedings, the net of credit notes (i.e., total amount of credit notes minus total amount of debit notes) issued by MMTC was higher than the net income (i.e. income minus expenses) from transactions with MMTC as per assessee’s books of account and since, this difference (excess) was not accounted in the books of account of the assessee, the addition was made in the assessment for A.Y 2009-10 in the assessee’s case.

5.1 Having held that the assessee was well within his lending capacity to advance monies without charging interest out of own capital as well as interest free advance received, the Id. CIT(A) ought to have appreciated that the assessee has not

ITA Nos. 1447, 1448, 1988, :- 105 -: 1989, 1449 to 1455, 1485 to 1491/17.

furnished the details of the availability of interest free funds as on the date of making the interest free advance.

6.1 The Ld.CIT(A) ought to have appreciated that the assessee himself had admitted to using the cars for personal benefit in his sworn statement u/s.131 of the I.T Act, recorded on 12.03.2014 and therefore, ought to have upheld the disallowances made towards this account.

Ground 1 is general needing no adjudication. Effective 109.

grounds 2 to 6 of the Revenue are similar to its grounds 2 to 6 in its

appeals for assessment years 2007-08 & 2008-09. The grounds have

been dealt at para 61, 63, 83, 65 and 67 above. For the very same

reasons mentioned in these paras, ground number 6 is allowed,

whereas its ground 2, 3, 4 & 5 are dismissed.

Now, we take up cross-appeals of the assessee and the 110.

Revenue for assessment year 2010-11, in that order.

to 4 and 5 are similar to its grounds Nos.2 to 4 and 5 for assessment

years 2007-08, 2008-09 & 2009-10. These grounds have been dealt

ITA Nos. 1447, 1448, 1988, :- 106 -: 1989, 1449 to 1455, 1485 to 1491/17.

with at paras 73 to 76 and para 50 and the additions have been

deleted. Accordingly, these grounds are allowed for impugned

assessment year also.

`4,93,69,063/- for difference in closing stock.

The ld.A.R submitted that the assessee had not received 113.

30 Kg. gold out of a quantity of 50,405 Kg. gold sold and billed by

M/s.MMTC. As per the ld.A.R, assessee had received only 50,405 Kg.

gold from M/s.MMTC whereas the bills issued by M/s.MMTC should

aggregate to 50,438 Kg. Contention of ld.AR was that lower

authorities disbelieved the claim of assessee and held that there was a

shortage of 30 Kg. in the stock of assessee. As per the ld.A.R, short

delivery of gold was one of the issues on which assessee was

pursuing arbitration remedies. Reliance was placed on Clause-11 of the

Agreement entered on 02.04.2008 with M/s.MMTC, filed before the

Arbitral Tribunal, placed at page-14 of the paper book. According to

him, the question whether there was any shortage of gold in closing

stock was intrinsically connected to reconciliation with M/s.MMTC. As

per the ld.AR, it was therefore premature to make an addition for

shortage of gold.

ITA Nos. 1447, 1448, 1988, :- 107 -: 1989, 1449 to 1455, 1485 to 1491/17.

Per contra, ld.DR supported the order of lower authorities. 114.

We have considered the rival submissions. What was 115.

stated by the ld. Assessing Officer in the assessment order with regard

to shortage of gold is reproduced hereunder:-

“Difference In closing stock (AY.201 0-11):

In your letter dated 5.3.2012 to the ADIT(Inv), you have admitted, in para-4, that as against 50438 kg gold for which MMTC issued bills, the quantity received was only 50405 kg and that 30 kg, gold was still to be received as on 31.3.2010. Vide questionnaire u/s.143(1) dated 27.1.2014 served on 29.1.2014 you were requested to furnish closing stock inventory (branch-wise) and the method and the basis for the valuation. But vide your reply dated 10.3.2014 you have merely reproduced the dosing stock figures in the return. In the absence of required details it is not possible to verify whether the 30kg stock was included in. your closing stock figures. Hence it is proposed to make and addition of Rs.4,93,69,063 @ Rs.1 645635 per kg at which rate purchase of 5121 kg gold from MMTC was entered In your item register on 31.3.2010.

Vide its reply assesses stated as under:

There are no mistakes or error in recording the correct figures of stock that has come in. The error pointed out is only typing error in the bill quantity raised. There is no extra addition in purchase or in closing stock. Hence this addition may kindly be dropped’.

No evidence was produced in support of its claim. The addition is made as proposed.”

What was held by Ld.CIT(A) on assessee’s appeal has been

reproduced at para 25 above. At para 11 of the claim statement filed

by the assessee before Arbitral Tribunal , part of which has been

ITA Nos. 1447, 1448, 1988, :- 108 -: 1989, 1449 to 1455, 1485 to 1491/17.

reproduced by us at para-73 above, the claim regarding shortage of

delivery of gold has been raised by the assessee. It is claimed by

assessee in the arbitral proceedings that assessee received only 50405

Kg gold against delivery notes of 50,438 Kg gold. There is thus much

strength in the argument of the ld.A.R that this is also a reason for the

reconciliation difference between the assessee and the M/s.MMTC, and

a clear indication of anomalies in the books of M/s. MMTC. At para 73

to 76 above, in relation to ground Nos.2 to 4 of the assessee we have

already deleted the addition made for credit notes and reconciliation

difference. We are of the opinion that the question of any shortage in

stock is also intrinsically connected with the reconciliation difference

between assessee and MMTC and can be considered only in the year

the arbitral proceedings reach its logical conclusion. Addition in the

impugned assessment year was not justified. Such addition stands

deleted. Ground number 6 is allowed.

Vide its ground No.7, assessee is aggrieved on an addition of 116.

`3,03,35,736/- made for want of confirmation on credit balance in

trade debtors account.

We have perused the orders and heard the rival submissions. 117.

Credit balance for which the addition was made appeared in the

accounts of following trade debtors.

ITA Nos. 1447, 1448, 1988, :- 109 -: 1989, 1449 to 1455, 1485 to 1491/17.

a) Subramani 2,10,85,736/- b) Sarangapani 76,50,000/- c) Ravi 16,00,000/-

Assessee could not file any confirmation letters either before the A.O

or before the ld. CIT(A). Even during remand proceedings assessee

failed to substantiate the credit. Contention of ld.A.R before us is that

balances in such creditors account was transferred to sales and hence

addition ought not have been done. We are unable to appreciate this

argument. Assessee having introduced credits in the name of these

three persons in its accounts, was obliged to provide confirmation and

substantiate orders. At no point of time, assessee claimed it as part

of advance received for any cash sales and similar to Bullion margin

money. Thus, onus resting on the assessee, was not discharged. We

are of the opinion that addition was rightly done by the lower

authorities. We find no reason to interfere with the orders of lower

authorities. Ground No.7 stands dismissed.

in bullion margin money u/s.68 of the Act. This issue stands

adjudicated by us at para 53 to 54 above in relation to its appeal for

assessment year 2006-07. Similar directions are given here also.

Ground number 8 of the assessee is partly allowed.

ITA Nos. 1447, 1448, 1988, :- 110 -: 1989, 1449 to 1455, 1485 to 1491/17.

Now, we take up cross appeal of the Revenue for 119.

assessment year 2010-11. Grounds 1 & 6 are general, needing no

adjudication.

No.3 for assessment year 2006-07. For reasons given at para 63

above, we dismiss this ground.

Ground No.3 raised by the Revenue is similar to its Ground 121.

No.4 for assessment year 2007-08. For reasons given at para 83, we

dismiss this ground.

Ground No.4 raised by the Revenue is similar to its Ground 122.

No.4 for assessment year 2006-07. For reasons given at para 65

above, we dismiss this ground of the Revenue.

Ground No.5 raised by the Revenue is similar to its ground 123.

No.5 for assessment year 2006-07. For reasons given at para 67

above, we allow this ground of the Revenue.

Now, we take up the cross-appeals of the assessee and the 124.

Revenue for assessment year 2011-12.

of which Ground No.1 is general in nature, requiring no specific

adjudication.

ITA Nos. 1447, 1448, 1988, :- 111 -: 1989, 1449 to 1455, 1485 to 1491/17.

grounds Nos.2 to 4 and 5 for assessment year 2007-08, 2008-09 and

2009-10. These grounds have been dealt by us at paras 73 to 76 and

para 50 above. For reason mentioned in these paras, we delete the

additions. Ground 2 to 4 and 5 are allowed.

`23,67,150/- made for unaccounted investments in a property at

Tiruporur.

proceedings found that assessee’s son Shri Ganesh Agarwal had

executed on 11.08.2010 four sale deeds bearing Nos.5745 to 5748 of

2006 in favour of assessee. The plots transferred were bearing

Nos.292, 299, 335 & 336 and were located at Pudupakkam village,

Tiruporur. Payments were made at the rate of `7,20,000/- per plot.

Ld. Assessing Officer was of the opinion that the cost of one plot

came to `7,84,800/-, if stamp duty also was considered. In the fixed

asset schedule filed along with the return for the impugned

assessment year, assessee had declared value of property at Tiruporur

at `7,89,050/- only. This being equivalent to the cost of one plot, ld.

Assessing Officer took a view that the balance payments made for

ITA Nos. 1447, 1448, 1988, :- 112 -: 1989, 1449 to 1455, 1485 to 1491/17.

acquiring three of the four plots were not explained. Ld. Assessing

Officer considered a sum of `23,67,150/- as unexplained investments.

Appeal of the assessee before the Ld.CIT(A) on this issue, did not

meet with any success.

warranted since payments were made through bank accounts.

According to him, bank account of assessee reflected the payments

and therefore investments stood well explained.

carefully. It is clearly noted by the ld. Assessing Officer that Balance

sheet of assessee’s proprietorship business tallied with its bank

account with ICICI Bank. Obviously, assessee had shown payments

made for 3 out of 4 plots, as utilized for some purpose other than

acquisition of the plots. Ex-consequenti payments made for 3 plots

stood unexplained. We are therefore, of the opinion that lower

authorities were justified in considering the cost equivalent of three

plots as unexplained investment of the assessee. We do not find any

reason to interfere with the order of lower authorities. Ground No.6 of

the assessee stands dismissed.

ITA Nos. 1447, 1448, 1988, :- 113 -: 1989, 1449 to 1455, 1485 to 1491/17.

Ground No.7 of the assessee assailing the addition made for 132.

peak in bullion margin money account is similar to its ground No.6 for

assessment year 2006-07. We have already adjudicated this issue at

para 53 & 54 above. Similar directions are given here also.

Accordingly, Ground No.7 of the assessee is partly allowed.

2011-12.

Grounds Nos.1 & 4 are general, needing no specific adjudication.

disallowance of proportionate interest for diversion of interest bearing

funds for giving interest free advances. This ground is similar to its

ground No.4 in its appeal for assessment year 2006-07. We have for

reasons mentioned at para 65 above, confirmed the order of ld.CIT(A),

deleting such addition. Accordingly, ground No.2 of the Revenue is

dismissed.

made for personal use of cars. This issue has also been dealt by us in

Revenue’s appeal for assessment year 2006-07, wherein the order of

ITA Nos. 1447, 1448, 1988, :- 114 -: 1989, 1449 to 1455, 1485 to 1491/17.

the ld. Assessing Officer has been re-instated. For reasons mentioned

at para 67 above, we set aside the order of the CIT(Appeals) and re-

instate the disallowance made by the ld. Assessing Officer for the

impugned assessment year also. Accordingly, ground No.3 of the

Revenue is allowed.

Now, we take up the cross-appeals of the assessee and the 137.

Revenue for assessment year 2012-13, in that order.

which Ground No.1 is general in nature, needing no specific

adjudication.

grounds Nos.2 to 4 and 5 in its appeal for assessment year 2007-08.

We have already dealt with Grounds 2 to 4 and ground 5 at paras 73

to 76 and 50 above and deleted the addition. Such additions stand

deleted here also. Accordingly, these grounds are allowed.

ITA Nos. 1447, 1448, 1988, :- 115 -: 1989, 1449 to 1455, 1485 to 1491/17.

by the Assessing Officer u/s.68 of the Act for Bullion Margin money

account. This ground is similar to ground 6 in assessee’s appeal for

assessment year 2006-07. The issue has been considered by us at

para Nos. 53 to 54 above. Similar directions are given here also.

Accordingly, ground No.6 of the assessee is partly allowed.

Now, we take up the cross-appeal of the Revenue for 141.

assessment year 2012-13.

Revenue has taken altogether three grounds of which 142.

Ground Nos.1 & 3 are general, needing no specific adjudication.

of `29,48,676/- being proportionate interest for diversion of interest

bearing funds for giving interest free advances. This ground is similar

to Revenue’s ground No.4 in its appeal for assessment year 2006-07.

We have held at para 65 above that ld.CIT(A) was justified in deleting

this addition. Accordingly, ground No.2 of the Revenue is dismissed.

assessee, Shri Naresh Prasad Agarwal now we move on to the appeals

ITA Nos. 1447, 1448, 1988, :- 116 -: 1989, 1449 to 1455, 1485 to 1491/17.

of the assessee, M/s.Shiv Sahai & Sons (I) Ltd., for assessment years

for assessment year 2011-12 & 2012-13.

Revenue for assessment years 2011-12, in that order.

& Sons (I) Ltd., had taken over the bullion trading business of the

proprietorship concern owned by Mr.Naresh Prasad Agarwal in

September, 2010, and was continuing the same business, earlier

done by Mr.Naresh Prasad Agarwal. The business in its entirety was

conducted by the Shri Mr.Naresh Prasad Agarwal and his son Shri

Ganesh Agarwal. The assessments of this company for impugned two

assessment years were also done, pursuant to the search conducted in

its premises on 06.01.2012 and 02.03.2012.

Grounds taken by the assessee for assessment year 2011-12 147.

are reproduced hereunder:-

‘’1. The order of Commissioner of Income Tax (Appeals) - 19 is against the facts of the case and principles of nature justice. 2. The learned CIT (A) erred in adopting the accounts as provided by M/s. MMTC. 3. The learned CIT (A) failed to understand the fact that there were huge errors in the statement of accounts as provided by M/s. MMTC and the erroneous accounts as provided by M/s.

ITA Nos. 1447, 1448, 1988, :- 117 -: 1989, 1449 to 1455, 1485 to 1491/17.

MMTC cannot be considered as the basis for finalization of appellant’s accounts.

The learned CIT(A) though provided relief from double taxation but failed to understand the fact that names, address, and other KYC norms was not applicable for sales below 2 lakhs and hence the appellant did not maintain the same, hence confirming the addition on account of unexplained credits is bad in law’’.

needing no specific adjudication.

made based for reconciliation difference and unaccounted credit notes

vis-à-vis its transactions with M/s. MMTC. Similar ground has been

raised by the assessee, Shri Naresh Prasad Agarwal also in his

appeals for assessment years 2007-08 to 2010-11 (ITA Nos.1450 to

ITA Nos. 1447, 1448, 1988, :- 118 -: 1989, 1449 to 1455, 1485 to 1491/17.

1453/CHNY/2017). We have already held at paras 73 to 76 above that

the addition were not warranted under the facts and circumstances of

the case. For the reasons mentioned in these paras, we delete the

addition in the hands of this assessee also. Grounds 2 to 4 of the

assessee are allowed.

credit balance in sundry debtors account.

following debtors account.

Rs. Sampath,Trichy 1,70,00,000 Sundar,Trichy 1,05,50,000 Thangamani,Trichy 56,00,000 Veeramani,Trichy 1,00,00,000 4,31,50,000

Ld. Assessing Officer considered the above credits as unexplained,

since assessee could not file any confirmation nor give any details on

the above credit balance. Assessee’s appeal before the Ld.CIT(A) did

not meet with any success. Ld.CIT(A), noted that assessee was

unable to furnish any evidence in support of the credits even during

the remand proceedings. Now before, us ld.A.R submitted that the

amounts were adjusted against the sales on 11.04.2011 & 12.04.2011.

As per the ld.A.R, the credit balances were part of sale and transferred

ITA Nos. 1447, 1448, 1988, :- 119 -: 1989, 1449 to 1455, 1485 to 1491/17.

to sales. Hence, according to him, a separate addition could not be

made for it.

his remand Report dated 19.12.2014 stated that assessee had

furnished ledger extracts for all the above four parties. However as

per the ld. Assessing Officer, delivery of goods to these persons were

made after an unduly long period of time. According to him, mere

furnishing of ledger extracts were not sufficient to justify the credit

balance. What we find is that the claim of the assessee that these

creditors were purchasers of gold, and supplies were made to them in

April, 2012 has not been found to be incorrect or false. The

transactions ought not have been disbelieved just for the delay in

supplying the goods. Assessee having shown that sales were effected

to clear the credit in debtors account, in our opinion, an addition

ought not have been made. Such addition stands deleted. Accordingly,

Ground No.5 of the assessee is allowed.

ITA Nos. 1447, 1448, 1988, :- 120 -: 1989, 1449 to 1455, 1485 to 1491/17.

u/s.68 of the Act for peak credit in bullion margin money account.

Similar ground has been raised by the assessee, Shri Naresh Prasad

Agarwal in his appeals for assessment years 2006-07 to 2012-13 ( ITA

Nos.1449 to 1455/CHNY/2017). We have adjudicated this issue at

paras 53 to 54 above. Similar directions are given here also.

Accordingly, ground No.6 raised by the assessee is partly allowed.

2011-12.

Grounds No.1 & 6 are general, needing no specific adjudication.

Ld.CIT(A) to accept the loss claimed by the assessee for the impugned

assessment year.

impugned assessment year. Ld. Assessing Officer, citing a reason that

cash sales made by the assessee were at rates lower than sale of

bullion to jewelers, considered the account of assessee, as not reliable.

ITA Nos. 1447, 1448, 1988, :- 121 -: 1989, 1449 to 1455, 1485 to 1491/17.

In the case of Mr.Naresh Prasad Agarwal, ld. Assessing Officer had

calculated suppression in sales, by substituting the rates adopted for

cash sales with the rates applied for sale to jewelers, and made

additions for assessment years 2006-07 to 2009-10. Ld.CIT(A) on

appeals of the said assessee for those years had deleted such

additions. In Revenue’s appeals for those assessment years in the case

of Shri Naresh Prasad Agarwal, (ITA No.1485/Chny/2017 to

1488/Chny/2017) vide para 61 above, we have already upheld order

of Ld.CIT(A) deleting the addition made by the ld. Assessing Officer.

For the very same reasons mentioned in these paras, we are of the

opinion that Ld.CIT(A) was justified in allowing the claim of loss.

Ground No.2 of the Revenue is dismissed.

direction of Ld.CIT(A) to reduce peak credit amount in bullion money

margin account from the accounted sales of the assessee. Ld.

Assessing Officer had allowed set off of the peak in bullion margin

money account with suppression in sales. We have already held in

relation to the appeal Shri Naresh Prasad Agarwal for assessment year

2006-07 to 2009-10, at para 61 that ld. Commissioner of Income Tax

ITA Nos. 1447, 1448, 1988, :- 122 -: 1989, 1449 to 1455, 1485 to 1491/17.

(Appeals) was justified in deleting the addition made for estimated

suppression sales. We have also held that ld. Commissioner of Income

Tax (Appeals) was justified in allowing the claim of set off of credit in

bullion money margin account with accounted sales for reasons given

by us at para 63 above. We therefore do not find any reason to

interfere with the order of the Ld.CIT(A) in this regard. Ground No.3

of Revenue stands dismissed.

direction of the Ld.CIT(A) to consider debit notes also, while

aggregating the credit notes issued by M/s.MMTC for addition.

Agarwal, where similar additions have been assailed, that such

addition for credit notes and reconciliation difference with M/s. MMTC

was premature and ought not have been done for impugned

assessment years at para 73 to 76 above. At para 83, we have dealt

with the issue of set-off of debit notes also. In line with our

observation at para 83 above, we hold the ground raised by the

ITA Nos. 1447, 1448, 1988, :- 123 -: 1989, 1449 to 1455, 1485 to 1491/17.

Revenue to be infructuous. Ground No.4 of the Revenue is dismissed.

Ld.CIT(A) to delete proportionate interest of `5,88,000/-, for diversion

of interest bearing funds for giving interest free advances. We have

already held at para 65 above, in relation to the appeal of

Department in the case of Shri Naresh Prasad Agarwal for assessment

year 2006-07 (ITA Nos.1485/Chny./2017) that there was no reason to

make any disallowance for proportionate interest, considering the

substantial interest free fund available with the assessee. Accordingly,

we are of the opinion that Ld.CIT(A) was justified in deleting the

addition of `5,88,000/-. Ground No.5 of the Revenue stands

dismissed.

Revenue for assessment year 2012-13, in that order.

which Grounds No.1 is general, needing no specific adjudication.

ITA Nos. 1447, 1448, 1988, :- 124 -: 1989, 1449 to 1455, 1485 to 1491/17.

Grounds Nos. 2 to 4 of the assessee for the impugned 165.

assessment year are similar to grounds Nos.2 to 4 in its appeal for

assessment year 2011-12. For the reasons mentioned in para 149

read alongwith paras 73 to 76, we delete the addition. Grounds 2 to 4

are allowed.

Ground No.5 of the assessee assails the addition made for 166.

peak credit in bullion margin money account. This is similar to ground

No.6 of assessee’s appeal for assessment year 2011-12. We have

adjudicated this issue at para 154 read along with paras 53 & 54

above. Similar directions are given here also. Accordingly, Ground No.5

of the assessee is partly allowed.

2012-13.

Nos.1 & 5 are general, needing no specific adjudication.

ITA Nos. 1447, 1448, 1988, :- 125 -: 1989, 1449 to 1455, 1485 to 1491/17.

Ld.CIT(A) to consider debit notes also while taxing the aggregate

value credit notes raised by M/s.MMTC on the assessee. Similar ground

have been raised by the Revenue as ground 4 in its appeal for

assessment year 2011-12. For the very same reasons mentioned at

para 161 above, we dismiss this ground.

the Ld.CIT(A) to delete proportionate interest of `5,88,000/- for

interest bearing funds diverted for giving interest free advances. This

ground is similar to Ground No.5 raised by the Revenue for assessment

year 2011-12. We have already held at para 162 above, that there

was no reason to make any disallowance for proportionate interest

considering the substantial interest free fund available with the

assessee. Ground No.3 of the Revenue stands dismissed.

addition for a credit balance of `30 lakhs in the account of one

Mrs.Pista Bai.

ITA Nos. 1447, 1448, 1988, :- 126 -: 1989, 1449 to 1455, 1485 to 1491/17.

Findings of Ld.CIT(A) with regard to the addition made for credit

balance in the name of Mrs.Pista Bai appearing at para-42 of his

order, has been reproduced by us at para 44 above. Ld.CIT(A) has

noted that the amounts received from Mrs.Pista Bai were repayment of

earlier advance of `30 lakhs given by Mr.Naresh Prasad Agarwal, when

the business was run as a proprietorship concern. The latter

transactions were reflected in the accounts of the proprietorship

concern. Hence, it was only a repayment of a debt by a debtor. Once

the business was taken over by the assessee company, any repayment

of debt by a debtor will not create a fresh credit but will only square

off the debt. We do not find any reason to interfere with the order of

the CIT(Appeals) . Accordingly, Ground No.4 of the Revenue stands

dismissed.

case of Shri Naresh Prasad Agarwal for assessment years 2006-07,

2007-08, 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13 are partly

allowed. Appeals of the Revenue in the case of Shri Naresh Prasad

Agarwal for assessment years 2006-07, 2007-08, 2008-09, 2009-10,

2010-11 and 2011-12 are partly allowed, whereas its appeal for

ITA Nos. 1447, 1448, 1988, :- 127 -: 1989, 1449 to 1455, 1485 to 1491/17.

assessment year 2012-13 is dismissed. Appeals of assessee M/s.Shiv Sahai & Sons (India) Ltd., for assessment years 2011-12 & 2012-13 are partly allowed whereas those of the Revenue for the very same years are dismissed.

Order pronounced on Wednesday, the 27th day of June, 2018, at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन)) (अ�ाहम पी. जॉज�) (N.R.S. GANESAN) (ABRAHAM P. GEORGE) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai �दनांक/Dated:27th June, 2018 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF