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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Krishna Jewellers Income Tax Officer 104 Rizvi Chambers 2 Jain Pratyakshkar Bhavan, BKC Mandir Marg, Bandra (W) Vs. Bandra(E) Mumbai-50 Mumbai-51 PAN No. AAAFK1515A Appellant .. Respondent .. Shri Rajesh Sanghvi, AR Assessee by Revenue by .. Shri Purushottam Kumar, DR .. Date of hearing 25-05-2017 Date of pronouncement .. 07-06-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-44, Mumbai, in appeal No. CIT(A)-44/ITO 32(2)(2)/ITA-111/15-16 dated 04-10- 2016. The Assessment was framed by ITO ward 32(2)(2), Mumbai for the A.Y. 2012-13 vide order dated 13-03-2015 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the addition made by AO by disallowing cash payment exceeding Rs 20,000/- per day by invoking the provisions of section 40A(3) of the Act. For this assessee has raised following two grounds: - “1) In the facts & circumstances of the case and in law, the Ld. CIT (A) has erred in confirming the addition of Rs. 26,61,052/- ignoring the factual evidences, prevailing business practices and relying solely on the presentation in the books of accounts 2) In the facts & circumstances of the case and in law, the Ld CIT (A) has erred by not even making an Krishna Jewellers A.Y:12-13 attempt to make such further inquiries u/s 250(4) of Income Tax Act read with Ground no. 5 of the first appeal”
Briefly stated facts are that the assessee is in the business of trading and manufacturing of jewellery i.e. sale and purchase. The AO during the assessment proceedings noticed that the assessee has made purchases in cash for an amount of Rs. 26,61,052/- during the entire year in excess of cash payment of Rs. 20,000/- in a day in violation of the provisions of section 40A(3) of the act. Accordingly, he required the assessee to explain the same. The assessee filed explanation that this cash payment of Rs. 26,61,052/- does not amount to cash payment but this is gold received from the customers for which making of ornaments as well as the exchanging of old god ornaments against new ornaments. It was explained that whenever a customer is giving gold for remaking of ornaments we are giving receipt in order book to the customer and issuing sale invoices for new ornaments. According to assessee no cash is paid to the customer whenever they give old gold to the assessee that is either is for making the new ornaments or for exchange. The differential payment is gold receipt which is more than sale price and vice-versa. He explained that this is normal practice in assessee’s trade and there is no cash payment exceeding Rs. 20,000/- attracting the provisions of section 40A(3) of the Act. But the AO has not believe the explanation of the assessee and disallowed the cash payment by invoking the provisions of section 40A(3) of the Act for an amount of Rs. 26,61,052/-. The aggrieved assessee preferred the appeal before CIT(A), who also confirm the action of the AO on the same reasoning. Aggrieved, assessee came in second appeal before Tribunal.
Before us, the learned Counsel for the assessee first of all try to explain the exchange system adopted by the assessee and for this he filed details in the paper book at pages 11 to 18, wherein complete details of customers’ exchange of gold/ given for remaking is depicted. I find that none of the authorities below has examined these details and the explanation of the assessee. The assessee’s explanation before AO has reproduced which reads as under: -
Krishna Jewellers A.Y:12-13 “………......the dealer has shown payment exceeding Rs.20000 amount to Rs.2661052/-. Out of Rs. 2661052, goods worth Rs. 2348354 was received from customer for remaking of new gold ornament and exchange of gold ornaments against new ornaments and cash payment of Rs.32 1698 where the payment exceeded Rs.20000 per day as per statement attracted disallowance.
We enclose herewith statement of gold ornaments received from customers along with corresponding sales. We ore enclosed herewith order book receipt issued by us to customer and corresponding sales bills The total of such gold ornament made amounting to Rs.2348354.
In our shop many times customers are coming for remaking of old ornaments as well as they are exchanging old gold ornaments against new ornaments. Whenever customer is giving gold for remaking of new ornament, we are giving receipt in our order book to our customer and issuing sale invoices for new ornaments. We are not making cash payment to customer whenever they are giving gold to us either for making or exchange. We are making difference payment if gold receipt is more than sale price and vice versa.
This is normal practice in our trade. You will appreciate on the basis of submission made by us, as this is not cash payment exceeding Rs. 20,000 attracting disallowance under income Tax Act. This is a case of Journal Entry wrongly posted as cash payment” Page 3 of 4
Krishna Jewellers A.Y:12-13 5. In view of the above explanation of the assessee, I am of the view let this issue be set aside to the file of the AO for fresh examination and assessee will produce the parties before the AO to prove that the assessee has received gold for exchange of jewellery or for remaking of jewellery. In case the assessee is able to substantiate his claim, the AO will not make any addition otherwise he will decide according to law. The orders of the lower authorities are set aside and the matter is remanded back to the file of the AO. The appeal of the assessee is allowed for statistical purposes.
In the result, the appeal of assessee is allowed for statistical purposes. Order pronounced in the open court on 07-06-2017.