KRISHNA JEWELLERS,MUMBAI vs. ITO 32(2)(2), MUMBAI

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: -

In the result, the appeal of assessee is allowed for statistical purposes. Order pronounced in the open court on 07-06-2017.