DCIT, New Delhi v. M/s Jindal Dyechem Industries Pvt. Ltd, New Delhi

ITA 2877/DEL/2009 | 2004-2005
Pronouncement Date: 26-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 287720114 RSA 2009
Assessee PAN AAACJ0719Q
Bench Delhi
Appeal Number ITA 2877/DEL/2009
Duration Of Justice 8 month(s) 13 day(s)
Appellant DCIT, New Delhi
Respondent M/s Jindal Dyechem Industries Pvt. Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 26-02-2010
Date Of Final Hearing 11-02-2010
Next Hearing Date 11-02-2010
Assessment Year 2004-2005
Appeal Filed On 12-06-2009
Judgment Text
ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A. NO. 2877/DEL/2009 [A.Y. 2004-05] DCIT CIRCLE4(1) VS. M/S JINDAL DYECHEM INDUSTRIES PVT. LTD. ROOM NO. 407 CR BLDG. 110 BABAR ROAD OPP. W ORLD TRADE NEW DELHI CENTRE NEW DELHI 110001 AND C.O. NO. 240/DEL/2009 (IN ITA NO. 2877/DEL/2009) M/S JINDAL DYECHEM INDUSTRIES PVT. LTD. VS. DY. COM MISSIONER OF INCOME TAX 110 BABAR ROAD OPP. WORLD TRADE CIRCLE-4(1) < NEW DELHI CENTRE NEW DELHI 110 001 (PAN: AAACJ0719Q) [APPELLANT] (RESPONDENT) ASSESSEE BY : SH. SALIL AGGARWAL ADV. & SH. GAUT AM JAIN CA DEPARTMENT BY : SHRI I.A. KHAN SR. DR ORDER PER SHAMIM YAHYA AM THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE EMANATE OUT OF ORDERS OF THE LD. CIT(A) DATED 31.3.2009 AND PERTAINS TO ASSESSMENT YEAR 2004-05. REVENUES APPEAL - ITA NO. 2877/DEL/2009 2. THE FIRST ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN DELETING THE DISALLOWANCE OF CLAIM AS TO FOREIGN EXCHANGE LOSS OF RS. 50 02 8 15/-. ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 2 3. THE ASSESSEE IN THIS CASE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF TRADING IN BULLION AND OTHER ITEMS. DUR ING THE COURSE OF ASSESSMENT AO DISALLOWED THE ASSESSEES CLAIM OF FOREIGN EXCHA NGE LOSS BY OBSERVING AS UNDER:- THE CLAIM OF FOREIGN EXCHANGE LOSS OF RS. 50 02 8 15/- ON REVALUATION OF LOAN TO SUBSIDIARY CANNOT BE ACCEPTE D ON THE BASIS OF THE REVISED COMPUTATION. THE SUBSIDIARY IS WHOLLY OWNED BY THE ASSESSEE COMPANY. IT HAS CEASED ITS OPERATIONS IN SUBSEQUENT YEARS. THERE IS NO REASON OR POSSIBILITY OF RECOVERY OF TH E LOAN FROM ITS SUBSIDIARY IN FUTURE. IN THIS PARTICULAR CASE THE CLAIM CAN ONLY BE ALLOWED ON ACTUAL BASIS. IN THE VIEW OF THESE FACT S THE CLAIM OF FOREIGN EXCHANGE LOSS OF RS. 50 02 815/- IS DONATED . THE BASIS OF COMPUTATION OF ASSESSED INCOME SHALL ORIGINATE / EMANATE ONLY FROM THE RETURN OF INCOME FILED ON 01. 11.2004. THE REVISED COMPUTATION IS IGNORED EXCEPT THE ADMITTED INADVERTENT MISTAKES. NO SEPARATE ADDITION OF RS. 50 02 815/- I S REQUIRED TO BE MADE. 4. UPON ASSEESSEES APPEAL LD. CIT(A) REFERRED THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. WO ODWORD GOVERNOR REPORTED IN 294 ITR 451. LD. CIT(A) HELD THAT ADVANCES TO THE SUBSIDIARY WAS A REVENUE ACCOUNT AND ONCE THE SAME WAS ON REVENUE ACCOUNT AN Y LOSS ON ACCOUNT OF FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE ON THE LAST DAY OF THE FINANCIAL YEAR IS NOT A NOTIONAL LOSS AND HAS TO BE ALLOWED AS DEDUC TION UNDER SECTION 37 OF THE ACT. ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 3 5. AGAINST THE ABOVE ORDER THE REVENUES IS IN APPE AL BEFORE US. 6. IT HAS BEEN URGED ON BEHALF OF THE REVENUE THAT THE CLAIM OF EXCHANGE LOSS WAS MADE ON THE BASIS OF A REVISED COMPUTATION WITH OUT FILING ANY REVISED RETURN OF INCOME. THUS THE ALLOWABILITY OF SAID CLAIM IS CONTRARY TO RATIO LAID DOWN IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT [2006] 284 ITR 323 (SC). IT HAS FURTHER BEEN URGED THAT THE SAID CLAIM WAS MADE ON THE REVALUATI ON OF LOAN PROVIDED TO THE WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE COMPANY. T HE SAID SUBSIDIARY HAS CEASED ITS OPERATIONS IN SUBSEQUENT YEARS AND THERE IS NO POSSIBILITY OF RECOVER OF THE LOAN FROM THIS SUBSIDIARY IN FUTURE. THUS IN THIS PARTICULAR CASE IT IS RIGHTLY HELD BY AO THAT THE CLAIM CAN ONLY BE ALLOWED ON A CTUAL BASIS. 7. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. AS REGARDS THE OBJECTION THE CLAIM WAS MADE ON THE BASIS OF REVISED COMPUTATION WE FIND THAT THE CLAIM OF THE ASSESSEE WAS GENUINE ONE AND HENCE THE SAME CANNOT BE DENIED. WE FIND THAT IN THE ABOVE SAID DECISION THE HONBLE APEX COURT HAD CLARIFIED THAT THE DECISION REFERRED IN THAT CASE SHALL NOT RESTR ICT THE POWERS OF THE TRIBUNAL TO ADMIT AND ADJUDICATE THE CLAIM OF THE ASSESSEE. IN OUR CONSIDERED OPINION THE CLAIM OF THE ASSESSEE WAS GENUINE. ARTICLE 265 OF THE CONSTITUTION OF INDIA STATES THAT NO TAX CAN BE COLLECTED EXCEPT BY AUTHO RITY OF LAW. CBDT CIRCULAR NO. 114 XL-35 OF 1955 DATED 11.4.1955 STATES THAT OFFIC ER OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF THE IGNORANCE OF AN ASSESSEE AS T O HIS RIGHTS. HONBLE APEX COURT IN THE CASE OF CIT VS. MR. P. FIRM IN 56 ITR 67 WHEREIN THE BENCH COMPRISED THREE OF THEIR LORDSHIPS HAD EXPOUNDED THAT IF A PA RTICULAR INCOME IS NOT TAXABLE UNDER IT ACT IT CANNOT BE TAXED ON THE BASIS OF ES TOPPEL OF ANY OTHER EQUITABLE DOCTRINE. IF A PARTICULAR INCOME IS NOT EXIGIBLE TO TAX AO HAS NO POWER TO IMPOSE ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 4 TAX ON THE SAID INCOME. IN THE BACKGROUND OF THE AF ORESAID DISCUSSION WE FIND THAT ASSESSEES CLAIM IN THIS REGARD IS JUSTIFIED. HENCE IN OUR CONSIDERED OPINION THERE IS NO INFIRMITY IN ADMITTING A GENUINE CLAI M OF THE ASSESSEE. 8. NOW COMING TO THE MERIT OF THE ISSUE WE FIND TH AT THE ADVANCE WAS GIVEN BY THE ASSESSEE TO SUBSIDIARY COMPANY FOR TRADING P URPOSE. IN SUCH A CASE LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION HAS TO BE D EALT WITH IN ACCORDANCE WITH THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT REFERRED BY THE LD. CIT(A) IN THE CASE OF WOODWORD GOVERNOR CITED ABOVE. THIS DE CISION HAS ALSO BEEN AFFIRMED BY THE HONBLE APEX COURT. AS PER THE RAT IO EMANATING FROM THIS CASE LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IS NOT A NOTIONAL LOSS AND IF THE LOSS IS ON REVENUE A/C IT HAS TO BE ALLOWED AS REVE NUE LOSS. IN THIS VIEW OF THE MATTER WE DO NOT FIND ANY INFIRMITY IN THE LD. CIT (A) ORDERS ON THIS ISSUE. ACCORDINGLY WE UPHOLD THE SAME. 9. THE NEXT ISSUE RAISED IS THAT LD. CIT(A) ERRED I N DELETING THE ADDITION OF RS. 14 51 465/- MADE BY THE AO BY INVOKING PROVISIONS CONTAINED IN SECTION 92CA OF THE ACT. 10. ON THIS ISSUE THE AO NOTED THAT ASSESSEE HAD GI VEN LOANS AND ADVANCES TO M/S PPML ITS WHOLLY SUBSIDIARY WITHOUT CHARGING ANY INTEREST. ASSESSEE HAS ALSO EXPLAINED TO THE AO THAT THE SUBSIDIARY COMPANY WAS REGULARLY DECLARING DIVIDED AND THE SAME HAS BEEN OFFERED FOR TAXATION IN THE Y EAR OF RECEIPT AND ADVANCES MADE TO THE SUBSIDIARY COMPANY WERE FREE OF INTERES T. AO OBSERVED THAT ASSESSEE COMPANY HAS FAILED TO EXPLAIN WHY INTEREST FREE LOANS WAS ADVANCED TO M/S PPML. HE OBSERVED THAT EVEN AN ADVANCE PAYMENT WERE MADE FOR M/S PPML FOR PURCHASE OF BULLION THE ADVANCES CANNOT BE RET AINED FOR VERY LONG PERIOD. IN ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 5 HIS OPINION THE REASONABLE PERIOD MAY BE ONE MONTH TO 45 DAYS OR SO. BUT IN THIS CASE THE DEBIT BALANCE WAS CONTINUOUSLY MAINTAINED . IN THIS BACKGROUND THE AO PROCEEDED TO DETERMINE THE ARMS LENGTH PRICE AS PE R COMPARABLE UNCONTROLLED PRICE METHOD AND HE HAS APPLIED THE AVERAGE LABOR + 1.25% PREMIUM. AO PROCEEDED TO CONSIDER THE ARMS LENGTH PRICE ON THE INTEREST FREE LOANS TO M/S PPML RS. 14 51 465/- UNDER SECTION 92CA OF THE IT ACT. 11. UPON ASSESSEES APPEAL IN THIS REGARD LD. CIT( A) REFERRED TO THE PROVISIONS OF SECTION 92CA. LD. CIT(A) HELD THAT IN THIS CA SE THERE WAS NEITHER ANY REFERENCE MADE TO THE TRANSFER PRICING OFFICER NOR ANY ORDE R HAS BEEN MADE BY THE TRANSFER PRICING OFFICER. LD. CIT(A) FURTHER OBSE RVED THAT THE ASSESSING OFFICER HAS MADE ADDITION BY COMPUTING THE ARMS LENGTH PR ICE UNDER SECTION 92C OF THE ACT. HE FURTHER OBSERVED THAT IN DOING SO HE HAS ADOPTED THE LIBOR RATE + 1.45% WHICH IS NOT BASED ON ANY COMPARABLE UNCONTROLLED T RANSACTION. HE OVERLOOKED THE FACT THAT IN THE INSTANT YEAR THE APPELLANT C OMPANY HAS RECEIVED DIVIDEND OF RS. 18 51 800/- WHICH IS HIGHER THAN THE INCOME SO UGHT TO BE TAXED UNDER SECTION 92CA OF THE ACT. IT IS NOT A CASE WHERE INCOME HA S BEEN EXEMPT. IT IS A CASE WHERE DIVIDEND RECEIVED IS OFFERED AND ASSESSED TOT AX AT A MAXIMUM MARGINAL RATE. IN SUCH CIRCUMSTANCES IN MY OPINION LEARNED OFFICER COULD NOT PROCEED TO MAKE AN ADDITION OF RS. 14 51 465/- BY ADOPTING THE ARMS LENGTH PRICE ON THE BASIS OF LABOR PRICE AND THEREFORE ADDITION SO MAD E IS DIRECTED TO BE DELETED. 12. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BE FORE US. 13. IN THIS REGARD IT HAS BEEN URGED BY THE REVENU E THAT IT IS NOT MANDATORY ON THE PART OF THE AO TO REFER TO THE TPO ALL CASES RE LATING TO INTERNATIONAL TRANSACTION BY AN ASSESSEE IN THE PREVIOUS YEAR FOR THE DETERMINATION OF ARMS ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 6 LENGTH PRICE. IT HAS FURTHER BEEN URGED THAT THE A DDITION ON THE SAID COUNT WAS ALSO MADE IN THE IMMEDIATE PRECEDING YEAR ON THE SA ID COUNT. 14. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED TH E RECORDS. WE FIND THAT THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE COMP ANY WITH THE SUBSIDIARY COMPANY FALLS INTO THE MEANING OF INTERNATIONAL TRANSACTIONS AS PER THE PRESCRIPTION OF SECTION 92B OF THE IT ACT. SECTION 92C PROVIDES FOR COMPUTATION OF ARMS LENGTH PRICE. THIS SECTION DOES NOT STIPULAT E THAT AO HAS TO MANDATORILY REFER THE MATTER THE TRANSFER PRICING OFFICER IN A LL CASES. SECTION 92CA WHICH PROVIDES FOR REFERENCE TO TPO POSTULATES THAT WHEN AO CONSIDERED IT NECESSARY OR EXPEDIENT SO TO DO HE MAY WITH THE PREVIOUS APPR OVAL OF THE COMMISSIONER REFER THE MATTER TO THE TPO HENCE THE FIRST PLANK O F THE ASSESSEES ARGUMENT AND THE LD. CIT(A) RELIANCE ON THE SAME THAT AO CANNOT COMPUTED THE ARMS LENGTH PRICE WITHOUT REFERRING THE MATTER TO THE TPO IS NO T SUSTAINABLE. 15. WE FIND THAT HONBLE APEX COURT IN THE CASE OF KAPURCHAND SHRIMAL VS. CIT 131 ITR 451 IT WAS HELD THAT THE APPELLATE AUTHORI TY HAS JURISDICTION AS WELL AS THE DUTY TO CORRECT THE ERRORS IN THE PROCEEDINGS UNDER APPEAL. ACCORDINGLY WE REMIT THE ISSUE TO THE FILES OF THE CIT(A) TO CONSIDER TH E ISSUE AFRESH AFTER GRANTING ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD . 16. THE NEXT ISSUE RAISED IS THAT THE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) HAS ERRED IN DELETING ADDITION OF RS. 1 19 07 201/- MADE ON ACCOUNT OF ALLEGED UNDERSTATEMENT OF SALE O F BULLION COMPLETELY IGNORING THE ASPECT THAT OF NON-IDENTIFICATION OF ALLEGED PU RCHASE TO WHOM THE CASH SALES WERE MADE. ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 7 17. ON THIS ISSUE THE AO OBSERVED THAT THE SALES M ADE BY THE ASSESSEE COMPANY AT VARIOUS BRANCHES HAVE WIDE VARIANCE WITH THE PREVAILING RATES OF MUMBAI AND DELHI BULLION ASSOCIATIONS. HE OBSERV ED THAT SALES AT DELHI WERE MOSTLY IN CASH AND NO PARTICULARS OF PARTIES WERE R ECORDED. IN HIS OPINION THE SALES WERE NOT VERIFIABLE ON CROSS VERIFICATION. A O PROCEEDED TO COMPARE THE CASH AT DELHI AT THE AVERAGE RATE PREVAILING AT THE DELH I BULLION ASSOCIATION AS IN THE ASSESSMENT ORDER IN ASSESSMENT YEAR 2003-04. AO ASKED THE ASSESSEE TO EXPLAIN THE REASONS IN DECEASE OF SALES AND ALSO OF FER EXPLANATION ON THE OBSERVATION OF THE SPECIAL AUDIT REPORT. CONSIDERI NG THE ASSESSEES SUBMISSIONS AO PROCEEDED TO HOLD AS UNDER :- 9.6 IN THE CASE OF GOLD THE CASH SALES OF GOLD WE RE COMPARED TO THE RATES OF DELHI BULLION MARKET ASSOCIATION. IT IS SEEN THAT THE ASSESSEE HAS SOLD GOLD BELOW AVERAGE OF DBA. THE AGGREGATE WORKING OF SALES OF GOLD AND S ILVER SHOWS THE SUPPRESSION BY RS. 1 02 50 282/- AND RS. 16 56 919/- RESPECTIVELY TOTALING RS. 1 19 07 201/ - AS PER THE COMPUTATION PROVIDED BY ASSESSEE COMPANY. 9.7 IT IS ALSO A FACT THAT THE RATES OF DBA ARE DEC IDED BY THE MARKET MECHANISM OF BULLION MARKET OF WHICH THE ASSESSEE COMPANY IS A PROMINENT PARTICIPANT. IT IS THE CONTRIBUTION OF THE BULLION DEALERS LIKE OUR ASSES SEE COMPANY WHO PLAY THE DECISIVE ROLE IN THE DETERMINA TION OF THE DBA RATES. THEN HOW THE ASSESSEE COMPANY CAN CLAIM THAT THE SALES WERE MADE AT LOWER RATES. EV EN IF THE CLAIM OF VARYING RATES OF DBA THROUGH OUT THE WORKING DAY IS CONSIDERED THEN IT IS ALSO THE UNDI SPUTED FACT THAT THE ASSESSEE COMPANY ALSO MAKES SALE S AT DIFFERENT POINT OF TIME AND NOT A T A SINGLE POINT OF TIME. THUS THE FACTOR OF VARIATIONS/FLUCTUATIONS IS FOR B OTH I.E. DBA AND THE ASSESSEE. HAD IT NOT BEEN CASH SALES WITHOUT IDENTIFY OF PURCHASERS THE INFERENCE OF ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 8 SUPPRESSED SALES COULD NOT HAVE BEEN DRAWN. IT SHOW S THE INTENTION OF THE ASSESSEE COMPANY TO SUPPRESS SUBSTANTIAL SALES BY WAY OF MAKING CASH SALES WHILE CONCEALING THE IDENTITY OF PURCHASERS TO AVOID ANY VERIFICATION AT ANY STAGE. IT IS WORTH MENTIONING THAT THIS IS NOT THE CASE OF PURCHASE RECORDED OUT OF B OOKS AND CONSEQUENT SALES. IT IS A CASE OF SUPPRESSION OF SALES OF GOODS ALREADY RECORDED IN THE BOOKS. ONLY A PAR T OF SALES IS UNRECORDED IN THE BOOKS I.E. RS. 1 19 07 2 01/- AND BY WAY OF UNDER-INVOICING. THEREFORE THE ENTI RE AMOUNT OF RS. 1 19 07 201/- IS LIABLE TO BE ADDED T O THE INCOME UNDER SECTION 69A OF INCOME TAX ACT 1961. 18. UPON ASSESSEES APPEAL LD. CIT(A) OBSERVED THA T IT HAS BEEN VERIFIED BY THE AO THAT HE CONFIRMED THAT BULLION ASSOCIATIONS RATE S ARE IN RESPECT OF RETAIL TRANSACTION AND NOT IN RESPECT OF WHOLESALE TRADE. IN THIS VIEW HE HELD THAT SINCE DELHI BULLION ASSOCIATION RATES ARE NOT APPLICABLE TO THE BUSINESS OF THE ASSESSEE COMPANY THEREFORE THE SAME CANNOT BE APPLIED TO C OMPUTE UNDERSTATEMENT OF SALES. HENCE HE HELD THAT ADDITION OF RS. 1 19 07 201/- MADE ON ACCOUNT OF ALLEGED UNDERSTATEMENT OF SALES BY ADOPTING DELHI B ULLION ASSOCIATION RATES WAS NO IN ACCORDANCE WITH LAW. EVEN OTHERWISE THE LD. CIT(A) FOUND THAT ASSESSEE HAS SUBMITTED BOOKS OF ACCOUNTS WHICH HAVE BEEN AUDITED AND HAVE BEEN DULY ACCEPTED. HE FURTHER REFERRED TO THE FACT THAT SA LES WERE DECLARED BY THE ASSESSEE TO THE SALES TAX AUTHORITIES AND IN SUPPO RT OF WHICH SALES TAX ASSESSMENTS RETURNS WERE PLACED ON RECORD. ON THES E FACTS THE LD. CIT(A) OBSERVED THAT IT WAS NOT JUSTIFIED BY THE AO TO ADO PT THE RATES OF BULLION ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 9 ASSOCIATION. ACCORDING TO THE CIT(A) AO OUGHT TO HAVE BROUGHT SOME MATERIAL ON RECORD TO ESTABLISH ANY CONSIDERATION OVER AND ABOV E THE DECLARED CONSIDERATION WERE RECEIVED BY THE ASSESSEE COMPANY OR WAS RECEIV ABLE BY THE ASSESSEE COMPANY. MERE FACT THAT THERE WERE CASH SALES AND ACTUAL CASH SALES RATES AT TIME HIGHER OR LOWER THAN THE AVERAGE BULLION ASSOC IATION RATES DID NOT CONFER POWER ON THE AO TO MAKE ANY ADDITION ON ACCOUNT OF UNDERSTATEMENT OF SALES. IN THIS REGARD LD. CIT(A) REFERRED TO THE DECISION IN THE CASE OF THE CIT(A) VS. CALCUTTA DISCOUNT CO. LTD. REPORTED IN 91 ITR 8 AND ALSO HON BLE CALCUTTA HIGH COURT DECISION IN THE CASE OF CIT VS. NANDINI NOPANY REP ORTED IN 230 ITR 679. CONSIDERING THE ABOVE LD. CIT(A) CONCLUDED AS UNDER :- 8.5 IN VIEW THEREOF I AM OF THE OPINION THAT THE LEARNED OFFICER WAS NOT JUSTIFIED TO SUBSTITUTE THE RATES O F ACTUAL SALES MADE WITH THE RATES OF DELHI BULLION ASSOCIAT ION TO DETERMINE THE UNDERSTATEMENT OF SALES MADE BY THE ASSESSEE. IN ANY CASE RATES AT BEST ARE INDICATIVE RATES OF ASSOCIATION AND AS SUCH MERE FACT THAT THERE WAS S OME VARIATION CANNOT BE AGROUND TO MAKE AN ADDITION ON ACCOUNT OF SUCH VARIATION OF THE RATES OF DELHI B ULLION ASSOCIATION. IN FACT THE APPELLANT DURING THE COUR SE OF APPELLATE PROCEEDINGS HAS ALSO PLACED ON RECORD TH E MATERIAL TO SHOW THAT ADDITION MADE BY ADOPTING THE AVERAGE RATES OF DELHI BULLION ASSOCIATION IS ALSO NOT TENABLE FOR THE REASON THAT IF THE LOWER RATES OF D ELHI BULLION ASSOCIATION ARE ADOPTED THEN IT WILL BE SEE N THAT THERE WILL BE NO UNDERSTATEMENT OF CASH SALES. ON THE CONTRARY IT WILL BE A CASE WHERE THE ASSESSEE WOU LD HAVE SHOWN THE HIGHER SALES OF RS. 64 464/- IN THE CASE ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 10 OF SILVER AND RS. 1.95 CRORES HIGHER SALES IN CASE OF GOLD. THESE FIGURES HAVE BEEN ACCEPTED BY THE LEARNED OFF ICER IN HIS COMMENTS DATED 20.2.2009. HOWEVER HE HAS CONTENDED THAT YET DESPITE THE ABOVE POSITION AVER AGE RATES OF DELHI BULLION ASSOCIATION SHOULD BE ADOPT ED SINCE THE SALES MADE BY THE ASSESSEE ARE BOTH HIGHE R THAN THE AVERAGE RATES AND ALSO LOWER THAN THE APPL IED RATES. THIS LOGIC OF THE LEARNED OFFICER CANNOT BE ACCEPTED A;;LYING THE SAME LOGIC IT WILL BE SEEN THAT EVEN WHEN LOWER RATES OF DELHI BULLION ASSOCIATION ARE APPLIED AT TIMES SALE ARE MORE THAN DELHI BULLIO N ASSOCIATION AND AT TIMES LOWER THAN DBA RATES. THU S MERE FACT THAT SALES MADE ON ACTUAL BASIS ARE AT TI MES HIGHER OR AT TIMES LOWER THAN THE AVERAGE DBA RATES CANNOT BE A GROUND TO SUGGEST THAT ADDITION HAS BE EN MADE BY ADOPTING THE AVERAGE RATES OF DBA. IN ANY CASE WHAT IS RELEVANT HERE IS THAT THERE IS NO MAT ERIAL WHICH ESTABLISHES THAT ASSESSEE HAS RECEIVED SUMS O R WAS ENTITLED TO RECEIVE SUMS IN EXCESS OF DECLARED CONSIDERATION. IN MY OPINION IN SUCH CIRCUMSTANCES THERE WAS NO STATUTORY PROVISION OF THE ACT WHICH ENABLES THE LEARNED ASSESSING OFFICER TO LEVY TAX ON A SUM WHICH HAS NEITHER ACCRUED TO THE ASSESSEE AND NOR RECEIVED BY IT. IN THE LIGHT OF THE ABOVE POSITIO N ADDITION MADE OF RS. 1 19 07 201/- IS HELD TO BE MADE NOT IN ACCORDANCE WITH LAW AND IS THEREFORE DELETED. 19. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BE FORE US. 20. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. AOS BASIC REASON IS THAT THERE ARE CASH SALES WHICH ARE NOT V ERIFIABLE AND THE RATES WHEREOF IS BELOW THE AVERAGE RATE OF DELHI BULLION ASSOCIAT ION. AS POINTED OUT BY THE LD. CIT(A) AO ON REMAND HAS HIMSELF ACCEPTED THAT THE D ELHI BULLION ASSOCIATION RATES ARE WHOLESALE RATES AND ARE NOT APPLICABLE TO THE C ASE OF THE ASSESSEE. IN ANY CASE IT IS NOT THE CASE OF THE AO THAT HE HAS COME ACROSS ANY MATERIAL SHOWING ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 11 THAT THE ASSESSEE IS RECEIVING SOMETHING OVER AND A BOVE THAT ENTERED INTO THE BOOKS OF ACCOUNTS MAINTAINED. ALL THE REQUISITE BOOKS AND RECORDS ARE MAINTAINED AND THE SAME ARE DULY AUDITED AND NO SP ECIFIC DEFECT IN THE SAME HAS BEEN POINTED OUT. MOREOVER LD. CIT(A) RIGHTLY OBS ERVED THAT THE LOWER RATES OF THE DELHI BULLION ASSOCIATION ARE QUITE COMPARABLE WITH THAT SHOWN BY THE ASSESSEE. IN THE CASE OF CIT VS. KOLKATA DISCOUNT COMPANY LTD. 91 ITR 8 THE HONBLE APEX COURT HAS HELD THAT TRANSACTIONS B ETWEEN THE ASSESSEE AND ITS SUBSIDIARY COMPANY WAS BONAFIDE TRANSACTIONS; THAT ASSESSEE HAD TRANSFERRED ITS VALUE SHARES AT COST PRICE TO ITS SUBSIDIARY IN ORD ER TO SO ARRANGED ITS AFFAIRS AS TO REDUCE ITS TAX BURDEN AND THEREFORE UNLESS AO ON T HE BASIS OF THE MATERIAL BEFORE HIM WAS ABLE TO COME TO THE CONCLUSION THAT THE AS SESSEE HAS REALLY MADE PROFITS IN THE TRANSACTIONS. IT WAS NOT PERMISSIBLE FOR H IM TO ADD BACK THE ASSESSEES RETURN AND FICTIONAL INCOME. IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT WE DO NOT FIND ANY INFIRMITY IN THE ORDE RS OF THE LD. CIT(A) IN THIS REGARD AND ACCORDINGLY WE UPHOLD THE SAME. ASSESSEES C.O. NO. 240/DEL/2009 21. THE FIRST ISSUE RAISED IS THAT THE LD. CIT(A) HAS ALSO ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF A SUM OF RS . 7 04 440/- OUT OF THE BUSINESS PROMOTION EXPENSES CLAIMED BY THE APPELLANT COMPANY . 22. ON THIS ISSUE THE AO REFERRED TO THE DETAILS O F THE EXPENSES FILED BY THE ASSESSEE. HE REFERRED TO THE COPY OF THE VOUCHE RS AND SPECIFICALLY POINTED OUT BY MENTIONING IN DETAIL IN HIS ASSESSMENT ORDER TH AT VOUCHERS CONTAINING A SUM OF RS. 704440 WERE PERSONAL EXPENSES IN VARIOUS HOT ELS FOR DINNING ETC. PURPOSES. AO HELD THAT ASSESSEE HAS FAILED TO SUBSTANTIATE T HE GENUINENESS OF THESE ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 12 EXPENSES AND ACCORDINGLY HE DISALLOWED A SUM OF RS . 704440/- AS PERSONAL IN NATURE AND NOT RELATED TO THE BUSINESS OF THE ASSES SEE COMPANY. 22.1 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT NO DISALLOWANCE CAN BE MADE FOR PERSONAL USE BY REFERRING TO THE SEVERAL CASE LAWS AND IT WAS ALSO CLAIMED THAT IN THE PRECEDING YEAR NO DISALLOWANCE IN THIS REGARD WAS MADE. CONSIDERING THE SUBMISSIONS LD. CIT(A) HELD THAT AO HAS MADE THE S PECIFIC DISALLOWANCE BY REFERRING TO THE SPECIFIC BILLS WHICH HAVE BEEN HEL D TO BE PERSONAL EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS NO MAT ERIAL HAS BEEN PRODUCED TO REBUT THE SPECIFIC FINDINGS RECORDED BY THE AO OTH ER THAN MAKING THE GENERAL STATEMENT AND REFERRING TO PAST HISTORY. LD. CI T(A) HELD THAT IT IS A SETTLED LAW THAT PRINCIPLES OF RESJUDICATA ARE NOT APPLICABLE TO THE INCOME TAX PROCEEDINGS. WHEN AO HAD POINTED OUT SPECIFIC EXPENDITURE WHICH HE HAS HELD AS NON- BUSINESS EXPENDITURE IT WAS INCUMBENT UPON THE ASS ESSEE TO LEAD MATERIAL TO REBUT THE FINDING OF THE AO. SINCE NONE OF THE FI NDINGS WERE REBUTTED LD. CIT(A) HELD THAT DISALLOWED SO MADE BY WAS VALID. 22.2 AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEFORE US. 23. WE HAVE HEARD BOTH THE COUNSELS. WE FIND THA T AO HAS MADE SPECIFIC REFERENCE TO THE VOUCHERS WHEREIN VARIOUS HOTELS B ILLS OF DINNING ETC. INCLUDING THAT THROUGH CREDIT CARDS WERE MENTIONED. AO OBS ERVED THAT SOME OF THE EXPENDITURE RELATED TO THE OTHER CONCERNED SOME W ERE PERSONAL EXPENDITURE OF SHRI SK JINDAL ETC.; TICKET FOR MS. PRACHI JINDAL; VISA CHARGES OF MRS. A. JINDAL; TICKET FOR MS. MANJU AGGARWAL; PAYMENT TO LADIES CLUB ETC. AO HAS SPECIFICALLY POINTED OUT THAT THESE EXPENDITURES WERE NOT RELATED TO THE BUSINESS OF THE ASSESSEE. ASSESSEE DID NOT REBUT THESE FINDINGS BY LEADING AN Y COGENT MATERIAL TO SHOW THAT ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 13 THESE EXPENSES IN FACT RELATED TO THE BUSINESS OF T HE ASSESSEE. UNDER SUCH CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY IN THE ORDER O THE LD. CIT(A) AND ACCORDINGLY WE UPHOLD THE SAME. 24. THE NEXT GROUND RAISED IS THAT THE LD. CIT(A) HAS FURTHER ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS. 1 66 571/- REPRESENTING THE STOCKS WRITTEN OFF BY THE APPELLANT COMPANY. 24.1 ON THIS ISSUE AO NOTED THAT ASSESSEE WAS ASKED TO GIVE DETAIL OF STOCK REDUCED THROUGH GENERAL ENTRIES. THE ASSESSEE SUBM ITTED THE DETAILS WHEREIN TOTAL SILVER STOCK WAS REDUCED 14.298 KG. THE VALU E WHEREOF WAS RS. 166571/-. THE ASSESSEE FURTHER INFORMED THAT GOLD BARS ARE S TANDARD ONE KG. THERE IS NO SHORTAGE IN THEM. THE SILVER BARS VARY IN THE WEI GHT RANGE OF 27 KG TO 34 KG INTERNATIONALLY. IN DELHI MARKET THEY ARE RE-WE IGHED AND THERE ARE MARGINAL DIFFERENCE IN WEIGHT. IN THE CASE OF THE ASSESSEE THE DIFFERENCE IS AS SMALL AS 0.0120% WHICH MAY BE IGNORED. HOWEVER AO WAS NOT SATISFIED WITH THIS EXPLANATION. HE HELD THAT TRANSIT PROCESS OF THES E ITEMS ARE HANDLED BY REPUTED AGENCIES AND THIS PROCESS IS FULL-PROOF AND THE ITE MS ARE NOT PERISHABLE IN NATURE. MOREOVER EVEN IF THERE IS SOME BREAKAGE ON CORNER S SUCH BREAKAGE REMAINS OF MATERIAL RETAINS ITS ORIGINAL VALUE AND CANNOT BE W RITTEN OFF. HENCE AO HELD THAT THE ASSESSEE HAD SOLD SLIVER MATERIAL WORTH OF RS. 166571/- WHICH ARE NOT ACCOUNTED WITH ENTRIES IN THE BOOKS AND HE MADE T HE ADDITION THEREOF. 24.2 UPON ASSESSEES APPEAL LD. CIT(A) CONFIRMED TH E ORDER OF THE AO. 24.3 AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO. 2877/DEL/09 & CO NO. 240/DEL/09 A.Y. 2004-05 14 24.4 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED TH E RECORDS. WE FIND THAT THE ASSESSEE HAS SUBMITTED THAT IN CASE OF SILVER T HE BARS ARE RE-WEIGHED AND SOMETIMES THERE IS WEIGHT LOSS DUE TO BREAKAGE OF C ORNERS IN BRICKS AND DURING THE CONCERNED YEAR TOTAL LOSS WAS 14.28 KG WHICH W AS ONLY 0.010%. THIS EXPLANATION WAS NOT ACCEPTED BY THE AO. AO HAS NO T MADE ANY VERIFICATION AS TO WHETHER IN THIS TYPE OF TRADE A NEGLIGIBLE AMOUNT OF BREAKAGE IS PREVALENT OR NOT. HE HAS JUST OPINED THAT THIS REPRESENTS SALE MADE BY THE ASSESSEE OUTSIDE THE BOOKS. FOR THIS PROPOSITION IT IS NOT THE CASE THAT THERE IS ANY MATERIAL FOUND. WITHOUT ANY MATERIAL OF SALES OUTSIDE THE BOOKS OF ACCOUNTS AND WITHOUT ANY FINDING AS TO WHETHER IN THE LINE OF BUSINESS ANY M INISCULE PERCENTAGE OF BREAKAGE ARE ALLOWED OR NOT THE INFERENCE DRAWN BY THE REV ENUE CANNOT BE SUSTAINED. HENCE WE SET ASIDE THE ORDERS OF THE AUTHORITIES BE LOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 25. IN THE RESULT THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/02/201 0. SD/- SD/- [C.L. SETHI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 26/02/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES