PER D. KARUNAKARA RAO, AM : ITA Nos. 782 and 721/PUN/2013 in the case of Manvi Holdings Pvt. Ltd., are cross appeals filed by the Assessee and the Revenue for the Assessment Year 2009-10. They are filed against the order of CIT(A)-II, Nashik dated 23-01-2013.
2. ITA No.1694/PUN/2014 in the case of Manraj Jewellers Pvt. Ltd., is filed by the Revenue against the order of CIT(A)-II, Nashik dated 04-06-2014 for the Assessment Year 2009-10. The above two assessees are the sister concerns of well known Rajmal Lakhichand Group of cases of Jalgaon and the facts and issues are interconnected. Therefore, all the appeals are clubbed together and are being adjudicated by this composite order.
3. We first take up the Cross appeals in the case of Manvi Holdings Pvt. Ltd., i.e. ITA No.782/PUN/2013 and ITA No.721/PUN/2013.
4. In the Assesses appeal, i.e. ITA No.721/PUN/2013 Assessee raised 8 grounds. All of them revolve around 3 major issues namely, (1) correctness in rejection of books of accounts and consequential estimation applying flat GP rate, (2) other additions u/s.40A(2) of the and also on account of diversion of profits to sister concerns, (3) disallowance of interest amounting to Rs.27,71,262/- invoking the provisions of section 36(1)(iii) of theapplying notional additional interest rate of 6% on the outstanding trading balances with the sister concerns and (4) direction of the CIT(A) in invoking the provisions of section 2(22)(e) of thein respect of two Directors namely, Shri Ishwarlal S. Lalwani (mentioned as Shri Ishwarlal S. Jain in some places of the impugned orders) and Shri Manish Jain (As mentioned in the grounds). ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014
5. Briefly stated relevant facts of the case are that the assessee is one of the companies of well known Rajmal Lakhichand Group of cases of Jalgaon. Assessee is engaged in the business of Gold and Silver, making of ornaments as well as selling the bullions. Assessee filed the return of income on 26-08-2009 declaring business loss of Rs.1,65,39,742/- and unabsorbed depreciation amounting to Rs.1,15,725/-. Assessment was completed u/s.143(3) of the determining the assessed income at Rs.13,24,72,697/-. AO made addition of Rs.83,53,982/- on account of Gross Profit addition. AO also made addition of Rs.2.89 crores (rounded off) invoking the provisions of section 40A(2)(b) in respect of the sales made by the assessee to the sister concerns. Further, on account of diversion of profits to the sister concerns, AO made addition of Rs.10.45 crores (rounded off).
6. In the first appellate proceedings, the CIT(A) deleted additions made u/s.40A(2)(b) as well as the addition made on account of diversion of profits and allowed the appeal. However, the CIT(A), while confirming the decision of AO in matters on rejection of books of accounts u/s.145(3) of the, increased the Gross Profit rate. Book profits, as per the assessees books, is 1.41% on the turnover of Rs.141.58 crores (rounded off). The CIT(A) held in Para 16.1 of his order that Gross Profit rate of 1.41% is very much on the lower side. Therefore, he estimated the profits of the assessee for the impugned assessment year applying the flat rate of 2%. Thus, the CIT(A) confirmed the addition of Rs.83,53,082/- which works out to 0.59% (2% - 1.41%) on Rs.141.58 crores (rounded off) of turnover. Further, the CIT(A) confirmed the rejection of books of accounts after appreciating the deficiencies enlisted by the AO. Contents of deficiencies are discussed in Para Nos. 14 and 15 of the assessment order. ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014
7. Regarding the first issue (supra) raised by the assessee, vide Ground Nos. 1 to 3 of the assessee, Ld. Counsel for the assessee submitted that, on the ground of similar deficiencies, the books of accounts were rejected by the AO in the case of M/s. Rajmal Lakhichand (in short RL), retailer in the Gold, Jewellery and Bullion. The Tribunal in the said case of M/s. Rajmal Lakhichand Vs. JCIT, Range-1, Jalgaon vide ITA Nos. 532 & 663/PUN/2013 and ITA No.607/PUN/2013 order dated 16-01-2015 confirmed the said decision of rejection of books of accounts. Bringing our attention to Para Nos. 8 to 8.35 of the said order of the Tribunal, the Ld. Counsel for the assessee demonstrated the fact of dealing with this issue. Further, bringing our attention to Page 441 of the paper book vide Para No. 8.35, Ld. Counsel demonstrated the fact of restricting of the addition by the Tribunal in that case to 1.20% against the book profits of 1.13% with the difference of only 0.07%. In the instant case, the CIT(A) confirmed the differential Gross Profit rate of 0.59% over and above the Gross Profit rate of 1.41%. This GP rate is much higher than the 1.13% of the business of M/s. Rajmal Lakhichand. In this regard, Ld. Authorised Representative filed a written submission and the same is extracted as under (Para 2 & 2.1) :
2. Ground No. 1 - 3 : In this context, it is submitted that in the case of Raj mal Lakhichand Honble ITAT has adopted GP of 1.20% as against 1.13% shown by the assessee (page 441 of Paper Book). In our case, the business is a whole sale business of jewellery and therefore, the margin is not much as compared to retail business. Secondly, the appellant has shown the GP of 1.41% (page 2 of CIT(A)) which is already higher than the GP of 1.20% adopted by ITAT and therefore, no further addition is required.ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014 Thus, the Authorised Representative called for confirming the book results of the assessee (1.41%) on the issue of decision of the Tribunal on the correctness of invoking the provisions of section 145(3) of the. Ld. Authorised Representative brought our attention to Para No.8.21 of the Tribunal order (supra) in support of confirming of rejection of books of accounts, the Ld. Counsel read out the following lines (last lines of the said para) which is extracted as under :
2.1 Secondly, the A.O. himself has estimated the GP at 2% as against the GP of 1.41% shown by the appellant by making a GP addition of Rs. 83,53,082/-. The appellant submits that the CIT(A) is not justified in estimating a GP at 8.15% particularly, when ITAT in the case of Raj mal Lakhichand has not sustained any addition on the grounds taken by the A.O. i.e. it held that the comparison based on average price by the A.O. is wrong and there was no excess payment for purchases from sister concerns nor was there diversion of profits to sister concerns. In this case also, on page 43, 44 of Paper Book 1 and on pages 559 to 561 of Paper Book 2, the assessee has demonstrated the same. Accordingly, the assessee submits that no addition of GP is warranted in this case and the deptl. appeal also may be dismissed as the issues are covered by ITAT decision in the case of Rajmal Lakhichand.
8.21 . . . . . . . . . . . . . . . . . . . . . . . . . . In view of the above, the books of account of the assessee, in our opinion, do not give the correct picture and therefore are liable to be rejected.
8. Eventually, the Ld. Counsel for the assessee brought our attention to the date of the order of the Tribunal, i.e. 16-01-2015 and compared the same with the date of the impugned order of the CIT(A), i.e. 23-01-2013. Ld. Counsel for the assessee mentioned that the order of the Tribunal is not available to the CIT(A) at the relevant point of time. Considering the fairness of adjudication of this issue, Ld. Authorised Representative mentioned that Tribunal may consider remanding to the file of the CIT(A) for applying the ratios of the decision of the Tribunal in the case of M/s. Rajmal Lakhichand (supra) on (1) the issue of the rejection of books of accounts and (2) the appropriate Gross Profit rate that should be applied for bringing the litigation to the logical conclusion. Ld. Authorised Representative for the assessee conveyed his intention to increase the Gross Profit marginally to bring the litigation to the finality. Ld. Authorised Representative for the assessee requested that such increase, if any, must not be as much as 0.70% decided by the Tribunal in case of M/s. Rajmal Lakhichand. CIT(A) should also consider the fact that the business of the assessee is different qua that of the M/s. Rajmal Lakhichand (supra). ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014
9. Ld. Departmental Representative for the Revenue heavily relied on the orders of the AO and the CIT(A).
10. We heard both the parties on this issue and perused the files/paper books filed before us. After hearing both the parties on this issue of rejection of books of accounts as well as on the issue of estimating the appropriate Gross Profit rate, we are of the opinion that in the order of the Tribunal in the case of M/s. Rajmal Lakhichand, this issue has already been adjudicated by the Tribunal. We find the AOs in both the cases have identified similar discrepancies with regard to the books of accounts. Therefore, we are of the opinion in so far as rejection of books of accounts is concerned, the matter stands covered and the AOs decision to reject the books of accounts has to be upheld and in favour of the Revenue.
11. So far as the estimation of profits are concerned, we are of the opinion that this issue should travel back to the file of the CIT(A). In the proceedings, CIT(A) is directed to appreciate the order of the Tribunal in the case of M/s. Rajmal Lakhichand (supra) and adjudicate the issue afresh in light of the said order of the Tribunal. He shall examine the facts of the present case with that of M/s. Rajmal Lakhichand qua the nature of business activities and grant proper opportunity of being heard to the assessee as per the set principles of natural justice. In any case, we find the increase in Gross Profit if any may not exceed the said differential rate of 0.70%. Accordingly, we are of the view that the issues raised by the assessee in Ground Nos. 1 to 3 should be allowed for statistical purposes.
12. Regarding the second issue relates to the disallowance of interest u/s.36(1)(iii) of the. Background facts of the case include that the assessee maintained a running account with the sister concerns and decided to charge ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014 interest @6% on the outstanding balances received by the assessee. The details are given in Page 576 of the paper book. Rs.54,21,963/- was calculated @6% as interest involving the sister concerns of the assessee. It is the view of the AO that the said interest rate is on the lower side. Therefore, AO compared the same with that of the Bank interest rates paid by the assessee towards the advances/the loans taken by the assessee. He took the view that charging of interest @12% is appropriate. AO made addition of Rs.54,21,963/- as per the discussion given in Para 17 of the assessment order which is reproduced as under : 17. Disallowance u/s.36(1)(iii) of the : The assessee was found to have paid substantial interest to various institutes as well as to the sister concern. The assessee was asked to establish that the paid interest was the business expenditure and can be claimed to have been incurred exclusively for the purpose of business. The details of such interest payment were submitted by the assessee on 27-12-2011 as under : Kotak Mahindra Rs.66,43,508/- HDFC Rs.23,53,324/- Metal Loan Rs.1,77,63,422/- TDS Rs.24,452/- Vehicle Loan Rs.45,277/- Rajmal Lakhichand Rs.54,21,963/- ---------------------- Total Rs.3,22,51,946/- ---------------------- From the above chart, can be seen that the assessee had sale/purchase transactions with M/s. Rajmal Lakhichand in which the directors of the assessee Company were having substantial interest. The copy of account extract of M/s. Rajmal Lakhichand as appearing in the books of the assessee Company shows that the assessee had paid interest of Rs.54,21,963/- @6%, however, no interest has been charged to the sister Rajmal Lakhichand Jewellers Pvt. Ltd., Thereby, the assessee is found have utilized borrowed funds for giving the loans to the sister concern. On account of payment of interest of Rs.54,21,963/- to M/s. Rajmal Lakhichand requires to be proportionately disallowed out of the paid interest of Rs.3,22,51,946/- and accordingly, Rs.54,21,963/- is added to assessees total income because it does not qualify for deduction u/s.36(1)(iii) of the I.T. Act, 1961.
13. CIT(A) restricted the disallowance to Rs.27,71,272/- by giving the following reasoning. For the sake of completeness, relevant Para No.20 of the order of CIT(A) is extracted as under : ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014
20. As regards disallowance of interest u/s 36(l)(iii) of the, the appellant company has debited Rs.3,22,51,946/- in its P & L a/c on account of interest payments on secured as well as unsecured loans. This interalia includes Rs.54,21,963/- stated to have been paid to M/s Rajmal Lakhichand. I find from the calculation submitted by the appellant that while interest on debit balance has been paid, interest on credit balance has also been charged from M/s.Rajmal Lakhichand. While there was a debit balance of Rs. 37,83,17,093/- as on 31/03/2009 against Rajmal Lakhichand in sale/purchase account, there was a credit balance of Rs.32,89,13,300/- against the above concern as on 31/03/2009. The net of interest paid and received comes to Rs. 54,21,963/-. However, I also find from the record that the appellant company received a loan of Rs.
5.5 crore from Kotak Mahindra Bank on 16/05/2008 against its property situated at Kalyan. This amount was given to M/s Rajmal Lakhichand Jewellers (P) Ltd on behalf of M/s Rajmal Lakhichand. While the appellant company has taken loan @11.50% from bank, it is charging only 6% from its sister concerns. There is a direct nexus in the above referred bank loan and the amount paid to M/s. Rajmal Lakhichand Jewellers (P) Ltd on behalf of Rajmal Lakhichand. In view of the above, borrowed funds at higher interest are diverted for non-business purpose at lower interest rates. The appellant has failed to prove any commercial expediency in regard to diversion of funds for non-business purposes. In view of the above, difference of 5.50% in interest rate, to the extent of Rs.26,52,054/- (interest @5.50% on Rs.5.50 crore for 320 days) is disallowed u/s 36(1)(iii) of the. It is also noticed that there was a debit balance of Rs.6,12,787/- against Shri. Ishwarlal S.Lalwani, Director of the company. The appellant company has not charged any interest. The appellant has borrowed funds from banks at interest rates ranging from 11.50% to 13.25%. The appellant has diverted borrowed funds for non-business purposes. Hence interest of Rs.75,534/- i.e. @ 12% on Rs.6,12,787/- will also be disallowed u/s 36(1)(iii) of the. Similarly, the appellant had given a loan of Rs.3,63,957/- to Shri. Manish Jain, another director of the company on which no interest has been charged. Accordingly interest of Rs.43,674/- i.e. @12% on Rs.3,63,957/- is also disallowed u/s 36(1)(iii) of the. Total disallowance comes to Rs.27,71,262/- (Rs.26,52,054 + Rs.75,534 + Rs.43,674). The appellant gets a relief of Rs.26,50,701/-.
14. Before us, Ld. Counsel for the assessee demonstrated that the payment of loans is not borne out of the records. This is the matter of transactions involving the sister concerns. According to him, the relief should be granted to assessee in view of the Supreme Court judgment in the case of S.A. Builders Vs. CIT reported in 288 ITR 1 .
15. Ld. Departmental Representative for the Revenue submitted that it is a case of direct nexus of diverting the Bank loans ultimately to the Sister concerns and levying of interest at lesser rate of interest is not out of the commercial expediency. ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014
16. Further, we find that the Ld. Authorised Representative filed the following written submissions and we proceed to import relevant paragraphs as under (Para 3, 3.1 to 3.3) :
3. Ground No. 4 & 5 - In this context, the assessee has made substantial sales to Rajmal Lakhichand during the year (page 562 of Paper Book 2) against those sales, it received money from them from time to time as given on page 563 to 576. The group follows the policy of charging 6% interest on the funds receivable from the group concerns. As the assessee had received more funds from them, it paid net interest of Rs.54,21,963/- on the difference (page 576 of Paper Book 2). The total interest payable to Rajmal Lakhichand was Rs.1,18,01,425/- as reduced by the interest receivable from them of Rs.63,79,463/- and the net interest was taken to the account of Raj mal Lakhichand (page 576). Therefore, there is no reason for disallowance. Just because, the assessee had debited interest of Rs.3,22,51,946/- in the P&L Account payable to the bank, the A.O. erred in disallowing interest of Rs.54,21,963/- payable by the assessee as mentioned above. The bank interest is allowable as the loans from the banks are utilized for the purpose of the business.
3.1 Secondly, the transactions with the sister concern Rajmal Lakhichand have been on business account. Therefore, for the receivables from them, even if, the assessee has not charged the interest, still interest payable to the bank was allowable as a deduction (SC 288 ITR 1 ). Thirdly, the assessees own reserves and capital are to the extent of Rs.13.40 Crs. (page 13 of the Paper Book 1) and hence, these interest free funds were available with the assessee for giving funds to sister concerns and thus, no disallowance is warranted. Bombay H.C. [313 ITR 340] .
3.2 Thirdly, the A.O. has wrongly mentioned that the assessee has not charged interest to Rajmal Lakhichand Jewellers Pvt. Ltd. On page 580 of Paper Book 2, the assessee has given the account extract in which the entry of net interest received is very much made and hence, there is no merit in the contention of the A.O.
3.3 In the case of M/s. Rajmal Lakhichand, there was no issue about interest disallowance in the above context and therefore, there is no finding by theAT in its order.
17. From the above, it is evident that there are certain erroneous assumptions on part of the AO (Para 3.2 above). As such, there is no speaking order on the applicability of the said (supra). Therefore, after hearing both the sides, we find the discussion given by the CIT(A) do not constitute a speaking order. We therefore are of the view that the order of the CIT(A) should be set- aside. We proceed to remand this issue to the file of the CIT(A) for fresh adjudication. He shall grant reasonable opportunity of being heard to theA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014 assessee as per the set principles of natural justice. Accordingly, this part of ground raised by the assessee is allowed for statistical purposes.
18. The third issue in the cross appeals relates to the correctness of the directions given by the CIT(A) invoking the provisions of section 2(22)(e) of thein respect of Shri Ishwarlal S. Lalwani and Shri Manish Jain (Directors of the company as mentioned in the grounds).
19. On this issue, AO did not make any addition in the assessment on this account. This issue came up for discussion during the proceedings before the first appellate proceedings. CIT(A) discussed this issue in Para 21 of his order. On studying the various transactions involving M/s. Rajmal Lakhichand where Shri Ishwarlal S. Lalwani and Shri Manish Jain are the Directors, it is submitted that the assessee has a running account with the said assessee. The credit balance works out to Rs.22.33 crores (rounded off) against the debit balance of Rs.23.01 crores (rounded off). The difference works out to Rs.67,59,393/-. On this balance, it is the view of the CIT(A) that Rs.67,61,977/- constitutes loan/advances given to the Private Limited Company which are shared by the common Directors. In the light of these facts, the CIT(A) gave direction to the AO to consider taxing the said amount in the hands of the Directors of the Company invoking the provisions of section 2(22)(e) of the. Relevant direction from Para No.21 is extracted as under :
21. . . . . . . . . . . . . . . . . . . . . . . . .The account is required to be examined to find out the maximum debit balance during the year to invoke the provisions of sec. 2(22)(e) of the in the hands of Shri Ishwarlal S. Lalwani. Further, according to appellants letter dtd. 05/09/2012, there was a debit balance of Rs.6,58,503/- against Shri Ishwarlal S.Lalwani, Director of the appellant company (Shareholding 99.16%). This amount is required to be taxed as deemed dividend u/s 2(22)(e) of the in the hands of Shri Ishwarlal S. Lalwani. AO is also directed to examine the applicability of the provisions of section 2(22)(e) in the hands of the partners of M/s. Rajmal Lakhichand to whom the appellant company is stated to have made an advance, with a maximum balance during the year being at Rs.38,46,00,984/-. The AO shall also examine the other account with ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014 M/s. Rajmal Lakhichand where there was a credit balance of Rs. 32,80,85,847/- for the purpose of invoking the provisions of sec. 2(22)(e) of the in the hands of partners Shri Ishwarlal S. Lalwani, Shri Amrish I.Lalwani and Smt. Neetika M.Lalwani with 40%, 30% and 30% share, respectively in the profit/loss of the Firm. The appellants letter dtd. 25/09/2012 further reveals that M/s.Rajmal Lakhichand Jewellers (P) Ltd. made a payment of Rs.45 lac to one Shri Vijaykumar Katariya on 25/11/2008 on behalf of the appellant company for appellants property at Sangamner. M/s.Rajmal Lakhichand Jewellers (P) Ltd. also incurred expenses amounting to Rs.64,38,555/- on behalf of the appellant company on account of construction at Ahmednagar. AO is directed to examine these payments for the purpose of invoking the provisions of deemed dividends in the hands of Shri Ishwarlal S. Lalwani.
20. Before us, Ld. Counsel for the assessee mentioned that the provisions of section 2(22)(e) of thecannot be invoked when the balances involving are on account of trading or current account transactions. The amount of Rs.67,61,977/- is merely a difference between the debit and credit balances. According to him, they are not the clear loan or advances paid by the assessee. Therefore, Ld. Counsel prayed for expunging the directions of the CIT(A). In this regard, he relied on various decisions to support the above argument.
21. Ld. Departmental Representative for the Revenue heavily relied on the order of the CIT(A).
22. On hearing both the parties, the transaction in question are merely of routine business transactions. Books do not confirm that there are any loan/advances given by the assessee to the sister concerns with the common Directors. Thus, we find the loans involved are certainly on account of trading transactions, i.e. purchase and sale of the Gold/Jewellery/Bullion etc. and it is not the clear payment of loan by the assessee to the company. Therefore, we are of the opinion that directions given by the CIT(A) to the AO on this account is prima-facie unsustainable in law. Accordingly, the issue raised by the assessee in this appeal is allowed in favour of the assessee. ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014 ITA No.782/PUN/2013 (By Revenue) :
23. In this appeal, Revenue has raised the following grounds :
1. On the fact and in the circumstance of the case the Ld.CIT(A)-II, Nashik erred in giving relief by estimating the income of assessee and not on the basis of facts of the case.
2. On the fact and in the circumstance of the case the Ld.CIT(A)-II, Nashik erred in deleting additions of Rs.2,89,47,407/- on account of disallowance u/s.40A(2)(b) i.e. purchases from sister concern when the CIT(A) has appreciated facts in respect of provision of sec.40A(2)(b) are clearly applicable.
3. On the fact and in the circumstance of the case the Ld.CIT(A)-II, Nashik erred in deleting additions on account of diversion of profit of Rs.10,44,96,803/- when the CIT(A) has appreciated the facts that diversion of profit on sale is clearly established.
4. On the fact and in the circumstance of the case the Ld.CIT(A)-II, Nashik erred in deleting additions on account of G.P. of Rs.83,53,082/- when the action of A.O. in rejecting books of account is upheld.
5. On the fact and in the circumstance of the case the Ld.CIT(A)-II, Nashik erred in partly deleting additions of Rs.26,50,701/- as against of Rs.54,21,963/- made by A.O. on account of disallowance u/s.36(1)(iii).
6. On the fact and circumstance of the case the order of the CIT(A) be cancelled and that of the A.O. be restored.
7. The appellant craves leave to add, alter, amend the ground of appeal, if felt necessary.
24. Referring to the issue relating to estimation of profits, restricting additionally the Gross Profit to 0.59% and also deletion of additions made by the AO u/s.40A(2)(b) of the on one side and also the additions on account of diversion of profits on the other, the Ld. Counsel for the assessee submitted that these aspects of the issue are connected to (the first issue) raised by the assessee in its appeal vide Ground Nos. 1 to 3. Further, he mentioned that this issue now stands remitted to the file of the CIT(A) for fresh adjudication in the light of the order of the Tribunal in the case of M/s. Rajmal Lakhichand ITA Nos. 532 & 663/PUN/2013 and ITA No.607/PUN/2013 order dated 16-01-2015. Accordingly, it is the view of the Ld. Counsel that Ground Nos. 1 ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014 to 4 of the Revenue should be remanded along with Ground Nos. 1 to 3 of the appeal of the assessee.
25. On hearing both the parties, we find this issue is obliquely related and the same has already been adjudicated by the Tribunal in the case of M/s. Rajmal Lakhichand (supra). Further, we have already remanded the issue while dealing with the appeal of the assessee. Contents of Para 7 to 11 of this order are relevant. CIT(A) is directed to grant reasonable opportunity of being heard to the assessee. Therefore, we order accordingly.
26. Referring to Ground No.5 of the Revenue, it was mentioned that the said ground relates to the relief granted by the CIT(A) on account of interest u/s.36(1)(iii) of the.
27. On hearing both the parties, we find this issue has a nexus to Ground No.2 raised by the assessee. In dealing with the issue in the appeal of the assessee, we remanded the same to the file of the CIT(A). Considering the principle of consistency, we remand this issue in appeal of Revenue also to his file. CIT(A) is directed to accord reasonable opportunity of being heard to the assessee.
28. In the result, the appeal of the Revenue is partly allowed for statistical purposes.
29. To sum up, the appeals of the Assessee and the Revenue are partly allowed for statistical purposes. ITA No.1694/PUN/2014 Manraj Jewellers Pvt. Ltd. :
30. Now, we shall take up the appeal of the Revenue in respect of Manraj Jewellers Pvt. Ltd. ITA No.1694/PUN/2014. Grounds raised by the Revenue are as under : ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014
1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A)-II, Nashik has erred in deleting the Gross Profit Addition considering that there is no justification for rejection of accounts without appreciating the various defects as pointed out by the Assessing Officer in the Assessment order.
2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A)-II, Nashik has erred in deleting the additions being diversion of profit on a/c of sales made to associate concern at a lower rate.
3. On the facts and in the circumstances of the case and in law, the order of the Ld.CIT(A)-II, Nashik be cancelled on the above issues and that of the A.O. be restored.
4. The appellant craves leave to add, alter, modify, delete, amend any of the grounds with prior permission of the Honble CIT, as per the circumstances of the case.
5. The appellant prays to file any of the additional evidence appropriate to the grounds taken in appeal.
31. Briefly stated relevant facts of the case are that assessee company belongs to Rajmal Lakhichand Group of cases of Jalgaon. Assessee is engaged in the business of Gold and Silver, making of ornaments as well as selling the bullions. Assessee filed the return of income on 22-08-2009 declaring Nil income, however, deemed income u/s.115JB was shown at Rs.2,60,51,861/-. Assessee declared gross profit @2.71% and net profit @ 0.73% on the total turnover of Rs.303.54 crores.
32. Before us, referring to Ground No.1, Ld. Counsels mentioned that the said ground relates to the rejection of books of account and the reasons for rejection are common to the other cases namely, M/s. Rajmal Lakhichand and Manvi Holdings Pvt. Ltd. Bringing our attention to the order in the case of M/s. Rajmal Lakhichand (supra), the Ld. Counsel for the assessee submitted that on identical facts and the listed deficiencies in the books of account, the Tribunal confirmed the rejection of books of account invoking the provisions of section 145(3) of the. Consequently, the order of the CIT(A) in this case is required to be reversed and in favour of the Revenue. ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014
33. On hearing both the parties and considering the fairness of the Ld. Counsel for the assessee, we are of the opinion that Ground No.1 raised by the assessee in so far as it relates to rejection of books of account is allowed in favour of the Revenue. So far as estimation of Gross Profit and the appropriate Gross Profit rate is concerned, we find this matter needs to re-visit to the file of the CIT(A) appreciating the reasoning and logic given by the Tribunal in the case of M/s. Rajmal Lakhichand (Supra) after granting reasonable opportunity of being heard to the assessee. We order accordingly.
34. So far the issue raised in Ground No.2 the Ld. Departmental Representative for the Revenue mentioned that the same relates to deletion of addition being the diversion of profits on account of sales made to the associate concern at a lower rate. He mentioned that this issue was not approved by the above referred decision of the Tribunal in the case of M/s. Rajmal Lakhichand (supra).
35. On hearing both the sides, we find there is no appeal filed by the Assessee. However, considering the order of the Tribunal on identical issue, we direct the CIT(A) to apply the reasoning given by the Tribunal in the case of M/s. Rajmal Lakhichand (supra) and adjudicate the issue raised in Ground No.2. Therefore, this issue also is remanded to the file of the CIT(A).
36. In the result, the appeal of the Revenue is partly allowed for statistical purposes. Order pronounced in the open court on this 28 th day of July, 2017. Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Pune; Dated : 28 th July, 2017. ITA Nos.782 and 721/PUN/2013 and ITA No.1694/PUN/2014 /Copy of the Order forwarded to : / BY ORDER, //True Copy // Senior Private Secretary , / ITAT, Pune
1. / The Appellant
2. / The Respondent
3. The CIT(A)-II, Nashik
4. The CIT-II, Nashik
5. DR, ITAT, A Bench Pune;
6. / Guard file.
