The Commissioner Of Income Tax-Ii v. Jindal Dyechem Industries Pvt Ltd

THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 18.04.2012 +ITA 283/2011 & ITA 343/2011 THE COMMISSIONER OF INCOME TAX-II ... Appellant versus JINDAL DYECHEM INDUSTRIES PVT LTD ... Respondent Advocates who appeared in this case:For the Appellant: Mr Sanjeev SabharwalFor the Respondent: Mr Salil Aggarwal with Mr P. C. Yadav CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE V.K. JAIN JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1.These two appeals preferred by the revenue are directed against theorder dated 26.02.2010 passed by the Income Tax Appellate Tribunal inITA 2877/Del/2009 and CO No. 240/Del/2009 in the said ITA in respect ofthe assessment year 2004-2005. The revenue was in appeal before theTribunal by virtue of the said ITA 2877/Del/2009, whereas the assessee hadfiled the said Cross Objection (CO No. 240/Del/2009). ITA Nos. 283/2011 & ITA 343/2011 2.According to the appellant, the following questions are important and substantial questions of law and arise for determination by this Court:- (1)Whether learned ITAT erred in deleting the addition of` 1,19,07,201/- made by the Assessing Officer on accountof alleged understatement of sale of bullion by invokingthe provisions of section 69A of the Income Tax Act,1961?` 1,19,07,201/- made by the Assessing Officer on accountof alleged understatement of sale of bullion by invokingthe provisions of section 69A of the Income Tax Act,1961? (2)Whether learned ITAT erred in deleting the addition of` 1,66,571/- made by the Assessing Officer on account ofstock written off?` 1,66,571/- made by the Assessing Officer on account ofstock written off? 3.The Assessing Officer, while making the assessment in respect of theassessment year 2004-2005, inter alia, made an addition of ` 1,19,07,201/-on account of the alleged understatement of sale of bullion (gold and silver)by invoking the provisions of Section 69A of the Income Tax Act, 1961.The Assessing Officer had also, inter alia, made an addition of ` 1,66,571/-on account of stock of silver bars written off.Insofar as the latteradditional is concerned, the Assessing Officer found that there was adifference of 14.28 kilograms in the concerned year with regard to the stockof silver bars.Consequently, he added the value of 14.28 kilogramsamounting to ` 1,66,571/-.According to the Assessing Officer, the ITA Nos. 283/2011 & ITA 343/2011 assessee was unable to give a proper explanation as to why there was adifference in the stock of silver bars to the extent of 14.28 kilograms. Eventhe Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘theCIT (A)’] agreed with the Assessing Officer and rejected the assessee’sappeal on this aspect of the mater. The CIT (A) was of the view that silverwas not a perishable commodity and, therefore, he did not accept theexplanation of the assessee with regard to the loss of 14.28 kilogramsduring the year. 4.It is in this context that the assessee had filed the aforesaid CrossObjection before the Tribunal. The assessee contended that duringweighing and re-weighing of the silver bars on a repeated basis, there is,sometimes, a weight loss due to breakage of corners of the silver bricks.Consequently, in the year in question, there was a loss of 14.28 kilogramsof silver which was only 0.012% of total quantity of silver. 5.According to the Tribunal, the Assessing Officer, while rejecting theexplanation given by the assessee, did not make any verification as towhether in the type of trade i.e., wholesale trade in silver, a negligibleamount of breakage occurs or not. The Tribunal was of the view that the ITA Nos. 283/2011 & ITA 343/2011 4.It is in this context that the assessee had filed the aforesaid CrossObjection before the Tribunal. The assessee contended that duringweighing and re-weighing of the silver bars on a repeated basis, there is,sometimes, a weight loss due to breakage of corners of the silver bricks.Consequently, in the year in question, there was a loss of 14.28 kilogramsof silver which was only 0.012% of total quantity of silver. 5.According to the Tribunal, the Assessing Officer, while rejecting theexplanation given by the assessee, did not make any verification as towhether in the type of trade i.e., wholesale trade in silver, a negligibleamount of breakage occurs or not. The Tribunal was of the view that the ITA Nos. 283/2011 & ITA 343/2011 Assessing Officer merely took the view that the loss in the silver to theextent of 14.28 kilograms represented sales made by the assessee outsidethe books of accounts. The Tribunal concluded that the Assessing Officer,without any evidence to this effect, could not have reached this conclusionthat the sales had been made outside the books of accounts. It is on thisbasis that the Tribunal, on facts, reversed the finding of the CIT (A) as alsothe Assessing Officer on the ground of lack of evidence of any transactionhaving been made outside the books of accounts. 6.After hearing the counsel for the parties, we are of the view that theTribunal has arrived at this conclusion and the same is a pure finding offact.This is so because the Tribunal took the view that there was noevidence of any transaction outside the books of accounts. No perversityhas been pointed out by the learned counsel for the appellant in this finding.Consequently, no substantial question of law, insofar as this aspect isconcerned, arises for our consideration. 7.We now come to the first issue and that is with regard to theallegation of understatement of the sale of bullion (gold and silver) made by the assessee. According to the learned counsel for the revenue, all thesesales represented cash sales of gold and silver to unknown persons. Whenthe Assessing Officer had required the assessee to disclose the names ofthose persons to whom the cash sales of gold and silver were made, theassessee was unable to do so and, therefore, the Assessing Officer came tothe conclusion, on the basis of the average rates of the Delhi BullionAssociation, that the sales were understated to the extent of ` 1,19,07,201/-.Accordingly, the Assessing Officer made an addition of ` 1,19,07,201/- onthis account. 8.Being aggrieved, the assessee preferred an appeal, as aforesaid,before the CIT (A), who agreed with the submissions made by the assesseeand deleted the said addition. The CIT (A) noted that it had been verifiedby the Assessing Officer that the said Delhi Bullion Association rates werein respect of retail transaction and not in respect of the wholesale trade. Itmay be pointed out that the assessee was admittedly involved in thewholesale trade and not in the retail trade. Consequently, the CIT (A) heldthat the Delhi Bullion Association rates were, therefore, not applicable tothe transactions entered into by the assessee and, therefore, the same could not have been used for arriving at the conclusion that there was anunderstatement of the sales. As a result, the CIT (A) deleted the addition of` 1,19,07,201/-.As pointed out above, the revenue preferred the appealbeing ITA 2877/Del/2009 before the Tribunal on, inter alia, this aspect ofthe matter. 9.The Tribunal, after hearing the counsel for the parties, came to thefollowing conclusion in respect of the said deletion of ` 1,19,07,201/-:- not have been used for arriving at the conclusion that there was anunderstatement of the sales. As a result, the CIT (A) deleted the addition of` 1,19,07,201/-.As pointed out above, the revenue preferred the appealbeing ITA 2877/Del/2009 before the Tribunal on, inter alia, this aspect ofthe matter. 9.The Tribunal, after hearing the counsel for the parties, came to thefollowing conclusion in respect of the said deletion of ` 1,19,07,201/-:- “20. We have heard both the counsels and perused the records.AO’s basic reason is that there are cash sales which are notverifiable and the rates whereof is below the average rate ofDelhiBullionAssociation.Aspointedoutbytheld.CIT(A),AO on remandhas himself accepted that the DelhiBullion Association rates are wholesale rates and are notapplicable to the case of the assessee. In any case, it is not thecase of the AO that he has come across any material showingthat the assessee is receiving something over and above thatentered into the books of accounts maintained. All the requisitebooks and records are maintained and the same are duly auditedand no specific defect in the same has been pointed out.Moreover, ld. CIT(A) rightly observed that the lower rates ofthe Delhi Bullion Association are quite comparable with thatshown by the assessee. In the case of CIT vs. Kolkata DiscountCompany ltd. 91 ITR 8, the Hon’ble Apex Court has held thattransactions between the assessee and its subsidiary companywas bonafide transactions; that assessee had transferred itsvalue shares at cost price to its subsidiary in order to soarranged its affairs as to reduce its tax burden and therefore,unless AO on the basis of the material before him was able tocome to the conclusion that the assessee has really made profits in the transactions. It was not permissible for him to add backthe assessee’s return and fictional income. In the background ofthe aforesaid discussion and precedent, we do not find anyinfirmity in the orders of the ld. CIT(A) in this regard andaccordingly we uphold the same.” 10.It is apparent that the Tribunal concurred with the observations of theCIT (A). Another aspect, which has been noted by the Tribunal, was thatthe lower rates of the Delhi Bullion Association were also comparable withthat shown by the assessee even though the rates of the Delhi BullionAssociation were in respect of the retail trade and not in respect of thewholesale trade in which the assessee was involved. The Tribunal correctlynoted that in the present case, the Assessing Officer had not come acrossany evidence or material to show that the assessee had received somethingover and above what was reflected in the books of accounts in respect ofthe sale of the said bullion. Consequently, we feel that the Tribunal, beingthe final fact finding authority, has come to the correct conclusion on factsand no perversity in the same has been pointed out by the learned counselappearing on behalf of the appellant. As such, no substantial question oflaw arises for our consideration. 11.We may also point out that we had enquired from the learned counselfor the appellant as to whether there was any requirement in law ofrecording the names of the purchasers of the bullion to whom the cash salesof gold and silver were made. The learned counsel for the revenue statedthat there was no such requirement in law at the relevant time.Consequently, no adverse inference could have been drawn by theAssessing Officer on account of the fact that the assessee was not in aposition to furnish the names of the persons to whom the cash sales of thebullion were made. Thus, there is no merit in these appeals. The same are dismissed. BADAR DURREZ AHMED, J APRIL 18, 2012SR V.K. JAIN, J