Principal Commissioner of Income-tax Central I, Chennai v. Shiv Salai & Sons(I) Ltd
[Citation -2020-LL-0925-26]

Citation 2020-LL-0925-26
Appellant Name Principal Commissioner of Income-tax Central I, Chennai
Respondent Name Shiv Salai & Sons(I) Ltd.
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 25/09/2020
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags mercantile system of accounting • disallowance of interest • exchange rate difference • incriminating material • suppression of income • suppression of sales • interest free loans • search and seizure • unexplained credit • credit entry • debit entry • cash sales • debit note • set off
Bot Summary: The assessee contended before the CIT(A) that the books relied on by the Assessing Officer for making the additions were the very same books which were produced by the assessee before the Assessing Officer during the course of original assessment and there was no incriminating material found at the time of search and the recomputation of profit was made by the Assessing Officer purely on surmises. The Revenue preferred an appeal to the Tribunal and in paragraph no.61 of the impugned order, the Tribunal has elaborately considered the entire factual matrix and took note of the number of instances where the assessee had charged lesser on its jewelery customers than for cash sales. The finding rendered by the CIT(A) was decided for its correctness and the Tribunal confirmed the same after taking note of the observations made by the CIT(A), who had analyzed the total investments and interest free advances given for the assessment years 2006-07 to 2012-13 as well as the total of interest free advances received by the assessee for all the assessment years and confirmed the finding. With regard to the third issue, the Assessing Officer brought the income arising to the assessee on account of the credit and debit notes issued by M/s.MMTC Ltd., The assessee was on appeal before the CIT(A) contenting that the Assessing Officer cannot take note of the credit notes, ignoring the existence of debit notes. Further the assessee contended that they are following mercantile system of accounting and as such the incomes arising on account of net of credit and debit notes, should be offered to tax year on year on the basis of receipt of credit / debit notes; the receivables arising to the assessee on account of credit notes was set off against the liabilities arising on account of the debit notes. The CIT(A) considered the said submission and directed the Assessing Officer to give relief to the liabilities arising to the assessee on account of the debit notes and set off the same against the income receivables as per the credit notes raised by M/s.MMTC Ltd., and the Assessing Officer was computing the net of credit notes over and above the debit note and bring only the net amount for taxation. The Tribunal noted that criminal proceedings were initiated against the senior official of M/s.MMTC Ltd., and the individual assessee who was arrayed as a third accused and the criminal proceedings were quashed in Crl.O.P.NO.21243 of 2014 and Crl.R.C.NO.1191 of 2015 dated 17.04.2017.


TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 In High Court of Judicature at Madras Reserved On : 22.09.2020 Pronounced On: 25 .09.2020 Coram : Honourable Mr.Justice T.S.SIVAGNANAM and Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal Nos.275 to 283, 285, 291 to 293, 300 & 319 to 322 of 2020 and C.M.P.Nos. 9590, 9616, 9617, 9618, 9623, 9624, 9625, 9627, 9628, 9651, 9653, 9655, 9809, 10059, 10061 and 10062 of 2020 Principal Commissioner of Income Tax Central I No.108, Mahatma Gandhi Road, Chennai. ...Appellant in all Appeals Vs M/s.Shiv Salai & Sons(I) Ltd, No.1, Narasima Dasari Lane, 60/61, NSC Bose Road, Chennai 600 079 PAN AANCS9453R ...Respondent in all Appeals COMMON PRAYER: APPEALS under Section 260A of Income Tax Act, 1961 against order dated 27.06.2018 made in 1/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 Tax Case Appeal Nos. I.T.A.Nos. Assessment Years 1. T.C.A.No.275/2020 I.T.A.No.1450/chny/2017 2007-08 2. T.C.A.No.276/2020 I.T.A.No.1485/chny/2017 2006-07 3. T.C.A.No.277/2020 I.T.A.No.1451/chny/2017 2008-09 4. T.C.A.No.278/2020 I.T.A.No.1453/chny/2017 2010-11 5. T.C.A.No.279/2020 I.T.A.No.1486/chny/2017 2007-08 6. T.C.A.No.280/2020 I.T.A.No.1488/chny/2017 2009-10 7. T.C.A.No.281/2020 I.T.A.No.1452/chny/2017 2009-10 8. T.C.A.No.282/2020 I.T.A.No.1490/chny/2017 2011-12 9. T.C.A.No.283/2020 I.T.A.No.1487/chny/2017 2008-09 10. T.C.A.No.285/2020 I.T.A.No.1449/chny/2017 2006-07 11. T.C.A.No.291/2020 I.T.A.No.1489/chny/2017 2010-11 12. T.C.A.No.292/2020 I.T.A.No.1454/chny/2017 2011-12 13. T.C.A.No.293/2020 I.T.A.No.1455/chny/2017 2012-13 14. T.C.A.No.300/2020 I.T.A.No.1491/chny/2017 2012-13 15. T.C.A.No.319/2020 I.T.A.No.1998/chny/2017 2011-12 16. T.C.A.No.320/2020 I.T.A.No.1448/chny/2017 2012-13 17. T.C.A.No.321/2020 I.T.A.No.1989/chny/2017 2012-13 18. T.C.A.No.322/2020 I.T.A.No.1447/chny/2017 2011-12 on file of Income Tax Appellate Tribunal, Madras 'A' Bench. For Appellant in all Appeals: Mr.T.R.Senthil Kumar Senior Standing Counsel assisted by Ms.K.G.Usha Rani 2/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 Common Judgment was delivered by T.S.Sivagnanam,J. These appeals, filed by Revenue, under Section 260A of Income Tax Act, 1961 ('the Act' for brevity) is directed against orders dated 27.06.2018 passed by Income Tax Appellate Tribunal Bench 'A' Chennai ('the Tribunal' for brevity) in I.T.A.Nos.1453/chny/2017, 1486/chny/2017, 1488/chny/2017, 1452/chny/2017, 1490/chny/2017, 1487/chny/2017, 1449/chny/2017, 1489/chny/2017, 1454/chny/2017, 1455/chny/2017, 1491/chny/2017, 1998/chny/2017, 1448/chny/2017, 1989/chny/2017 and 1447/chny/2017 for Assessment Years under consideration (AYs' 2006-07 to 2012-13). These appeals can be segregated into three categories based on Substantial Questions of Law which have been framed for consideration. following are four Substantial Questions of Law have to be decided in these appeals: 1).Whether on facts and in circumstances of case, Appellate Tribunal was justified in holding that assessee quoting lower rates for cash sales as against 'sales to jewellers' is tenable, even though both are not credit sales? 3/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 2)Whether on facts and in circumstances of case, Appellate Tribunal was right in law in holding that disallowance of interest is not warranted where assessee had sufficient own funds, without appreciating that diverted own funds had it remained with assessee would have reduced its interest burden? 3)Whether on facts and circumstances of case, Appellate Tribunal was correct in deciding that until arbitration proceedings between assessee and M/s.MMTC Ltd., (Minerals and Metals Trading Corporation Ltd.,) reach finality, additions cannot be made on credit notes raised by M/s.MMTC Ltd., in favour of assessee when arbitration proceedings itself were caused by collusive conduct on part of both parties? 4). Whether on facts and circumstances of case, Hon'ble Tribunal was correct in holding that repayment of debt by debtor will not create fresh credit but only square off debt, without taking cognizance of fact that credit appears in 4/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 books of M/s.Shiv Sahai & Sons (I) Ltd., for year ending 31.03.2012, relevant to assessment year 2012- 13? 2. Substantial Question of Law No.1 above arises in T.C.A.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 for seven assessment years. Question of Law nos.2 and 3 arises in T.C.A.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 for all assessment years and Question of Law no.4 arises in T.C.A.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 for assessment year 2012- 13 only. 3. Since facts are identical and challenge in these appeals are to common order passed by Tribunal, it would suffice to refer to facts in T.C.A.No.285/2020 filed against order passed by Tribunal in I.T.A.NO.1449/Chny/2017 for assessment year 2006-07. 5/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 4. respondent assessee is individual and was proprietor of business concern trading in Gold, Silver and Bullions from September 2010. Proprietorship business was converted into Limited Company. There was search and seizure operations conducted on two dates namely 06.01.2012 and 02.03.2012. Pursuant to which notice under Section 153(A) of Act was issued for assessment years under consideration (AY 2006-07 to 2012-13). assessments were completed under Section 143(3) read with Section 153(A) of Act by orders dated 31.03.2014. major issues in Assessment Orders which are subject matter of these appeals are four in number namely (i) cash sales effected by assessee quoting low rates, (ii) disallowance of interest which was set aside by Tribunal (iii) Credit notices which were issued to M/s.MMTC Ltd., (Minerals and Metals Trading Corporation Ltd.,) which were directed to be kept in abeyance till conclusion of arbitration proceedings, (iv) unexplained credit in name of Smt.Pista Bai. assessee being aggrieved by Assessment Orders dated 31.03.2014 preferred appeals before Commissioner of Income Tax (Appeals)-19, Chennai [CIT(A)]. 6/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 appeals were Partly Allowed and above four issues were decided in favour of assessee vide order dated 28.03.2017. 5. assessee contended before CIT(A) that books relied on by Assessing Officer for making additions were very same books which were produced by assessee before Assessing Officer during course of original assessment and there was no incriminating material found at time of search and recomputation of profit was made by Assessing Officer purely on surmises. Further assessee submitted that they were not following Association Rate for selling bullions but were following LMB (London Bullion Metal Exchange) with adjustments for exchange rate difference, import duty etc and sales effected to jewelers were based on cheques received from them. It will take couple of days for collection. Whereas across counter cash sales resulted in immediate realization of money and therefore, such transactions were incorporated by assessee by offering slightly lower rates for cash sales. Further more assessee contended that LMP rates noted in diary was for 0.999 purity gold, whereas gold traded by assessee was of 0.995 7/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 purity and bullion trading was different from other businesses and assessee will not be able to share all information with its employees and they were given information only on 'Need to know principle'. CIT(A) considered said contention in elaborate manner and allowed assessee's appeal. 6. Revenue preferred appeal to Tribunal and in paragraph no.61 of impugned order, Tribunal has elaborately considered entire factual matrix and took note of number of instances where assessee had charged lesser on its jewelery customers than for cash sales. Various invoice numbers have been recorded and noting in diaries of earlier years were considered as also fact that there was no additions for suppression of sales for years 2010-11 and 2011-12. That apart, Tribunal took note of statement given by one of employees and assessee and has extracted relevant portion of statement. Noting that deponent did not make any allegation that they were selling bullions in cash at lower rates and it was done for suppression of income, Tribunal took note of assessee's stand that trade 8/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 information and data will not be shared with all employees, as they follow 'need to know principle' and only such information which was required to be shared within employees will be made known to concerned employee. Further more, Tribunal noted that soft copy of books of accounts found at time of search was not parallel set of account but only regular accounts maintained by assessee based on which it was filing their returns. With above factual finding, Tribunal concurred with CIT(A). 7. With regard to second issue namely disallowance of interest, Assessing Officer disallowed interest alleging diversion of interest free loans at 12% given to various persons for assessment years 2006-07 to 2012-13. assessee stated before Assessing Officer that every business has its own requirements to make advances and it can be interest free or not or for non business purposes and Assessing Officer cannot adopt percentage of 12%. Assessing Officer noted that assessee also received interest free advances from customers and various other third parties. explanation offered by assessee was held to be 9/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 vague and without proper details and accordingly, Assessing Officer made disallowance of interest free advances and loans at 12%. On appeal, CIT(A) found that assessee had substantial capital built over various years and was also having substantial interest free advances and there was nothing on record to show that any interest bearing funds were diverted for giving any interest free loans or for making any investments. finding rendered by CIT(A) was decided for its correctness and Tribunal confirmed same after taking note of observations made by CIT(A), who had analyzed total investments and interest free advances given for assessment years 2006-07 to 2012-13 as well as total of interest free advances received by assessee for all assessment years and confirmed finding. 8. With regard to third issue, Assessing Officer brought income arising to assessee on account of credit and debit notes issued by M/s.MMTC Ltd., assessee was on appeal before CIT(A) contenting that Assessing Officer cannot take note of credit notes, ignoring existence of debit notes. Therefore, Remand Report was 10/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 called and in which, Assessing Officer clarified that only credit notes were considered. assessee pleaded that if at all Assessing Officer is considering adopting accounts provided by M/s.MMTC Ltd., then it should be adopted in full and Assessing Officer cannot blow hot and cold at same time. Further assessee contended that they are following mercantile system of accounting and as such incomes arising on account of net of credit and debit notes, should be offered to tax year on year on basis of receipt of credit / debit notes; receivables arising to assessee on account of credit notes was set off against liabilities arising on account of debit notes. CIT(A) noted that credit notes as well as debit notes are on record and have been submitted as documents before learned Arbitrator as well as before this Court in dispute between assessee and M/s.MMTC Ltd.,. CIT(A) considered said submission and directed Assessing Officer to give relief to liabilities arising to assessee on account of debit notes and set off same against income receivables as per credit notes raised by M/s.MMTC Ltd., and Assessing Officer was computing net of credit notes over and above debit note and bring only net amount for taxation. 11/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 9. correctness of said finding rendered by CIT(A) was tested by Tribunal. Tribunal noted that criminal proceedings were initiated against senior official of M/s.MMTC Ltd., and individual assessee who was arrayed as third accused and criminal proceedings were quashed in Crl.O.P.NO.21243 of 2014 and Crl.R.C.NO.1191 of 2015 dated 17.04.2017. Further, Tribunal noted that M/s.MMTC Ltd., had filed Suit in Original Side of this Court in C.S.No.249/2013 and assessee had initiated arbitration proceedings against M/s.MMTC Ltd., as provided in Memorandum of Understanding dated 02.04.2008 between assessee and M/s.MMTC Ltd.,. matter traveled upto Hon'ble Supreme Court of India at instance of M/s.MMTC Ltd.,. in Civil Appeal NO.11148 of 2017 in which Honble Supreme Court disposed of Appeal by order dated 20.11.2017, appointing Hon'ble Justice Mr.R.V.Raveendran, Former Judge of Hon'ble Supreme Court as Arbitrator to decide all disputes arising out of Memorandum of Agreement dated 02.04.2008 between assessee and M/s.MMTC Ltd., and Claim Petition filed by assessee before Arbitrator was directed to be treated 12/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 as counter claim. said order dated 20.11.2011 was to supersede arbitration proceedings in Clause no.11 of Memorandum of Agreement dated 02.04.2008. 10. Hon'ble Supreme Court also fixed time frame for parties to exchange documents. On Miscellaneous Petition moved by M/s.MMTC Ltd., in M.A.No.941 of 2020 in C.A.NO.11148 of 2017, Hon'ble Supreme Court by order dated 02.06.2020, extended time limit for Arbitral proceedings by twelve months and time to start from date when Hon'ble Arbitrator resumes proceedings. Though order passed in Miscellaneous Petition is only on 02.06.2020, we have mentioned about this in this judgment to demonstrate that dispute between assessee and M/s.MMTC Ltd., is pending before Hon'ble Arbitrator. Tribunal took note of order dated 20.11.2017, passed in Crl.O.P.NO.21243/2014 and Crl.R.C.No.1191/2015 and in our opinion, rightly, held that outcome of arbitration proceedings will have great bearing on quantum of reconciliation difference for which assessee if at all is liable. Tribunal opined that addition for differences in 13/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 accounting credit and debit notes, could not have been made for impugned assessment years, as it will be crystalised only in year in which arbitration proceedings reaches finality and Revenue can take cognizance of Arbitral Award in year in which arbitration is complete and proceed according to law. Therefore, Tribunal set aside addition made for credit and debit notes and differences in reconciliation with M/s.MMTC Ltd.,. 11. learned counsel appearing for Revenue vehemently opposed directions issued by Tribunal, pointed out that in event, this Court has to confirm finding of Tribunal, then Court may exercise its power under Section 150 of Act and issue appropriate directions and also relied on recent decision of Hon'ble Division Bench of this Court in T.C.A.No.788 of 2016 dated 18.09.2020 (Commissioner of Income Tax, Chennai. Vs., Emgeeyar Pictures Private Limited). Tribunal, in it's considered view rightly deferred proceedings under Act to be commenced after conclusion of Arbitral proceedings, considering nature of dispute between assessee 14/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 and M/s.MMTC Ltd.,. We find that order passed by Tribunal meets ends of justice and safeguards interest of Revenue and no cause has arisen to invoke powers under Section 150 of Act. 12. fourth issue is regard to unexplained credit of Rs.30,00,000/- in name of Smt.Pista Bai. Assessing Officer while completing assessment vide orders dated 31.03.2014 made addition of Rs.30,00,000/- on account of non filing of confirmation letter from Smt.Pista Bai called for under Section 142(1) of Act. assessee challenged addition before CIT(A), who before taking decision called for Remand Report which was furnished vide Report dated 19.12.2017. CIT(A) examined issue and took note of submission of assessee that debit entry in books of firm favouring Smt.Pista Bai to extent of Rs.30,00,000/- was squared off with credit entry in books of limited Company and this fact was confirmed by Assessing Officer in Remand Report. Further CIT(A) noted that business of assessee which was initially Proprietorship concern had been taken over by assessee from August 15/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 2011 and assessee has explained credit entry and accepting explanation, CIT(A) held that there is no reason for making any addition of amount which was credit entry squaring off earlier debit entry. 13. Revenue was on appeal before Tribunal on said issue and after considering manner in which CIT(A) dealt with issue, Tribunal also verified facts and noted that transaction amounts received from Smt.Pista Bai were repayment of earlier advances of Rs.30,00,000/- given by assessee, when business was run as Proprietorship concern and latter transactions were reflected in accounts of Proprietorship concern. Thus it was held to be only repayment of debt by Debtor. Once business was taken over by assessee Company, any repayment of debt by Debtor will not create further credit, it will square off debit. Therefore, Tribunal found that there was no reason for interfering with order passed by CIT(A). 14. We find that issue is fully factual and in absence of any perversity in approach of Tribunal, this Court does not find any 16/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 grounds to disturb factual finding recorded by Tribunal while confirming finding of CIT(A). Therefore, we hold that said issue does not raise any Substantial Question of Law for consideration. 15. In result, these Tax Case Appeals are dismissed. Substantial Questions of Law nos.1 to 3 are answered against Revenue and in favour of assessee and insofar as Question of Law no.4, we find there is no Substantial Question of Law arising for consideration on said issue and accordingly same stands rejected. No costs. Consequently connected miscellaneous petitions are closed. (T.S.S., J.) (V.B.S., J.) 25 .09.2020 Internet: Yes /No Index : Yes/No 17/18 http://www.judis.nic.in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 T.S.SIVAGNANAM,J. And V.BHAVANI SUBBARAYON.,J. Sk To Principal Commissioner of Income Tax Central I No.108, Mahatma Gandhi Road, Chennai. Predelivery Judgment in TCA.Nos.275 to 283, 285, 291 to 293, 300 and 319 to 322 of 2020 25.09.2020 18/18 http://www.judis.nic.in Principal Commissioner of Income-tax Central I, Chennai v. Shiv Salai & Sons(I) Ltd
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