Meena Jewellers Extension Private Limite
Meena Jewellers Extension Private Limite

M/s Meena Jewellers Extension Private Limited vs. ACIT, Circle-16(2), Hyderabad

M/s Meena Jewellers Extension Private Limited vs. ACIT, Circle-16(2), Hyderabad

Court: Income Tax Appellate Tribunal (ITAT), Hyderabad ‘A’ Bench
Coram: Shri Vijay Pal Rao (Vice President) and Shri Manjunatha G. (Accountant Member)
Assessment Years: 2017-18 and 2018-19
Hearing Date: December 5, 2024
Order Date: January 10, 2025


Introduction

The case pertains to appeals filed by M/s Meena Jewellers Extension Private Limited challenging the assessment orders under Section 144 of the Income Tax Act, 1961. The appeals arose from additions made by the Assessing Officer (AO) concerning profit estimation, unexplained cash credits, and cash deposits during the demonetization period. The appeals before the Tribunal sought to revisit these determinations.


Facts of the Case

  1. Nature of Business:
    The appellant operates in the jewelry trading business and filed returns for Assessment Year (AY) 2017-18, declaring a total loss of ₹37.32 crores after carrying forward current-year losses.

  2. Scrutiny Assessment:
    The case was selected for scrutiny. Multiple notices under Sections 143(2) and 142(1) were issued by the AO, but there was no compliance from the appellant, leading to the completion of the assessment under Section 144 (Best Judgment Assessment).

  3. Assessment Highlights (Ex-Parte Order):

    • Profit Estimation: ₹27.71 crore was added by estimating profits at 10% of the declared turnover.
    • Unexplained Cash Credits (Section 68): ₹2.25 crore was added as liabilities deemed unexplained.
    • Unexplained Cash Deposits (Section 69A): ₹10.84 crore was added for cash deposits during the demonetization period.
  4. Appeal Before CIT(A):
    The appellant challenged these additions, contending non-compliance was due to liquidation proceedings and a lack of resources. However, CIT(A) upheld the AO’s decision.


Arguments by the Appellant (Before ITAT)

The appellant raised several grounds and offered clarifications for the additions made:

1. Profit Estimation at 10% of Turnover (₹27.71 Crores):

  • Grounds:
    • The AO failed to reject the books of accounts before estimating profits, violating the principle established in Kachwala Gems vs. JCIT (288 ITR 10).
    • Profit margins in jewelry businesses are industry-specific and generally range between 2-3%, as opposed to the 10% applied arbitrarily.
    • Turnover and purchases were duly recorded and verified; hence, profit estimation was unjustified.
  • Supporting Facts:
    • The company’s books were audited.
    • Financial distress and ongoing proceedings under the National Company Law Tribunal (NCLT) led to operational challenges, limiting compliance with notices.
    • The AO failed to provide a rationale for selecting a 10% margin without relying on industry comparables.

2. Unexplained Cash Credits (₹2.25 Crores – Section 68):

  • Grounds:
    • The AO added the total liabilities reflected under long-term borrowings without distinguishing between fresh loans and those carried forward.
    • Confirmations for loans and advances were available but could not be submitted earlier due to liquidation-related disruptions.
  • Supporting Facts:
    • The liabilities consisted of trade creditors and provisions for expenditure, arising in the normal course of business.
    • Banking channels were used for these transactions, ensuring transparency and traceability.

3. Unexplained Cash Deposits During Demonetization (₹10.84 Crores – Section 69A):

  • Grounds:
    • Cash deposits were proceeds from regular sales recorded in the books.
    • The AO made additions solely based on bank statements without analyzing whether the deposits were part of accounted turnover.
  • Supporting Facts:
    • Sales records aligned with cash deposits.
    • Regular books of accounts documented the inflow of funds.

4. Procedural Violations:

  • The AO failed to:
    • Analyze the books of accounts properly before resorting to best-judgment assessment.
    • Provide sufficient opportunity for the appellant to furnish evidence.
    • Establish a clear link between cash deposits and unexplained income.

Arguments by the Revenue (Before ITAT)

The Departmental Representative (DR) supported the orders of the AO and CIT(A), contending:

  1. The AO rightly completed the assessment ex-parte under Section 144 due to repeated non-compliance.
  2. The profit estimation of 10% was reasonable given the inadequacies in the appellant’s submissions.
  3. The appellant failed to substantiate the identity, creditworthiness, and genuineness of transactions under Section 68.
  4. Cash deposits during demonetization were unexplained, and no supporting evidence was submitted.

Tribunal’s Observations and Findings

  1. Profit Estimation:

    • The AO’s profit estimation lacked a valid rejection of books of accounts, which is a prerequisite under Section 145.
    • Profit margins of 10% were not justified without supporting industry data or comparables.
    • Directed the AO to reexamine the matter by analyzing the books of accounts and considering industry norms.
  2. Unexplained Cash Credits (Section 68):

    • The AO failed to distinguish between new and existing liabilities.
    • Remanded the issue to the AO to allow the appellant to submit confirmations and supporting evidence.
  3. Unexplained Cash Deposits (Section 69A):

    • Additions were made without verifying whether deposits were already recorded in the appellant’s books of accounts.
    • Directed reexamination with specific findings on the source and nature of deposits.
  4. Principles of Natural Justice:

    • Recognized procedural lapses in affording the appellant adequate opportunities.
    • Allowed the appellant to present additional evidence and submissions.

Tribunal’s Directions

The ITAT set aside the orders of the AO and CIT(A), remanding all issues for fresh consideration with specific instructions:

  1. Profit Estimation: Reassess profit margins after analyzing books and industry benchmarks.
  2. Cash Credits (Section 68): Examine liabilities with supporting evidence provided by the appellant.
  3. Cash Deposits (Section 69A): Verify whether cash deposits are recorded in the books and determine their sources.

The Tribunal instructed the CIT(A) to provide the appellant sufficient opportunity to present its case and directed the appellant to cooperate fully during the proceedings.


Outcome

All appeals were allowed for statistical purposes, with instructions for a detailed reexamination by the CIT(A).

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