Profit calculation on gold sales

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kamal (Querist)
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08 May 2012 I have a critical doubt,

Mr."X" having jewellery as bussiness have stock of 2 kilo of gold of books value 18 lakhs,Mr."X" given 1 kilo of gold as credit to Mr."Y" (son of Mr."x") to do business on 1st january 2012 where agreement between son and father is 'son have to return 1 kilo of gold to father on 28th february 2012 (-rate of gold doesn't matter since father gets his 1 kilo of gold back-)

Now Mr."Y" sold 1 kilo of gold at 30 lakhs and bought the gold on the same day for 2990000.

On 28th february 2012 Mr."Y" returned 1kilo of gold to his father Mr."X". For Mr."Y" he has made a profit of 10000.

Actual profit is 10000 or 21 lakhs (- 9 lakh valued goods sold for 30 lakh-) ?

If Mr."Y" have to pay tax on 21 lakhs how can he return the gold of 1 kilo to father?

Actually what is the profit whether 10000 or 21 lakh Mr."Y" have to show for income tax?

Please experts clarify my doubt.

Thank you.

Kamal

Sanket Shah

Sanket Shah (Expert)
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08 May 2012 for Mr.Y profit will be Rs.10000/- difference between sale and purchase value. For Mr X it will depend on agreement whether agreement is sale and buyback or just goods are given for certain period for certain remuneration?

kamal

kamal (Querist)
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09 May 2012 Thank you Mr.Sanket Shah for your reply.

Mr."X" have not sold goods ,but he have given goods for certain remuneration that Mr."Y" have to pay rupees 2000 while he returns the gold . But here the matter is

The goods that is issued by father Mr."X" is 1 kilo gold of quality 100% and that gold has been sold by Mr."Y".While Mr."Y" have bought same type i.e., 100% quality of 1 kilo gold and returned to Mr."X".

Here problem is the gold Mr."X" given is actually sold but its replaced by what Mr."Y" bought.

Since Mr."X" gold sold by someone and returned,is there anything change in Stock value of goods of Mr"X"?

But as per agreement Mr."X" given gold to Mr."Y" for just rupees 2000 which should be paid while returning gold of same type. The agreement clearly says whatever the rate of gold Mr."Y" have to return 1 kilo of same type with extra 2000 rupees.Is this becomes a sales Transation of Mr."X" ?

While coming to Mr."Y", actual profit made is Rs.10000 but is this can be agreed under law, since goods sold first and bought back.Here profit formulae worked is

Profit=goods sold first - goods bought after sales (ie.,30 lakh sales value-2990000 purchased after sales)

Since the above clearly shows Cost of Goods is what Goods purchased after sales.This shows that it will not come under three costing laws "LIFO", "FIFO" , Average valuation.Can what Mr."Y" profit calculation is agreed under law ?

Please help to solve this.

Thank you,
Kamal

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kamal

kamal (Querist)
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10 May 2012 please experts solve this !

Sanket Shah

Sanket Shah (Expert)
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10 May 2012 For Mr X - Same type of goods are returned by Mr Y. There is difference with respect to size, type, quality, quantity etc. so for Mr X value of stock remains same. Rs. 2000 earned for lending stock shall be treated as income from stock lending which will be considered as business income only.

For Mr Y - actual profit is Rs8000/- (Rs10000-2000 stock lending charge). It is acceptable under law, since Mr y will show that he has borrowed stock and then sold. on purchase stock is returned back.