ARVIND GUPTA V. COMMISSIONER OF I T CIRCLE-2 JAIPUR

ITA/129/2015

AI Insights

The case involves Arvind Gupta, the appellant, who appealed against the order of the Income Tax Appellate Tribunal, Jaipur, which upheld the addition of Rs.14,37,171 to his income for the assessment year 2007-08. The addition was based on the finding that certain purchases recorded in his books were not genuine. The Assessing Officer (AO) had rejected the books of accounts under Section 145(3) of the Income Tax Act, 1961, after finding discrepancies and non-existence of the suppliers at the given addresses. The Commissioner of Income Tax (Appeals) reduced the addition but upheld the rejection of the books. The Tribunal further reduced the addition but maintained the rejection of the books. The High Court dismissed the appeal, agreeing with the findings of the lower authorities and noting that the appellant failed to produce the suppliers for verification despite being given multiple opportunities.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 732687 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 06-05-2016
• Assessment Year: misc
• Other Referred Cases: Indian Woolen Carpet Factory Vs. ITAT, M/s Sanjay Oil Cake Industries Vs. Commissioner of Income Tax, Shri Anuj Kumar Varshney Vs. I.T.O., Venus Arts & Gems Vs. The Income Tax Officer, M/s G.B. Impex Vs. Income Tax Officer, Commissioner of Income Tax, Orissa Vs. Orissa Corporation (P) Ltd., Commissioner of Income-Tax Vs. Inani Marbles P. Ltd., Commissioner of Income-Tax Vs. Gotan Lime Khanij Udhyog
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: N L AGRAWAL
• Keywords: Accommodation entries; Genuine purchases; Income tax appeal; Rejection of books of accounts; Unverifiable purchases
• Section: 145(3); 260A

Judgement Text

"1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR DB Income Tax Appeal No.129/2015 Arvind Gupta Vs. Commissioner of Income Tax Date of Order :::: 06/05/2016 Hon'ble Mr. Justice M.N. Bhandari Hon'ble Mr. Justice J.K. Ranka Mr. NL Agrawal, counsel for the appellant BY THE COURT (Per: Hon'ble J.K. Ranka, J.) 1. Instant appeal under Section 260A of the Income Tax Act, 1961 (for short, 'Act') is directed against the order dt. 05/06/2015 passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (for short, 'Tribunal') in ITA No.644/JP/2012. It relates to the assessment year 2007-08 2. Brief facts noticed for disposal of the appeal are that the appellant-assessee is engaged in the business of manufacturing and export of silver jewellery and also trading of semi-precious stones. On perusal of the books of accounts, it was noticed by the Assessing Officer (for short, 'AO') that the assessee has shown total purchases of Rs.4,19,29,991/- out of which on random basis, the AO directed to provide further details and to produce the parties from whom the assessee had purchased goods to the extent of Rs.57,48,691/-. The AO during the course of proceedings observed that information had been gathered by the Revenue that no such concerns 2 exists on the given address at least in the following cases from whom purchases were made by the assessee:- S.No. Name Amount 1 M/s. Selective Gems 5,64,701/- 2 M/s. Aayush Jewellers 2,65,415/- 3 M/s. Govindam Jewellers 13,28,897/- 4 M/s. Gaurav Exports 6,86,130/- 5 M/s. Touch Jewels 10,14,794/- 6 M/s. Anil Exporters 6,82,664/- 7 M/s. Mahaveer Gems & Jewels 3,93,680/- 8 M/s. Bright Jewels 8,12,410/- Total 57,48,691/- 3. The AO also noticed that since the concerns do not exist on the given address, as such they were providing accommodation entries and were not doing any genuine sale/purchase of the gems & jewels and the exporters like this, though may be having unexplained stock to regularize such unaccounted stock used to take sale bills from concerns like this on a nominal charge to regularize such unaccounted stock. The AO accordingly desired the assessee to produce the parties alongwith their books of accounts and other supporting material. However, the appellant contended that all the parties are genuine and genuine purchases had been effected, confirmation had been filed wherein complete address alongwith 3 Permanent Account Number was placed. However, it was contended that they are unable to produce the parties because it was beyond their control and after the aforesaid transactions, there was no business relation and requested the AO to make independent enquiry. The AO noticed that as per the investigation carried out by the Revenue on receipt of data in respect of Banking Cash Transaction Tax, it was found that “no such concern exist on the given address”. The AO on the above premise was not satisfied and that the books of accounts were not reliable as other discrepancy in maintenance of stock register was also noticed by rejecting books of accounts and by invoking provisions of Section 145(3), made an addition of Rs.14,37,171/- by disallowing 25% of the unverifiable purchases of Rs.57,48,691/- based on the judgment of this Court in case of Indian Woolen Carpet Factory Vs. ITAT and others: (2002) 178 CTR 420 and so also the judgment of Gujarat High Court in the case of M/s Sanjay Oil Cake Industries Vs. Commissioner of Income Tax:(2008)10 DTR (Guj.)153 and other judgments made aforesaid additions. 4. The matter was carried in appeal before the Commissioner of Income Tax (Appeals) (for short, 'CIT(A)') who though was satisfied that the books of accounts are to be rejected under Section 145(3), however, on the issue of reasonableness of the gross 4 profit rate, the trading addition of Rs.14,37,173/- was reduced to Rs.67409/-. 5. The Revenue carried the matter in appeal before the Tribunal and the Tribunal, following the judgment in the case of Shri Anuj Kumar Varshney Vs. I.T.O. and other cases in ITA No.187/JP/2012 order dt.22/10/2014, taking into consideration the overall discrepancies and the facts noticed, made disallowance of 15% out of unverifiable purchases and accordingly directed for making addition to this extent. 6. Learned counsel for the appellant contended that the purchases were genuine and no material has been placed on record by the authorities to hold that the purchases were not genuine. He contended that all the purchases are duly vouched, they contained complete names and addresses with permanent account numbers and are assessed to income tax as well as sales tax and all the payments are by account payee cheques and therefore, there was no justification for holding the same to be non-genuine. He further contended that the payments having been made, the assessee was not in a position to produce the parties and adverse inference drawn by the Revenue was uncalled for. He further contended that the addition cannot be made on estimation, on assumptions & presumptions and it was brought to the notice of the Court that all the 5 transactions are through brokers and the buyer does not come in picture with the seller. He contended that substantial questions of law arise out of the order of the Tribunal. He relied upon the judgments rendered in the case of Commissioner of Income Tax, Orissa Vs. Orissa Corporation (P) Ltd.: 1986 (Supp) Supreme Court Cases 110; Commissioner of Income-Tax Vs. Inani Marbles P. Ltd. : (2009) 316 ITR 125; Commissioner of Income-Tax Vs. Gotan Lime Khanij Udhyog : (2002) 256 ITR 243. 7. We have heard learned counsel for the appellant, perused the order impugned as well as the orders passed by the lower authorities. 8. During the course of one of the hearing on 26/11/2015, the court on arguments of the counsel that the sellers do exist at the given address and purchases are genuine, the Court was keen to consider the issue raised and passed following order directing the counsel for the appellant to furnish further details to examine veracity of the contentions of the appellant:- “We find that the Assessing Officer in its assessment order dt.12/11/2009 after examining genuineness of the purchases indicated by the assessee in its books of account, has given cogent reasons in holding that these are not genuine purchases. Before we may proceed in the matter any further consider it appropriate to direct counsel for appellant- assessee to furnish complete details regarding each of the following firms from whom purchases were made so as to examine veracity of the statements made regarding genuineness of the purchases made by the assessee:- 6 S.No. Name Amount 1 M/s. Selective Gems 5,64,701/- 2 M/s. Aayush Jewellers 2,65,415/- 3 M/s. Govindam Jewellers 13,28,897/- 4 M/s. Gaurav Exports 6,86,130/- 5 M/s. Touch Jewels 10,14,794/- 6 M/s. Anil Exporters 6,82,664/- 7 M/s. Mahaveer Gems & Jewels 3,93,680/- 8 M/s. Bright Jewels 8,12,410/- Total 57,48,691/- However, the defence of the assessee throughout is that they made purchase through broker. He may also place on record as to who are the brokers along with name, address and amount of brokerage paid by the assessee and as claimed by the counsel of which reference has been made by the Assessing Officer and CIT(A) in its assessment order dt.12/11/2009 and appellate order dt.12/04/2012. List on 08/01/2016.” 9. The counsel for the appellant despite several opportunities granted has furnished certain details thereafter bringing on record the documents as directed by this Court. Though we need not go into further detail, suffice it to say that we have noticed several discrepancies in the documents provided by counsel for the appellant during the course of hearing in as much as in the case of Aayush Enterprises, while the address shown in the confirmation of accounts, is House No.5324, Phuta Khura, Ramganj Bazar, Jaipur whereas the address shown in the additional affidavit is B-92, 7 Vardhman Nagar, Ajmer Road, Jaipur and there is no explanation in this regard. 10. It may also be observed that in the case of M/s Touch Stone, the confirmation of account does not mention any address so also in the case of M/s Anil Exporters, the confirmation does not mention any address while the affidavit simply states “Ghee Walon Ka Rasta, Jaipur” which is incomplete and possibly one could not reach with the address provided by the appellant. These are just a few discrepancies noticed on test check. 11. On perusal of the query of the Court, it is also noticed that the assessee has furnished some confirmations but for the reasons best known to it, none of the sale bills have been placed on record though directed. On reading of the order of CIT(A) and Tribunal, it is apparent that even sale bills have not been produced before the said appellate authorites. It is also a matter of fact that though the claim of the assessee before the authorities and before this Court with vehemence was that all the transactions are through brokers and the parties do not come in picture. However, on a specific query raised earlier, which is reproduced herein before, not a single name and address of any broker and as to how much amount was paid as brokerage has been placed on record to 8 substantiate the claim made before the lower authorities as well as before this Court. 12. During the course of hearing, learned counsel for the assessee has chosen not to place on record copy of the sale bills and vouchers as aforesaid from the respective parties for the reasons best known to him, except to mention that the purchase bills etc. were furnished to the AO and the CIT(A) and tried to satisfy on the basis of the arguments itself about the fact that the transactions were genuine. The paper book placed on record is the one filed before CIT(A) which shows enclosures as:- “S.No. Particulars Page No. 1. Copy of confirmation 1-8 2. Copy of audit report u/s 44AB of the Assessee 9-25 3. Copy of bank accounts of the assessee 26-41 4. Copy of admission made before the Learned A.O. 42-44 CERTIFICATE Certified that papers at Sr. No.1 to 4 and page no.1 to 44 were before the Learned Assessing Officer. Sd/- (Counsel for the assessee)” 13. The said does not contain copies of the purchase bills and certificate annexed which makes it clear that even purchase bills were not submitted even before the learned A.O. 14. We may also add that the order in this context was passed by this Court on 26/11/2015 for hearing on 08/01/2016 but the counsel sought time on 08/01/2016, 25/01/2016, 19/02/2016, 01/04/2016 23/04/2016 and it 9 was only when this Court made it clear on 23/04/2016 that if the compliance of the order is not made, presumption can be drawn against the assessee, the additional affidavit alongwith the so-called incomplete details was filed. The above make us to believe that something fishy is there as when even before this Court the appellant can try to sidetrack the issue as arguments and written submissions in Additional Affidavit before this Court and lower authorities is something else while reality is something else and not brought on record. Therefore, apparent is not real and the lower authorities were well justified in drawing adverse inference by holding the purchases to be non-genuine and for the reasons which we have additionally noticed. 15. Be that as it may, the AO noticed that on an investigation by the department on receipt of data in respect of banking cash transactions tax and books, it was found that none of the above concerns exist at the given addresses. On the contrary, if some of the parties were found, they were only giving accommodation entries and not doing any genuine sale/purchase of the gems and jewels and on a specific query that the parties either do not exist or have given accommodation entries and to produce the same, the assessee informed that he is unable to produce and the learned AO to take appropriate action at his level. 10 16. All the three authorities in unison have found this to be a major defect and rejected the books of accounts. 17. Having noticed the above facts, we find that the assessee has not discharged the onus which was casted on him once the parties either were not found existing or the information was received that the parties are providing accommodation entries only. This Court in the case of Venus Arts & Gems Vs. The Income Tax Officer (DB Income Tax Appeal No.582/2011) vide judgment dt. 20/08/2014 has observed that once there is a finding that the parties are non-existent, this by itself is a serious discrepancy and adverse inference can be drawn and it would be appropriate to quote Para 7 of the said judgment which reads ad-infra:- “7. We have already noticed the fact that the A.O. rejected the trading results and invoked the provisions of Sec. 145(3) on the defects noticed by the assessee and in addition to that he came to the conclusion that despite the assessee having been directed to produce the parties from whom the assessee purchased goods for verification, but despite ample opportunities having been granted, the parties were not produced, particularly in view of the fact that the summons at the addresses given by the assessee himself either came back unserved and returned unserved by postal authorities or if served none of them presented before the A.O. It is the prime duty of an assessee to produce the sellers from whom he has purchased the goods in view of the fact that notices came back unserved. On perusal of the copies of the accounts of the firms as also the other 11 details, it is noticed that from some of the parties, the goods purchased were to the extent of Rs.12 to Rs.20 Lacs. Merely because the parties are assessed to income tax and the transactions being by account payee cheques will not prove the genuineness of the transactions in view of the fact that in case of sellers as observed by the A.O. some of the parties denied the sale and stated that they did not sell the goods and merely issued bills without effecting actual delivery. Once this fact has come on record that the notice could not be served for one or the other reasons and the parties did not turn up then in our considered view the onus and burden shifts on the assessee which has to be discharged appropriately by the assessee and we have noticed in this case that the assessee has not been able to lead any evidence in furtherance of filing of confirmatory letters or merely showing that the amounts are being paid by account payee cheques. If the assessee was able to file confirmatory letters from the sellers than the assessee was certainly aware of the whereabouts and ought to have taken further steps in producing the parties and proving the genuineness of the purchases made by it, in view of what we have observed hereinabove. We are also of the view that making exports of such goods purchased by the assessee is hardly of any consequence. Major deficiency has been noticed by the A.O. and in our view the Tribunal has rightly reached to the conclusion.” 18. The Tribunal, in our view, has taken into consideration the overall view and the nature of discrepancies noticed in the case by the AO and noticed by this Court, at least on perusal of the information now provided during the course of hearing by the appellant- assessee and only few discrepancies on test check have been highlighted herein before. 19. This Court in the case of M/s G.B. Impex Vs. 12 Income Tax Officer (DB Income Tax Appeal No.43/2015), decided on 28/04/2016, has taken into consideration various judgments of this Court and other courts in the case of Indian Woolen Carpet Factory Vs. Income Tax Appellate Tribunal & ors.: 2002 CTR 178 (Raj.) 420; Commissioner of Income-Tax Vs. Golecha Properties (Pvt.) Ltd. (In Liquidation): 1997 ITR 227 (Raj.) 391; Commissioner of Income-Tax Vs. Precision Finance Pvt. Ltd.: 1994 ITR 208 (Cal.) 465; V.I.S.P. (P) Ltd. Vs. Commissioner of Income Tax & Anr.: 2004 CTR 186 (MP) 718; Commissioner of Income-Tax Vs. La Medica :2001 ITR 250 (Delhi) 575, has dismissed the appeal of the assessee in that case on the self same controversy involved where also the Tribunal disallowed 15% of the unverifiable purchases. 20. Since the self same controversy as involved in the instant case has already been decided by this Court in the case of M/s G.B. Impex Vs. Income Tax Officer (supra) where this Court has found that no substantial question arise out of the order of the Tribunal and it is a finding of fact which is based on the material on record. In fact, learned Tribunal in the instant appeal has followed the judgment passed by it in the case of Shri Anuj Kumar Varshney Vs. I.T.O. and other cases in ITA No.187/JP/2012 dt.22/10/2014, where the case of G.B. Impex Vs. Income Tax Officer was also part of the 13 appeals decided by the Tribunal. 21. We may also deal with the judgments relied upon by counsel for the appellant. 22. In the case of Commissioner of Income Tax, Orissa Vs. Orissa Corporation (P) Ltd. (supra), the facts noticed by the Apex Court were that the assessee has given names and addresses of the alleged creditors, it was in the notice of the Revenue that the said creditors were income tax assessees, their index number was in the file of the Revenue, still the Revenue apart from issuing notices under Section 131 at the instance of the assessee did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit worthy or were such who could advance the alleged loan, there was no averment to pursue the so- called alleged creditors and on such finding, it came to the opinion that the assessee has discharged the burden and found no question of law to be involved. However, the facts in the instant case are entirely distinguishable in as much as at the instance of the assessee, notices were issued under Section 131 and the notices came back duly unserved, the Revenue again desired the assessee appellant to produce the parties for verification. However, though the appellant was in 14 touch with the respective parties as confirmation was filed but was unable to produce the parties and only after verification it could be known whether the parties had creditworthiness or genuineness of the transaction. On the contrary, the evidence available with the investigation wing of the Revenue and which was passed on to the AO clearly was brought on record that either the parties are not existing on the given addresses or if found, they denied of actual purchase or sale of the precious stone and jewellery and accommodated the assessee's but had obtained a paper bill without effecting actual purchases. Thus the judgment in the case of Commissioner of Income Tax, Orissa Vs. Orissa Corporation (P) Ltd. (supra) is inapplicable. 23. The other two judgments relied upon by counsel for the appellant in the case of Commissioner of Income-Tax Vs. Inani Marbles P. Ltd. (supra) and Commissioner of Income-Tax Vs. Gotan Lime Khanij Udhyog (supra) were on account of applying abnormal gross profit rate and this court found that abnormal fanciful additions cannot be made and assessees own results of the previous year were required to be looked into whereas the present case is entirely distinguishable and the AO has not touched upon the gross profit rate rather has held the very purchases doubtful and non- verifiable which fact is now apparent and as discussed 15 hereinbefore. Thus these judgments are distinguishable. 24. Accordingly, in our view, no question of law much less substantial question of law can be said to arise out of the order passed by the Tribunal so as to call for interference of this Court as it is essentially a finding of fact on the basis of evidence on record. 25. Consequently, the appeal, being devoid of merit, is accordingly dismissed. [J.K. Ranka],J. [M.N. Bhandari],J. Raghu/p.15/ Certificate:All corrections made in the judgment/order have been incorporated in the judgment/order being e-mailed. Raghu, Sr. PA. 16 "