DCIT, Jaipur V. SHRI ASHOK AGARWAL, Jaipur

ITA 1282/JPR/2010

• Counselvise Citation: 128223114 RSA 2010
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 01-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI

Judgement Text

1 ITA 1282-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 1282/JP/2010 ASSTT. YEAR : 2006-07. THE DCIT, CIRCLE-2, VS. SHRI ASHOK AGARWAL, JAIPUR. M/S. NEEL GEM STONES, 419, MANI RAMJI KI KOTHI KA RASTA, JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINOD JOHARI RESPONDENT BY : SHRI SANDEEP JHANWAR DATE OF HEARING : 16.9.2011 DATE OF PRONOUNCEMENT : 14.10.2011. ORDER DATE OF ORDER : 14/10/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2006-07. 2. THE DEPARTMENT IS OBJECTING IN DELETING ENTIRE T RADING ADDITION OF RS. 49,22,794/- MADE BY AO BY DISALLOWING 25% OF UNVERIFIABLE PURCH ASES OF RS. 1,96,91,177/-L THOUGH THE REJECTION OF BOOKS OF ACCOUNT HAVE BEEN AFFIRME D BY LD. CIT (A). 3. THE ASSESSEE DEALS IN PRECIOUS AND SEMI PRECIOUS STONES. DURING THE YEAR UNDER CONSIDERATION, ON SALES OF RS. 4,38,68,198/- THE AS SESSEE DECLARED GROSS PROFIT RATE AT 5.08%. THE AO NOTED THAT PURCHASES OF RS. 1.96 CRO RES OR ODD FROM 13 PARTIES REMAINED 2 UNVERIFIABLE. SUMMONS ISSUED TO THESE PARTIES WERE REMAINED EITHER UNSERVED OR UNCOMPLIED WITH. THE INSPECTOR REPORTED THAT NO SU CH CONCERN WAS EXISTED AT THE GIVEN ADDRESSES. THE AO ALSO NOTED THAT EXAMINATION OF B ANK ACCOUNT OF THESE PARTIES SHOW THAT CASH WAS WITHDRAWN AS SOON AS CHEQUE WAS CLEAR ED. THE ASSESSEE WAS ASKED TO PRODUCE THESE PARTIES ALONG WITH THEIR BOOKS OF ACC OUNT BUT FAILED TO DO SO. THE AO FURTHER OBSERVED THAT IN THE SURVEY CONDUCTED BY BC TT WING OF THE DEPARTMENT IT WAS FOUND THAT THE PARTIES FROM WHOM THE PURCHASES HAVE BEEN SHOWN BY ASSESSEE WHICH REMAINED UNVERIFIABLE WERE FOUND AS PAPER CONCERN W HICH WERE NOT MAKING ANY ACTUAL SALE OR PURCHASE. STATEMENTS OF SOME PROPRIETORS OF THE FIRMS WERE RECORDED AND THEY HAVE ADMITTED THIS FACT. SIMILAR FACTS WERE FOUND IN THE COURSE OF SEARCH CONDUCTED IN CASE OF HALDIA GROUP. ACCORDINGLY, THE AO PLACING RELIANCE ON THE DECISION OF TRIBUNAL IN CASE OF SHRI SHREE KISHAN MALPANI, 32 TAX WORLD 122 REJECTED THE BOOKS OF ACCOUNT IN VIEW OF PROVISIONS OF SECTION 145(3) AND THEREAFTER MADE AN ADDITION @ 25% OF UNVERIFIABLE PURCHASES PLACING RELIANCE ON THE DECI SION OF HONBLE GUJARAT HIGH COURT IN CASE OF SANJAY OIL CAKE INDUSTRIES, 10 DTR 153 (GUJ .) AND IN CASE OF VIJAY PROTEINS LTD., 58 ITD 428 (ITAT AHD.). IT WAS CONTENDED BEFORE LD . CIT (A) THAT PURCHASES AND SALES WERE FULLY VOUCHED AND PAYMENTS WERE MADE BY ACCOUN T PAYEE CHEQUE. PARTIES ARE ASSESSED TO SALES-TAX AND INCOME-TAX. CONFIRMATION WAS ALSO FILED. THUS THE ASSESSEE HAS DISCHARGED HIS ONUS LAY UPON HIM. IT WAS FURTHER S UBMITTED THAT ASSESSEE IS 100% EXPORTER AND SALES HAVE NOT BEEN DOUBTED. THEREFORE , CORRESPONDING PURCHASES ALSO CANNOT BE DOUBTED. REGARDING THE INFERENCE DRAWN B Y AO IN RESPECT TO THE STATEMENTS OF VARIOUS PERSONS, IT WAS SUBMITTED THAT THESE PARTIE S HAVE NOT TAKEN THE NAME OF THE ASSESSEE AND NO MATERIAL COLLECTED BY DEPARTMENT WA S CONFRONTED TO THE ASSESSEE. 3 REGARDING THE DECISIONS OF HONBLE GUJARAT HIGH COU RT AND ITAT AHMEDABAD BENCH, IT WAS SUBMITTED THAT IN CASE OF GEM PARADISE, THESE C ASES WERE FOUND DISTINGUISHABLE. FURTHER RELIANCE WAS PLACED ON VARIOUS CASE LAWS AN D IT WAS SUBMITTED THAT THE TRADING RESULT SHOWN BY ASSESSEE ARE BETTER AND, THEREFORE, NO ADDITION CAN BE MADE IN VIEW OF THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF KANSARA BEARINGS PVT. LTD., 270 ITR 235 (RAJ.). 4. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING T HE MATERIAL ON RECORD, THE LD. CIT (A) NOTED THAT DECISION OF HONBLE GUJARAT HIGH COU RT HAVE BEEN FOUND DISTINGUISHED BY THE JAIPUR BENCH OF THE TRIBUNAL IN CASE OF GEM PAR ADISE DECIDED IN ITA NO. 700/JP/2009. IT WAS FURTHER OBSERVED THAT VARIOUS BENCHES OF THE TRIBUNAL HAVE HELD THAT WHERE PURCHASES REMAINED UNVERIFIABLE THEN REJECTIO N OF BOOKS OF ACCOUNT BY INVOKING PROVISIONS OF SECTION 145(3) IS CORRECT AND, THEREF ORE, INVOCATION OF PROVISIONS OF SECTION 145(3) WERE UPHELD. HOWEVER, THE LD. CIT (A) HELD THAT THE GROSS PROFIT RATE SHOWN BY ASSESSEE IS BETTER AS COMPARED TO EARLIER YEAR AS I N THE YEAR UNDER CONSIDERATION THE GROSS PROFIT RATE HAS BEEN SHOWN AT 5.08% AGAINST GROSS P ROFIT RATE OF 4.5% SHOWN IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, ADDITION MA DE BY AO WAS NOT JUSTIFIED. ACCORDINGLY ENTIRE ADDITION WAS DELETED. 5. NOW THE DEPARTMENT IS IN APPEAL HERE BEFORE THE TRIBUNAL. 6. THE LD. D/R FILED A COPY OF WRITTEN SUBMISSIONS AND ALSO PLACED RELIANCE ON THE ORDER OF AO. 7. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). IT WAS FURTHER SUBMITTED THAT THE ISSU E IS COVERED BY THE ORDER OF TRIBUNAL IN 4 CASE OF ASSESSEE HIMSELF FOR SUBSEQUENT YEAR. COPY OF THE ORDER OF TRIBUNAL DECIDED IN ITA NO. 1439/JP/2010 FOR ASSESSMENT YEAR 2007-708 D ATED 7.6.2011 WAS ALSO FILED. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED T HEM CAREFULLY. WE HAVE ALSO PERUSED THE MATERIAL ON RECORD AND THE WRITTEN SUBM ISSIONS FILED ON BEHALF OF THE DEPARTMENT AS WELL AS ON BEHALF OF THE ASSESSEE. V ARIOUS REASONS HAVE BEEN ASSIGNED BY LD. D/R IN THE WRITTEN SUBMISSIONS ALONG WITH VARIO US CASE LAWS. AFTER GOING THROUGH ALL THOSE SUBMISSIONS, WE FIND THAT ALL THESE SUBMISSIO NS HAVE ALREADY BEEN TAKEN INTO CONSIDERATION BY THE TRIBUNAL WHILE DECIDING VARIOU S APPEALS IN OTHER CASES. RECENTLY IN CASE OF M/S. CLARITY GOLD PVT. LTD. WHEREIN SIMILAR WRITTEN SUBMISSIONS FILED BY LD. D/R HAVE BEEN CONSIDERED IN DETAIL. THE MAIN OBJECTION OF THE DEPARTMENT IS THAT THE PARTIES FROM WHOM THE PURCHASES HAVE BEEN SHOWN BY ASSESSEE REMAINED UNVERIFIABLE AS NONE OF THE PARTIES WAS FOUND AT THE GIVEN ADDRESS NEITHER ASSESSEE COULD PRODUCE THEM AFTER ALLOWING DUE OPPORTUNITY TO THE ASSESSEE. IT WAS S UBMITTED THAT IN CASE OF M/S. VINAYAK GEMS FROM WHOM THE ASSESSEE ALSO SHOWN PURCHASES OF RS. 40 LACS OR ODD AND IN CASE OF M/S. CLARITY GOLD. PVT. LTD. THE PURCHASES HAVE BEE N SHOWN ABOUT RS. 89 LACS OR ODD. HOWEVER, THE FACT IS THAT M/S. VINAYAK GEMS HAVE SH OWN TURNOVER OF RS. 18 LACS ONLY. THEREFORE, FROM THIS FACT ALONE IT IS PROVED THAT T HE PURCHASES SHOWN BY ASSESSEE ARE BOGUS AND THE AO WAS CORRECT IN INVOKING PROVISIONS OF SECTION 145(3) AND MAKING AN ADDITION @ 25% OF UNVERIFIABLE PURCHASES. IT IS AL SO MENTIONED THAT THE PURCHASES WHICH REMAINED UNVERIFIABLE WERE NOT MADE FROM THE PARTIE S SHOWN. HOWEVER, THEY HAVE HAVE MADE PURCHASES FROM OTHER PARTIES BY MAKING PAYMENT IN CASH AND THEREFORE, IN VIEW OF PROVISIONS OF SECTION 40A (3), 20% OF THE CASH PAYM ENT MADE FOR PURCHASES WERE DISALLOWABLE. THEREFORE, THE ORDER OF AO IS LIABLE TO BE RESTORED WHEREAS THE ORDER OF LD. 5 CIT (A) IS LIABLE TO BE SET ASIDE. AS STATED ABOVE , THESE CONTENTIONS HAVE ALREADY BEEN CONSIDERED BY THE TRIBUNAL WHILE DECIDING THE APPEA L IN CASE OF M/S. CLARITY GOLD PVT. LTD. IN ITA NO. 238/JP/2011 VIDE ORDER DATED 23. 09.2011. THE BENCHES OF THE TRIBUNAL ARE TAKING A CONSISTENT VIEW THAT WHERE PU RCHASES REMAINED UNVERIFIABLE, THE REJECTION OF BOOKS OF ACCOUNT IS CORRECT. THIS VIEW HAS BEEN CONFIRMED BY HONBLE APEX COURT IN CASE OF KANCHWALA GEMS, 288 ITR 1 (SC). I N VIEW OF THESE FACTS AND CIRCUMSTANCES, THE REJECTION OF BOOKS OF ACCOUNT IS UPHELD. 9. THE BENCHES OF THE TRIBUNAL ARE ALSO TAKING A CO NSISTENT VIEW THAT WHERE CERTAIN PURCHASES REMAIN UNVERIFIABLE THEN IN THAT CASE THE PROFIT SHOULD BE DEDUCED ON THE BASIS OF PAST HISTORY AND TAKING INTO CONSIDERATION THE C URRENT EVENTS OF THE CASE. THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF HONBLE JURISDICT IONAL HIGH COURT IN CASE OF GOTAN LIME & KHANIZ UDYOG. THEREFORE, WITHOUT GOING INTO DETAILS FURTHER, WE ARE OF THE VIEW THAT THE LD. CIT (A) WAS CORRECT IN HOLDING THAT AD DITION SHOULD NOT HAVE BEEN MADE @ 25% OF UNVERIFIABLE PURCHASES. HOWEVER, WE NOTED T HAT LD. CIT (A) HAS DELETED THE ENTIRE ADDITION BY OBSERVING THAT THE TRADING RESULT SHOWN BY ASSESSEE IS BETTER AS COMPARED TO EARLIER YEAR. HOWEVER, THE FACT THAT HUGE PURCHASES I.E. OF RS. 1.96 CRORES OR ODD REMAINED UNVERIFIABLE AND ASSESSEE MAY HAVE PAID COMMISSION FOR TAKING BILLS FROM CERTAIN PARTIES WHO WERE CHARGING COMMISSION RANGING FROM 0.20% TO 0.60% AS ADMITTED BY VARIOUS PARTIES DURING THE COURSE OF SEARCH MADE IN CASE OF HALDIA GROUP AND INVESTIGATION MADE BY BCTT WING OF THE DEPARTMENT. WE FURTHER NOTED T HAT IN SUBSEQUENT YEAR I.E. ASSESSMENT YEAR 2007-08 AN ADDITION OF RS. 24 LACS WAS MADE BY AO @ 25% OF UNVERIFIABLE PURCHASES. THE LD. CIT (A) DELETED TH E ADDITION AND ON SECOND APPEAL THE TRIBUNAL HAS CONFIRMED AN ADDITION OF RS. 1 LAC TO COVER UP THE POSSIBLE LEAKAGE OF 6 REVENUE ON ACCOUNT OF UNVERIFIABLE PURCHASES, IF AN Y. IN THE YEAR UNDER CONSIDERATION THE QUANTUM OF UNVERIFIABLE PURCHASES ARE ON HIGHER SID E. THEREFORE, WE ARE OF THE VIEW THAT IF A TRADING ADDITION OF RS. 3,00,000/- IS SUSTAINE D THAT WILL MEET THE ENDS OF JUSTICE. WE ORDER ACCORDINGLY. 10. IN THE RESULT, APPEAL OF THE DEPARTMENT IS ALLO WED IN PART. 11. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14 .10.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- THE DCIT, CIRCLE-2, JAIPUR. SHRI ASHOK AGARWAL, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 1282/JP/2010) BY ORDER, AR ITAT JAIPUR.