JITENDRA SINGH NARANG, Jaipur V. ACIT, Jaipur

ITA 155/JPR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5200 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 23-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DR DHK
• Assessee Lawyers: N S VYAS
• Keywords: Bogus purchase; Rejection of books of accounts; Depreciation
• Section: 40A(3); 131

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 155/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09 SHRI JITENDRA SINGH NARANG 63-A, JOHRI BAZAR JAIPUR CUKE VS. THE ACIT CIRCLE- 1 JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAJPN 0266A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI N.S. VYAS, CA JKTLO DH VKSJ LS@ REVENUE BY :SHRI R.A. VERMA, ADDL CIT-. DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 05/08/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 09/08/2016 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-I, JAIPUR DATED 15-01-2016 FOR THE ASSESSM ENT YEAR 2008-09 RAISING THEREIN FOLLOWING GROUNDS:- 1. THAT THE AUTHORITIES BELOW ERRED IN CONFIRMING THE PENALTY IMPOSED U/S 271(1) OF THE I.T. ACT, 1961 AMOUNTING TO RS. 31,460/- BY THE THEN ACIT, CIRCLE- 1, JAIPUR 2. THAT THE ORDER SO PASSED BY THE LD. AUTHORITIES BELOW IS BAD IN LAW AS WELL AS ON FACTS. ITA NO. 155/JP/2016 SHRI JITENDRA SINGH NARANG VS. ACIT, CIRCLE- 1, JAI PUR . 2 2.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF GEMS AND JE WELLERY. THE ASSESSEE FILED ITS RETURN OF INCOME ON 16-09-2008 D ECLARING TOTAL INCOME AT RS. 14,15,260/-. THE RETURN WAS PROCESSED U/S 14 3(1) ON 17-03-2010. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY . NOTICE U/S 143(2) OF THE ACT WAS ISSUED. THE AO ASKED FOR THE BOOKS OF ACCOUNT AND CONCERNING RECORDS / DOCUMENTS FOR INSPECTION FROM THE ASSESSEE. THE LD. AR OF THE ASSESSEE PRODUCED THE BOOKS OF ACCOUNT DU RING THE COURSE OF PROCEEDINGS AND THEY WERE EXAMINED ON TEST CHECK BA SIS BY THE AO. DURING THE COURSE OF ASSESSMENT PROCEEDING, PURCHAS ES SHOWN BY THE ASSESSEE WERE EXAMINED AND THE ASSESSEE WAS REQUIRE D TO PRODUCE SOME OF THE SUPPLIERS WITH THEIR COMPLETE BOOKS OF ACCOU NT IN ORDER TO VERIFY THE GENUINENESS OF THE TRANSACTIONS MADE WITH THEM. HOWEVER, THE ASSESSEE COULD NOT PRODUCE THE SUPPLIERS WITH THE S AID INFORMATION. ON THE REQUEST OF THE ASSESSEE, SUMMONS U/S 131 OF THE ACT WERE ISSUED TO SEVERAL SUPPLIES BUT NONE OF THEM REPLIED. THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE H AS MADE PURCHASES OF RS. 28,54,515/- FROM 05 SUPPLIERS AS MENTIONED IN T HE ASSESSMENT ORDER BUT THE DETAILS OF PURCHASES AND OTHER DESIRED INFO RMATION WERE NOT MADE AVAILABLE TO THE AO. FOR WANT OF COMPLETE RECORDS, THE AO REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND HE HAD NO OTHE R ALTERNATIVE EXCEPT TO ITA NO. 155/JP/2016 SHRI JITENDRA SINGH NARANG VS. ACIT, CIRCLE- 1, JAI PUR . 3 ESTIMATE PROFIT @ 25% ON SUCH UNVERIFIABLE PURCHASE S OF RS. 28,54,515/- WHICH WAS WORKED OUT TO RS. 7,13,629/- IN VIEW OF T HE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF IN THE C ASE OF SANJAY OIL CAKE INDUSTERIES VS. CIT , 10 DTR 153 (GUJ.) AND M/S. VI JAY PROTEIN LTD. VS. ACIT, 58 ITD 428 (ITAT AHD.). IT IS FURTHER OBSER VED BY THE AO THAT CASH PAYMENT OF RS. 30,000/- WAS MADE TO M/S. VANDA NA ANANTHKRISHNAN AS EXHIBITION EXPENSES WHICH WAS ALSO ACCEPTED BY T HE ASSESSEE VIDE LETTER DATED 24-11-2010. THE AO OBSERVED THAT THIS PAYMENT OF RS. 30,000/- IS HIT BY THE PROVISION OF SECTION 40A(3) AND HE DISAL LOWED THIS AMOUNT OF RS. 30,000/- AND ADDED THE SAME TO THE INCOME OF TH E ASSESSEE. FURTHER THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED DEPRE CIATION ON RS. 16,600/- @ 10% ON FURNITURE PURCHASED FROM M/S. POP ULAR ART PALACE (P) LTD. HOWEVER, BILLS WERE RAISED IN THE NAME OF SHRI JAI SINGH AND THEY DID NOT BELONG TO THE ASSESSEE. THEREFORE, THE DEPRECIA TION CLAIMED ON THESE ITEMS OF RS. 1,660/- WAS ADDED BACK TO THE INCOME O F THE ASSESSEE BY THE AO AS THE ASSESSEE WAS NOT THE OWNER OF THESE ASSET S. CONCLUSIVELY, THE AO MADE ADDITION OF RS. 7,13,629/-( FOR NON-VERIFIA BLE PURCHASES) AND RS.2,05,878/- (ON ACCOUNT OF VARIOUS OTHER EXPENSE S) TOTALING TO RS. 9,19,507/-. 2.2 IN FIRST APPEAL, THE LD. CIT(A) VIDE HIS ORDER DATED 7-11-2012 RESTRICTED THE DISALLOWANCE ON ACCOUNT OF TRADING ADDITION TO RS. 60,902/- ITA NO. 155/JP/2016 SHRI JITENDRA SINGH NARANG VS. ACIT, CIRCLE- 1, JAI PUR . 4 AND ALSO CONFIRMED THE DISALLOWANCE ON ACCOUNT OF VARIOUS EXPENSES TO THE EXTENT OF RS. 31,660/- WHICH COMES TO TOTAL ADD ITION OF RS. 92,562/- FOR WHICH THE AO IMPOSED THE PENALTY OF RS. 31,460/ - U/S 271(1)(C) OF THE ACT. 2.3 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE PENALTY OF RS. 31,460/ - AS IMPOSED THE PENALTY U/S 271(1)(C) OF THE ACT VIDE HIS ORDER DA TED 15-01-2006 BY OBSERVING AS UNDER:- 3.1.2. DETERMINATION (I) I HAVE DULY CONSIDERED THE SUBMISSION OF THE APPELLANT, PENALTY ORDER AN THE MATERIAL PLACED ON RECORD. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AN EXPORT OF GEMS AND JEWELLERY . DURING APPELLANT, THE APPELLANT WAS FOU ND TO HAVE SHOWN BOGUS / UNVERIFIABLE PURCHASES FROM FIVE PART IES AMOUNTING TO RS. 28,54,515/-. THE AO REJECTED THE B OOKS OF ACCOUNT AND MADE AN ADDITION OF RS. 7,13,629/- BY A PPLYING GROSS PROFIT RATE OF 25% ON UNVERIFIABLE/ BOGUS PUR CHASES OF RS. 28,54,515/-. THE LD. CIT(A) IN APPELLATE PROCEE DINGS UPHELD THE REJECTION OF BOOKS OF ACCOUNT BY THE AO BUT APPLIED THE GROSS PROFIT RATE OF 16.50% ON THE TOTA L TURNOVER OF THE APPELLANT AND RESTRICTED THE TRADING ADDITIO N TO RS. 60,902/-. FURTHER THE AO MADE DISALLOWANCE OF RS. 3 0,000/- FOR VIOLATION OF PROVISIONS OF SECTION 40A(3) OF TH E ACT AND RS. 1,660/- ON ACCOUNT OF DISALLOWANCE OF DEPARTME NT ON FURNITURE FOR WHICH NO EVIDENCE WAS PRODUCED BEFORE THE AO. IT MAY BE MENTIONED THAT THE LD. CIT(A) SUSTAIN ED THE ABOVE ADDITION OF RS. 30,000/- AND RS. 1,660/- IN QUANTUM APPEAL. SUBSEQUENTLY, THE AO LEVIED PENALTY OF RS. 31,460/- ON RS. 92,562/- (RS. 60,902+30,000+1,660) FOR WHICH APPELLANT FILED INACCURATE PARTICULARS OF INCOME. ITA NO. 155/JP/2016 SHRI JITENDRA SINGH NARANG VS. ACIT, CIRCLE- 1, JAI PUR . 5 (II) DURING THE APPELLATE PROCEEDINGS, IT WAS THE CONTENTION OF THE APPELLANT THAT SINCE THE ADDITION WAS MADE ON ESTIMATE BASIS, THEREFORE, NO PENALTY U/S 271(1) COULD BE LEVIED IN VIEW OF VARIOUS JUDICIAL PRONOUNCEMENTS. I FIND NO FORCE IN THE CONTENTION OF THE APPELLANT AS THE TRA DING ADDITION WAS MADE ON THE BASIS OF THE OUTCOME OF TH E ENQUIRES MADE BY THE AO AS THE ENQUIRIES REVEALED THAT THE PURCHASES FROM FIVE PARTIES WERE UNVERIFIABLE/ BOGU S PURCHASES AND THUS A SPECIFIC FINDING WAS RECORDED BY THE AO. THE ACTION OF THE WAS CONFIRMED BY THE LD. CIT( A) BUT THE QUANTUM OF ADDITION WAS REDUCED. THEREFORE, IT CANNOT BE SAID THAT TRADING ADDITION HAS BEEN MADE ON ESTIMAT E BASIS AS IT WAS MADE ON ACCOUNT OF UNVERIFIABLE / BOGUS PUR CHASES LEADING TO REJECTION OF BOOKS OF ACCOUNTS AND ESTIM ATION OF INCOME THEREOF. IT IS NOTED FORM THE SUBMISSION OF THE APPELLANT THAT NOTHING HAS BEEN STATED ABOUT THE PE NALTY ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ALLOWANCE AND ADDITION ON ACCOUNT OF VIOLATION OF PROVISION OF S ECTION 40A(3) OF THE ACT. (III) IT MAY BE MENTIONED HERE THAT IN A RECENT DEC ISION IN THE CASE OF ITO VS. BHANSALI TRADING CORPORATION(20 15) 44 CCH 0609, THE HON'BLE ITAT JAIPUR HELD AS UNDER:- 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. .IN TH IS CASE, THE ADDITION WAS SPECIFIC WITH REFERENCE TO UNVERIFIABLE PURCHASES. THEREFORE, WE REVERSE THE ORDER OF THE LD. CIT(A). (IV) AS THE FACTS OF THE INSTANT CASE UNDER CONSIDE RATION ARE SIMILAR TO THE FACTS OF THE CASE OF ITO VS. BHANSAL I TRADING CORPORATION (SUPRA), RESPECTFULLY FOLLOWING THE DEC ISION OF HON'BLE ITAT IN THAT CASE, THE PENALTY OF RS. 31,4 60/- IMPOSED BY THE AO U/S 271(1) OF THE ACT IS UPHELD. 2.4 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE RELIED ON THE SAME WRITTEN SUBMISSION AS SUBMITTED BEFORE THE LD. CIT(A). HOWEVER, THE LD. AR OF THE ASSESSEE ALSO RELIED ON THE DECISION ITAT ITA NO. 155/JP/2016 SHRI JITENDRA SINGH NARANG VS. ACIT, CIRCLE- 1, JAI PUR . 6 JAIPUR BENCH IN THE CASE OF INDUS JEWELLERY (P) LTD . VS. DCIT (ITA NO. 933/JP/2013 FOR THE ASSESSMENT YEAR 2007-08 DATED 4 -03-2016) PRAYING THAT THE PENALTY IMPOSED BY THE AO AND CONFIRMED BY THE LD. CIT(A) U/S 271(1)(C) OF THE ACT IS NOT JUSTIFIED AND THE SAME SHOULD BE DELETED IN VIEW OF THE DECISION OF ITAT JAIPUR BENCH IN THE CA SE OF INDUS JEWELLERY (P) LTD. VS. DCIT (SUPRA). 2.5 THE LD. DR RELIED ON THE ORDERS OF THE AUTHORIT IES BELOW. 2.6 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT EMERGES FROM THE RECORD THA T THE ASSESSEE WAS FOUND TO HAVE SHOWN BOGUS/ UNVERIFIABLE PURCHASES F ROM FIVE PARTIES AMOUNTING TO RS. 28,54,515/-. THE AO FOR WANT OF IN COMPLETE RECORDS REJECTED THE BOOKS OF ACCOUNT AND MADE AN ADDITION OF RS. 7,13,629/- BY APPLYING GROSS PROFIT RATE OF 25% ON UNVERIFIABLE / BOGUS PURCHASES OF RS. 28,54,515/-. THE LD. CIT(A) IN APPELLATE PROCEE DINGS UPHELD THE REJECTION OF BOOKS OF ACCOUNT BUT APPLIED GROSS PRO FIT RATE OF 16.50% ON TOTAL TURNOVER OF THE ASSESSEE AND RESTRICTED THE TRADING ADDITION OF RS. 60,902/-. FURTHER THE AO MADE DISALLOWANCE OF R S. 30,000/- FOR VIOLATION OF PROVISION OF SECTION 40A(3) OF THE ACT AND RS. 1,660/- ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON FURNITU RE FOR WHICH NO EVIDENCE WAS PRODUCED BY THE ASSESSEE BEFORE THE A O. THE LD. CIT(A) SUSTAINED THE ABOVE ADDITION OF RS. 30,000/- AND RS . 1,660/- IN QUANTUM ITA NO. 155/JP/2016 SHRI JITENDRA SINGH NARANG VS. ACIT, CIRCLE- 1, JAI PUR . 7 APPEAL. CONSEQUENTLY, THE AO LEVIED PENALTY OF RS. 31,460/- ON RS. 92,562/- (RS. 60,902+30,000+1660) U/S 271(1) (C) OF THE ACT AND THE SAME HAS BEEN CONFIRMED BY THE LD. CIT(A). IN N UTSHELL, IT IS OBSERVED THAT THE PENALTY HAS BEEN SIMPLY LEVIED ON THE BASI S OF ESTIMATES. I HAVE ALSO TAKEN INTO CONSIDERATION THE DECISION OF ITAT JAIPUR BENCH IN THE CASE OF M/S. INDUS JEWELLERY (P) LTD. VS. DCIT (SUP RA) WHEREIN THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT WAS DELETED IN SUCH TYPE OF CASES WHERE MERE ESTIMATION OF QUANTUM ADDITION WAS MADE THE BASIS FOR LEVY OF CONCEALMENT PENALTY. THE OBSERVATION OF ITAT JAI PUR BENCH IN THE CASE OF M/S. INDUS JEWELLERY (P) LTD. VS. DCIT (SUP RA) IS AS UNDER:- 5. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE SI DES, PRIMA FACIE, I AM OF THE VIEW THAT IN THIS CASE IF THE AO HAD FOUND THAT CERTAIN PURCHASES WERE DOUBTFUL, THEN IT WAS EXPECTED FROM HIM TO MAKE THE ADDITION OF THOSE PURCHASES WHICH WERE NOT FOUND VE RIFIABLE. INSTEAD OF MAKING CERTAIN SPECIFIC ADDITION IN RESPECT OF UNVE RIFIABLE PURCHASES, HE HAS TAKEN THE RECOURSE OF ASSESSING THE INCOME OF T HE ASSESSEE MERELY ON ESTIMATED BASIS. I HAVE ALSO PERUSED THE DECISI ON CITED BY THE LD. D/R REFERRED ABOVE. BUT THE FACTS WERE THAT THE REV ENUE DEPARTMENT HAD DETECTED THAT SOME OF THE PARTIES HAVE GIVEN AC COMMODATION ENTRY AND ALSO FOUND THAT THE ACCOMMODATION BILLS WERE PR OCURED. EVEN IN QUANTUM APPEAL, THE ITAT HAD CONFIRMED THE QUANTUM ADDITION. BECAUSE OF THOSE REASONS, A VIEW WAS EXPRESSED BY T HE RESPECTED COORDINATE BENCH THAT THE SAID CASE WAS HAVING SPEC IFIC ADDITIONS, THUS A FIT CASE WHERE THE ASSESSEE HAD NOT ONLY CONCEALE D THE INCOME BUT ALSO FURNISHED INACCURATE PARTICULARS. AS AGAINST T HAT, IN THE PRESENT CASE MY OBSERVATION IS THAT MERE ESTIMATION FOR QUA NTUM ADDITION SHOULD NOT BE MADE THE BASIS FOR LEVY OF CONCEALMEN T PENALTY. RELIANCE CAN BE PLACED ON AJAIB SINGH AND CO. VS. CIT, 253 I TR 630 (P&H), NAVJIVAN OIL MILLS VS. CIT, 252 ITR 417 (GUJ.). BY PLACING RELIANCE ON THESE PRECEDENTS, I HEREBY DIRECT TO DELETE THE PEN ALTY. ITA NO. 155/JP/2016 SHRI JITENDRA SINGH NARANG VS. ACIT, CIRCLE- 1, JAI PUR . 8 RESPECTFULLY FOLLOWING THE DECISION OF ITAT JAIPUR BENCH IN THE CASE OF M/S. INDUS JEWELLERY (P) LTD. VS. DCIT (SUPRA), I D IRECT TO DELETE THE PENALTY U/S 271(1) OF THE ACT. HENCE, THE APPEAL O F THE ASSESSEE IS ALLOWED. 3.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 09 /08/201 6 SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 09 /08/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI JITENDRA SINGH NARANG, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE- 1, JAIPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.155/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR