DCIT, Jaipur V. HABIB KHAN, Jaipur

ITA 172/JPR/2011

• Counselvise Citation: 17223114 RSA 2011
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 25-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHRI
• Keywords: Rejection of books of accounts

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.172/ JP/2011 ASSESSMENT YEAR: 2007-08 PAN: ABBPK 5855 P THE DCIT VS. SHRI HABIB KHAN CIRCLE- 2 P/O M/S. H.K. EXPORT CORPORATION JAIPUR 2259, TAKYAN YAKEEB SHAH CH. TOP KHANA, HAZURI, JAIPUR (APPELLANT ) (RESPONDENT) ITA NO.176/ JP/2011 ASSESSMENT YEAR: 2007-08 PAN: ABBPK 5855 P SHRI HABIB KHAN VS. THE DCIT P/O M/S. H.K. EXPORT CORPORATION CIRCLE- 2 2259, TAKYAN YAKEEB SHAH JAIPUR CH. TOP KHANA, HAZURI, JAIPUR (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI VINOD JOHRI ASSESSEE BY : SHRI P.C. PARWAL ORDER PER N.L. KALRA, AM:- THE ASSESSEE AS WELL AS REVENUE HAS FILED THE APPE ALS AGAINST THE ORDER OF THE LD. CIT(A)-I, JAIPUR DATED 01-12-2010 FOR T HE ASSESSMENT YEARS 2007- 08. 2 2.1 THE FIRST GROUND OF APPEAL OF THE ASSESSEE IS T HAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE REJECTION OF BOOKS OF ACCOUN TS BY APPLYING THE PROVISIONS OF SECTION 145(3) OF THE I.T. ACT. 2.2 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GEM STONES AS WHOLESALE DEALER AND EXPORTER. DURING THE YEAR, THE ASSESSEE HAS SHOWN PURCHASES TO THE EXTENT OF 5,92,83,987/-. FROM THE PURCHASE DETA ILS, THE AO NOTICED THAT THE ASSESSEE HAS MADE PURCHASES TO THE EXTENT OF RS . 1,65,16,912/- FROM 12 PARTIES. THE NAMES OF SUCH PARTIES HAVE BEEN MENTI ONED AT PAGE 2 OF THE ASSESSMENT ORDER. THE DEPARTMENT HAS NOTICED THAT S UCH PARTIES HAVE BEEN INDULGING IN THE ISSUING OF BOGUS BILLS. THE AO HAS REPRODUCED THE RELEVANT EXTRACT FROM THE STATEMENT OF SHRI RAVI HALDIYA REC ORDED U/S 132(4) OF THE I.T. ACT IN HIS ORDER IN WHICH SHRI RAVI HALDIYA G AVE THE DETAILS OF THE PARTIES WHICH WERE ISSUING BOGUS BILLS. THE RELEVA NT STATEMENT OF SHRI RAVI HALDIYA IS AVAILABLE AT PAGES 3 TO 7 OF THE ASSESSM ENT ORDER. THE AO ALSO REFERRED TO THE LIST PREPARED BY THE INVESTIGATION WING WHICH CONTAINS THE DETAILS OF THE PARTIES WHICH WERE ISSUING BOGUS BI LLS. THE INVESTIGATION WING CONDUCTED CERTAIN SURVEYS AND SEARCHES AND CIR CULATED THE LIST OF THE PARTIES WHICH ARE ISSUING BOGUS BILLS. SIMILARLY, T HE BCTT WING OF THE REVENUE ALSO CIRCULATED THE LIST OF THE PARTIES WHI CH WERE INDULGING IN ISSUING BOGUS BILLS. THE 12 PARTIES NOTICED BY THE AO WERE EITHER INDICATED BY SHRI 3 RAVI HALDIYA OR WERE FROM THE LIST PREPARED BY INVE STIGATION WING OR BCTT WING . THE AO THEREFORE, ASKED THE ASSESSEE TO PRO DUCE THE ABOVE REFERRED 12 PARTIES AS PER ORDER SHEET ENTRY DATED 20 TH OCT. 2009. NONE OF THE PARTIES WAS PRODUCED AND THE ASSESSEE ALSO SHOWED THE INABI LITY TO PRODUCE THE PARTIES. THE AO THEREFORE, ISSUED A SHOW CAUSE NOTI CE TO THE ASSESSEE AS TO WHY THE BOOKS OF ACCOUNTS BE NOT REJECTED. THE ASSE SSEE FILED THE REPLY VIDE LETTER DATED 08 TH DEC. 2009. THE RELEVANT EXTRACT FROM THE REPLY HAS BEEN REPRODUCED BY THE AO AT PAGE 11 OF THE ASSESSMENT O RDER. THE PAYMENT BY CHEQUE TO THESE PARTIES, AVAILABILITY OF SALES TAX REGISTRATION NO. AND PAN ARE NOT SUFFICIENT TO HOLD THAT THE PURCHASES WERE GENUINE. THE REVENUE HAS COLLECTED THE INFORMATION AND THE ENQUIRIES REVEAL ED THAT SUCH PARTIES WERE ISSUING BOGUS BILLS AFTER CHARGING COMMISSION. THE AO ACCORDINGLY REJECTED THE BOOKS OF ACCOUNTS BY REFERRING THE VARIOUS CASE LAWS. 2.3 THE LD. CIT(A) UPHELD THE REJECTION OF BOOKS OF ACCOUNTS. 2.4 WE HAVE HEARD BOTH THE PARTIES. IN RESPECT OF N ON-VERIFIABLE PURCHASES, THE ITAT JAIPUR BENCH IS CONSISTENTLY HOLDING THAT BOOKS OF ACCOUNTS ARE TO BE REJECTED. THE HON'BLE APEX COURT IN THE CASE OF KANCHWALA GEMS VS JCIT , 288 ITR 10 HAS ALSO UPHELD THE REJECTION OF BOOKS OF ACCOUNTS. WE THEREFORE, HOLD THAT THE LD. CIT(A) WAS JUSTIFIED I N UPHOLDING THE REJECTION OF BOOKS OF ACCOUNTS. 4 3.1 THE SECOND GROUND OF APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE TRADING ADDITION OF RS. 8,5 5,922/- BY APPLYING THE GROSS PROFIT RATE OF RS. 14.21% WHILE THE REVENUE I S AGGRIEVED AGAINST REDUCING THE TRADING ADDITION TO RS. 8,60,102/- AS AGAINST RS. 41,29,228/- MADE BY THE AO. 3.2 THE AO AFTER REJECTING THE BOOKS OF ACCOUNTS MA DE THE TRADING ADDITION WHICH REPRESENTED 25% OF UNVERIFIABLE PURC HASES. 3.3 THE LD. CIT(A) NOTICED THAT THE ASSESSEE HAS DI SCLOSED THE GROSS PROFIT RATE OF 12.47% AS AGAINST 12.11% DECLARED IN THE IN THE IMMEDIATELY PRECEDING YEAR. IN THE IN THE IMMEDIATELY PRECEDING YEAR, THE GROSS PROFIT RATE OF 14% WAS APPLIED IN FIRST APPEAL. IN THE YEA R UNDER CONSIDERATION, THE TURNOVER HAS GONE DOWN. THEREFORE, THE LD. CIT(A) DIRECTED THE AO TO APPLY THE GROSS PROFIT RATE OF 14.21% ON DECLARED SALES. 3.4 BEFORE US, THE LD. AR SUBMITTED THAT GROSS PROF IT RATE DURING THE YEAR IS BETTER AS COMPARED TO THE PRECEDING YEAR AND THEREF ORE, THERE WAS NO CASE OF MAKING THE TRADING ADDITION. THE LD. AR HAS PREPARE D A CHART TO SHOW THE GROSS PROFIT RATE DISCLOSED BY THE ASSESSEE IN RESP ECT OF THE PURCHASES WHICH HAVE BEEN TREATED BY THE REVENUE AS NON-VERIFIABLE PURCHASES. OUT OF TOTAL PURCHASES WHICH HAVE BEEN HELD AS NON-VERIFIABLE, T HE ASSESSEE HAS NOT SOLD THE GOODS TO THE EXTENT OF RS. 89,95,468/-. THESE I TEMS ARE THE PART OF THE 5 CLOSING STOCK. THE REMAINING PURCHASES OUT OF TOTAL NON-VERIFIABLE PURCHASES OF RS. 1,65,16,912/- ARE TO THE EXTENT OF RS. 75,21 ,444/- AND THE GROSS PROFIT RATE COMES TO 13.24%. THE LD. AR FROM THIS CHART TR IED TO IMPRESS THAT THE ASSESSEE HAS EARNED BETTER GROSS PROFIT RATE ON THE PURCHASES WHICH THE REVENUE IS CONSIDERING AS NON-VERIFIABLE. ALTERNATI VELY, IT WAS ARGUED THAT IN THE IN THE IMMEDIATELY PRECEDING YEAR THE GROSS PRO FIT RATE OF 12.5% WAS APPLIED AND THEREFORE, THE SAME SHOULD BE APPLIED I N THE YEAR UNDER CONSIDERATION. 3.5 ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ER OF THE AO. 3.6 WE HAVE HEARD BOTH THE PARTIES. IN THE IN THE I MMEDIATELY PRECEDING ASSESSMENT YEAR, THE TRIBUNAL VIDE ITS ORDER DATED 13 TH MAY, 2011 IN THE CASE OF THE ASSESSEE IN ITA NO.1266 JP/2010 HAS UPHELD T HE REJECTION OF BOOKS OF ACCOUNTS AND DIRECTED THE AO TO APPLY THE GROSS PRO FIT RATE OF 12.5%. IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE NON-VERI FIABLE PURCHASES WERE TO THE EXTENT OF RS. 83,30,193/-.OUT OF TOTAL NON-V ERIFIABLE PURCHASES, THE PURCHASES TO THE EXTENT OF RS. 32,80,169/- WERE INC LUDED IN THE CLOSING STOCK. THUS SUCH NON-VERIFIABLE PURCHASES HAS BEEN SOLD DU RING THE YEAR AND THE LD. AR HAS NOT GIVEN THE GROSS PROFIT RATE ON SALE OF S UCH ITEMS. MOREOVER, THE LOWER AUTHORITIES HAVE NOT VERIFIED THE CHART SUBMI TTED BEFORE US IN RESPECT OF THE GROSS PROFIT RATE ON ITEMS FROM THE NON-VERIFIA BLE PURCHASES AND SOLD 6 DURING THE YEAR. HENCE, THE TRADING ADDITION CANNOT BE DELETED ON THE GROUND THAT GROSS PROFIT RATE ON ITEMS INCLUDED IN THE NON -VERIFIABLE PURCHASES IS BETTER THAN DECLARED GROSS PROFIT. WE ARE NOT HAVIN G THE RELEVANT DETAILS OF THE ITEMS INCLUDING IN THE OPENING STOCK FROM THE N ON-VERIFIABLE PURCHASES OF THE PRECEDING YEAR TO ASCERTAIN THE GROSS PROFIT EA RNED DURING THE YEAR. MOREOVER, THE INFORMATION COLLECTED BY THE REVENUE DURING THE SEARCH AND SURVEY OPERATIONS HAVE NOTICED THAT PARTIES WHICH W ERE ISSUING BOGUS BILLS WERE CHARGING COMMISSION VARYING FROM 0.3% TO 0.6%. SUCH COMMISSION IS NOT BEING REFLECTED IN THE BOOKS OF ACCOUNTS. DURIN G THE YEAR UNDER REFERENCE, THE TURNOVER IS AROUND RS. 4.90 CRORES A S AGAINST RS. 5.12 CRORES OF THE IMMEDIATELY PRECEDING YEAR. LOOKING TO THE F ACTS OF THE QUANTUM OF NON-VERIFIABLE PURCHASES, THE GROSS PROFIT RATE UPH ELD BY THE TRIBUNAL IN THE PRECEDING YEAR AND THE DECREASE IN TURNOVER, WE FEE L THAT IT WILL BE FAIR AND REASONABLE TO DIRECT THE AO TO APPLY THE GROSS PROF IT RATE OF 12.8%. 4.1 THE THIRD GROUND OF APPEAL OF THE ASSESSEE IS T HAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OUT OF FOLLOWI NG EXPENSES. 1. FREIGHT & CARTAGE EXPENSES RS. 50,000/- 2. TELEPHONE EXPENSES RS. 4,469/- 3. TRAVELLING EXPENSES RS. 1,24,041/- 4.2 IN THE IMMEDIATELY PRECEDING YEAR, THE LD. CIT( A) DELETED THE DISALLOWANCE OUT OF FREIGHT AND CARTAGE EXPENSES. T HE TRIBUNAL WHILE 7 DECIDING THE APPEAL IN THE CASE OF THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR VIDE ITS ORDER DATED 13 TH MAY, 2011 IN ITA NO. 1266/JP/2010 UPHELD THE ORDER OF THE LD. CIT(A) IN DELETING THE DISALLOWANC E OUT OF FREIGHT AND CARTAGE EXPENSES. FOLLOWING OUR ORDER FOR THE EARLI ER YEAR, THE DISALLOWANCE OUT OF FREIGHT AND CARTAGE IS DELETED. 4.3 THE DISALLOWANCE OUT OF TELEPHONE EXPENSES IS U PHELD BECAUSE THE PERSONAL USE OF THE TELEPHONE CANNOT BE RULED OUT. 4.4 THE AO DURING THE COURSE OF ASSESSMENT PROCEEDI NGS REQUIRED THE ASSESSEE TO FURNISH THE RECORD MAINTAINED WITH REGA RD TO JOURNEY DONE, SPECIFIC PURPOSE FOR THE SAME AND FILE THE EVIDENCE IN PROOF OF THE EXPENSES. THESE DETAILS WERE NOT FILED AND THEREFORE, THE AO DISALLOWED 10% OF THE TRAVELING EXPENSES DEBITED RS. 12,40,413/- TO THE E XTENT OF RS. 1,24,041/-. 4.5 THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE. 4.6 BEFORE US, THE LD. AR HAS SUBMITTED THAT THE AO HAS NOT GIVEN ANY JUSTIFIABLE REASONS FOR MAKING ADHOC DISALLOWANCE. 4.7 WE HAVE HEARD BOTH THE PARTIES. THE LD. AR IN T HE PAPER BOOK HAS NOT FILED THE DETAILS OF TRAVELING EXPENSES. THE AO WAS JUSTIFIED IN ASKING THE ASSESSEE TO GIVE THE DETAILS OF EXPENSES DEBITED FO R THE PURPOSE FOR WHICH TRAVELING WAS DONE. WE ARE NOT HAVING THE DETAILS O F THE EXPENSES DEBITED IN THE IMMEDIATELY PRECEDING YEAR. IT IS TRUE THAT THE TRAVELING EXPENSES MAY 8 CONTAIN THE EXPENSES IN RESPECT OF THE ASSESSEE AS WELL AS THE EMPLOYEES. THUS THE DISALLOWANCE MADE BY THE AO OUT OF THE TOT AL EXPENSES AT 10% IS EXCESSIVE. WE THEREFORE, FEEL THAT IT WILL BE FAIR AND REASONABLE TO RESTRICT THE DISALLOWANCE TO RS. 50,000/-. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 30-06 -2011. SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 30/06/2011 *MISHRA COPY FORWARDED TO :- 1. THE DCIT, CIRCLE- 2, JAIPUR 2. SHRI HABIB KHAN, JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.172/JP /11) A.R, ITAT, JAIPUR 9 10