SUMATI GEMS, Jaipur V. ADDL. CIT, Jaipur

ITA 175/JPR/2013

• Counselvise Citation: 17523114 RSA 2013
• Duration Of Justice: 2 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 19-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS NEENA JEPH
• Assessee Lawyers: G G MUNDRA
• Keywords: Business income; Onus to prove
• Section: 143(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, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA- @ ITA NO. 175/JP/2013 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2008-09 M/S SUMATI GEMS, 1839, BARA GANGORE KA RASTA, JOHARI BAZAR, JAIPUR. CUKE VS. ADDL. COMMISSIONER OF INCOME TAX RANGE-1, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AAQFS 8547 N VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI G.G. MUNDRA (CA) JKTLO DH VKSJ LS @ REVENUE BY : MRS. NEENA JEPH (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 24/06/2015 MN?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 17/07/2015 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 09/01/2013 PASSED BY THE LEARNED CIT(A)-(I), JAIPUR FOR A.Y. 2008-09. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER:- 1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS WRONG, UNJUST AND HAS ERRED IN LAW IN UPHOLDING REJECTION OF THE BOOKS OF ACCOUNTS OF THE APPELLANT FIRM BY THE ASSESSING OFFICER U/S 145(3) OF THE I.T. ACT, 1961. ITA 175/JP/2013_ M/S SUMATI GEMS VS. ADDL.CIT 2 2. THAT THE LD CIT(A) IS FURTHER WRONG AND HAS ERRED I N LAW IN UPHOLDING TRADING TO THE EXTENT OF RS. 513712/- TO THE INCOME OF THE APPELLANT BY DIRECTIN G APPLICATION OF G.P. RATE OF 9.25% AS AGAINST DECLAR ED G.P. RATE OF 8.82%. 3. THAT THE LD. CIT(A) IS ALSO WRONG AND HAS ERRED IN LAW IN CONFIRMING DISALLOWANCE OF WHOLE OF TRAVELING EXPENSES OF RS. 343937/- INCURRED ON SHRI V.A. METHI. 4. THAT THE APPELLANT CRAVES THE PERMISSION TO ADD O R TO AMEND TO ANY OF GROUND OF APPEAL OR TO WITHDRAW ANY OF THEM. 2. GROUND NOS. 1 AND 3 OF THE ASSESSEES APPEAL ARE NOT PRESSED DURING THE COURSE OF HEARING, THEREFORE, WE DISMISS THE SAME AS NOT PRESSED. GROUND NO. 4 IS GENERAL IN NATURE, THEREFO RE WE ARE NOT ADJUDICATING THE SAME. 2.1 GROUND NO. 2 OF THE APPEAL IS AGAINST UPHOLDING THE TRADING TO THE EXTENT OF RS. 5,13,712/- TO THE INCOME OF THE A PPELLANT BY APPLYING G.P. RATE OF 9.25% AS AGAINST DECLARED G.P. RATE OF 8.82%. THE LD ASSESSING OFFICER OBSERVED THAT THE ASSESSEE FIRM WA S ENGAGED IN THE BUSINESS OF MANUFACTURING/DEALING IN ALL KINDS IMIT ATION DIAMONDS, PRECIOUS AND SEMI PRECIOUS SYNTHETIC GEMS STONES AN D OF MANUFACTURING AND DEALING IN STUDDED PRECIOUS AND SEMI-PRECIOUS S TONES GOLD JEWELLERY. RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 WAS FILED ITA 175/JP/2013_ M/S SUMATI GEMS VS. ADDL.CIT 3 BY THE ASSESSEE ON 27/09/2008 DECLARING TOTAL INCOM E OF RS. 69,03,740/-. THE CASE WAS SCRUTINIZED U/S 143(3) OF T HE INCOME TAX ACT, 1961 (IN SHORT THE ACT). DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN G.P. OF RS. 1,05,04,057/- ON THE TOTAL SALES OF RS. 11,91,11,024/-. THIS G.P. INCLUDED INCOME FROM EXCH ANGE RATE FLUCTUATION. THE ASSESSEE HAD COMPUTED A GP RATE OF 12.24% TAKING THIS AMOUNT. HOWEVER, THE REAL GP FOR COMPARING WITH EARLIER YEAR SHOULD EXCLUDE THIS. HENCE THE COMPARATIVE FIGURES OF THE TURNOVER AND GP RATE FOR THE THREE YEARS FURNISHED BY THE ASSESS EE ARE AS UNDER:- A.Y. TURNOVER G.P. (%AGE) 2006-07 14,70,37,677/- 10.93% 2007-08 13,63,35,211/- 8.90% 2008-09 11,91,11,024/- 8.82% THE LD ASSESSING OFFICER FURTHER OBSERVED THAT THE A SSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER. IT HAS ALSO NOT MAIN TAINED DAY TO DAY RECORD FOR ITS MANUFACTURING ACTIVITIES AND THEREFO RE, YIELD PERCENTAGE OF FINISHED STONES MANUFACTURED OUT OF THE ROUGH WAS AL SO NOT ASCERTAINABLE. EXCEPT PURCHASES OF RS. 4,07,925/- F ROM M/S NIDHI EXPORTS REST OF THE PURCHASES WERE IMPORTS. BILLS OF PURCHASES FROM M/S NIDHI EXPORTS HAD BEEN FURNISHED BY THE ASSESSEE FI RM. THE ASSESSEE WAS ASKED TO PRODUCE THE PARTY FOR VERIFICATION, EXP RESSED ITS INABILITY TO ITA 175/JP/2013_ M/S SUMATI GEMS VS. ADDL.CIT 4 DO SO. SUMMONS U/S 131 OF THE ACT DATED 11/11/2010 HAD BEEN SERVED ON M/S NIDHI EXPORTS TO PRODUCE ITS BOOKS OF ACCOUN T FOR THE RELEVANT PERIOD BUT IT DID NOT COMPLY WITH THE SUMMONS. A SHO W CAUSE NOTICE WAS ALSO ISSUED TO THE ASSESSEE VIDE LETTER DATED 01 /12/2010. IN RESPONSE TO SHOW CAUSE, THE ASSESSEE REPLIED THE SAM E VIDE LETTER DATED 3/12/2010. AGAIN ON 10/12/2010, SUMMON WAS ISS UED TO M/S NIDHI EXPORTS BY REGISTERED POST BUT THE SAME WAS RE TURNED UNSERVED. THE LD ASSESSING OFFICER REJECTED THE BOOKS OF ACCOU NT OF THE ASSESSEE AFTER RELYING ON THE VARIOUS CASE LAWS, WHICH HAS BE EN NOTED IN THE ASSESSING OFFICER. HE ALSO OBSERVED THAT THE PAST H ISTORY OF THE CASE AS WELL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2 007-08 WHEREIN THE LD CIT(A) VIDE HIS ORDER IN ITA NO. 337/2009-1- DATED 16/08/2010 CONFIRMED THE G.P. RATE @ 9.5% ON DECLARED TURNOVER, THEREFORE, HE APPLIED G.P. RATE @ 9.5 ON TOTAL TURNOVER, WHICH WILL RESULT IN TRADING ADDITION OF RS. 8,11,490/- UNVERIFIED PURCHASES OF RS. 4,07,925/- WERE ALSO DISALLOWED, BUT THE G.P. ADDITION IS MORE THAN UNVERIFIABLE PURCHASES, THEREFORE, NO SEPARATE ADDITION WAS MADE. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASSE SSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT( A), WHO HAD ALLOWED THE ASSESSEES APPEAL PARTLY ON THIS GROUND BY OBSE RVING THAT REGARDING ITA 175/JP/2013_ M/S SUMATI GEMS VS. ADDL.CIT 5 THE ESTIMATION OF G.P. RATE AS PER THE SUBMISSION O F THE AR ON SIMILAR FACTS IN THE CASE OF THE ASSESSEE ITSELF, THE HONB LE ITAT, JAIPUR HAS CONFIRMED THE G.P. RATE OF 9.01% ON TOTAL TURNOVER OF RS. 13,63,35,211/- IN THE IMMEDIATELY PRECEDING ASSESSM ENT YEAR, CONSIDERING THAT THE TURNOVER HAS DECLINED AND THE G.P. IMPROVES WITH THE DECLINE IN TURNOVER THE G.P. RATE IS ESTIMATED AT 9.25% RESULTING IN A CONFIRMATION OF TRADING ADDITION OF RS. 5,13,712/-. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS REITERATED THE ARGUMENTS MADE BEFORE T HE LD ASSESSING OFFICER AS WELL AS BEFORE THE LD CIT(A). HE FURTHER S UBMITTED AS UNDER:- THE LD A.O. HELD THAT IN RESPECT TO PURCHASES OF RS . 4,07,925/- FROM M/S NIDHI EXPORTS, THE ASSESSEE FIRM FAILED TO DISCHARGE ITS ONUS TO PROVE PURCHASES AND SO THE PURCHASES OF RS. 4,07,925/- IS NOT VERIFIABLE. IN THIS CONNECTION, IT IS SUBMIT TED THAT THE ASSESSEE FIRM IN COURSE OF ASSESSMENT PROCEEDINGS F URNISHED COMPLETE DETAILS OF PURCHASES EFFECTED FROM THESE P ARTIES WHICH ARE: I. PRODUCING THE PURCHASE BILL. II. SALES-TAX REGISTRATION NUMBER UNDER SALES-TAX ACT. III. PERMANENT ACCOUNT NUMBER UNDER INCOME TAX ACT. IV. CONFIRMATION DULY SIGNED BY THE PARTY. ITA 175/JP/2013_ M/S SUMATI GEMS VS. ADDL.CIT 6 V. PAYMENT WAS MADE BY ACCOUNT PAYEE CHEQUE WHICH STO OD DEBITED IN THE BANK ACCOUNT OF APPELLANT AND CREDIT ED IN THE BANK A/C OF SELLER PARTY AND IN SUPPORT COPY OF BANK A/C OF ASSESSEE FIRM WAS ALSO FILED. IN RESPECT TO ABOVE PURCHASES THE LD. A.O. DID NOT BROUGHT ON RECORD ANY COGENT MATERIAL OR EVIDENCE FOR HOLDING THE PURCHASES AS UNGENUINE OR PURCHASE BILLS SUBMITTED BY ASSESSE E FIRM AS BOGUS. THE ASSESSEE FIRM SUBMITTED ALL THE NECESSARY DOCUMENTS IN SUPPORT OF PURCHASES. THE ASSESSEE FIRM SUBMITS T HAT IT HAD MADE PURCHASES FROM THE SAID PARTY AS RECORDED IN I TS BOOKS OF ACCOUNTS AND PRODUCED ALL THE DOCUMENTS INCLUDING C ONFIRMATIONS FROM PARTY TO PROVE PURCHASES. THE FINDINGS GIVEN BY LD. A.O. IN ASSESSMENT ORDER ARE WITHOUT MAKING ANY ENQUIRY AND SO BASED ON GUESSWORK AND CONJECTURES AND LD. A.O. HAS NOT BR OUGHT ANY CONCLUSIVE MATERIAL ON RECORD TO PROVE THAT ASSESSE E FIRM HAS NOT MADE PURCHASES FROM THE SAID PARTY OR IT RECEIVED B ACK THE CASH IN LIEU OF CHEQUES ISSUED BY IT FOR PURCHASES. THE LD. A.O. IS THEREFORE WRONG AND HAS ERRED IN LAW IN HOLDING THAT THE SAID PURCHASES OF RS. 4,07,925/- ARE NOT VERIFIABLE. THE LD. A.O. HAS INVOKED PROVISIONS OF SECTION 145(3) AND REJECTED B OOKS OF ACCOUNTS ALSO FOR NON-MAINTENANCE OF DAY TO DAY MAN UFACTURING ACCOUNT AND STOCK REGISTER. THE ABSENCE OF STOCK-REG ISTER OR FAILURE TO MAINTAIN ITEMWISE STOCK REGISTER, BOOKS O F ACCOUNTS COULD NOT BE REJECTED UNLESS THERE IS FINDING OR OP INION THAT RECORD WERE INCOMPLETE OR THAT METHOD OF ACCOUNTING EMPLOYED WAS SUCH THAT INCOME COULD NOT BE DEDUCED FROM ACCOU NTS MAINTAINED BY ASSESSEE. THE LEGAL VIEW IS UPHELD IN THE JUDGMENT ITA 175/JP/2013_ M/S SUMATI GEMS VS. ADDL.CIT 7 IN THE CASE OF ASHOKA REFRACTORIES P. LTD. VS. CIT ( 2005) 279 ITR 457. THE COMPARATIVE RESULTS OF ASSESSEE FIRM FOR PAST TH REE YEARS ARE AS UNDER:- A.Y. TURNOVER GROSS PROFIT G.P. RATE REMARKS 2006 - 07 14,70,37,677 1,60,64,383 10.93% G.P. APPLIED 11.93% CIT(A) RESTRICTED ADDITION TO RS. 700000/- SUSTAINED ADDITION- DELETED BY ITAT IN C.O. NO. 65/JP/10 ORDER DATED 13/1/2011. 2007 - 08 13,63,35,211 1,21,37,948 8.90% A.O. APPLIED G. P. RATE OF 10.93% CIT(A) REDUCED TO 9.5% ITAT UPHELD ONLY LUMP SUM ADDITION OF RS. 1.50 LACS WHICH BRINGS G.P. RATE OF 9.01%. (COPY OF ORDERS ANNEXED HERETO). 2008 - 09 11,91,11,024 1,05,04,057 8.82% IT WILL BE FOUND FROM THE ABOVE CHART THAT EXPORT TU RNOVER OF ASSESSEE DURING THE YEAR IS SLIGHTLY LOWER AS IN IMM EDIATELY PRECEDING YEAR AND G.P. RATE ALSO DECLINED VERY MAR GINALLY. THE G.P. RATE CANNOT BE SAME AND EQUAL IN EVERY YEAR. I T VARIES WITH THE COMPOSITION OF ITEMS EXPORTED, QUALITY OF STONE , YIELD ETC. THE DECLARED G.P. RATE THUS IS ALMOST COMPARABLE WITH A.Y. 2007- 08 AND IS ONLY FRACTIONALLY LESS FROM 9.01% FINALLY UPHELD IN APPEAL. IN VIEW OF THESE FACTS OF THE CASE THE APPLI CATION OF G.P. RATE OF 9.5% BY LD. A.O. IS NOT SUSTAINABLE. THE RES ULTS DECLARED BY ASSESSEE FIRM DESERVES TO BE ACCEPTED EVEN IF TE CHNICALLY ITA 175/JP/2013_ M/S SUMATI GEMS VS. ADDL.CIT 8 APPLICATION OF PROVISIONS OF SECTION 145(3) ARE UPH ELD OR IN THE ALTERNATIVE G.P. RATE OF 9.01% UPHELD IN A.Y. 2007- 08 MAY ORDERED TO BE APPLIED AS IT IS HELD IN VARIOUS JUDG MENTS THAT WHILE APPLYING G.P. RATE THE RATE APPLIED IN IMMEDIATELY PAST YEARS IS TO BE CONSIDERED. THE LD. CIT(A) APPLIED G.P. RATE OF 9.25% AS AGAINST 9.01% BY HOLDING THAT IN A.Y. 2007-08 THE HONBLE ITAT, JAIPU R HAS CONFIRMED THE G.P. RATE OF 9.01% ON TOTAL TURNOVER OF RS. 13,63,35,211/- IN THAT YEAR, CONSIDERING THAT IN TH E YEAR THE TOTAL TURNOVER OF ASSESSEE HAS DECLINED AND G.P. IMPROVES WITH THE DECLINE IN TURNOVER THE G.P. RATE IS ESTIMATED AT 9 .25% FOR THIS YEAR THEREBY CONFIRMING TRADING ADDITION OF RS. 5,1 3,712/-. IN THIS CONNECTION, IT IS SUBMITTED THAT TOTAL TURN OVER OF ASSESSEE FIRM IN THIS YEAR IS RS. 11,91,11,024/- AS COMPARED TO TOTAL TURNOVER OF RS. 13,03,35,211/- IN A.Y. 2007-08 WHICH CANNOT BE TERMED AS DECLINE IN TURNOVER BUT IT IS MARGINALLY LOWER ONLY. THE ASSESSEE SALES ARE TOTALLY EXPORT TURNOVER AND FLUC TUATION OF EXCHANGE RATE ALSO MAKE VARIATION IN TERMS OF RUPEE S IN EXPORT TURNOVER AND FURTHER RECESSION IN EXPORT MARKET EFF ECTS TURNOVER AND BOTH THE FACTORS BEING PRESSURE ON G.P. RATE AN D DOES NOT RESULT IN INCREASE IN G.P. RATE. THE FINDINGS OF LD. CIT(A) ARE NOT BASED ON ANY EVIDENCE OR PRECEDENCE AND SO LACKS SU PPORT. IN CASE OF KANSARA BEARINGS PVT. LTD. VS. ACIT (2004) 2 70 ITR 235 (RAJ.) AND IN CASE OF HAR GOPAL SINGH PROP. GOPAL S WEETS (2005) 273 ITR 507 HOLDING THAT ONCE BOOKS OF ACCOUNTS OF T HE ASSESSEE ITA 175/JP/2013_ M/S SUMATI GEMS VS. ADDL.CIT 9 ARE REJECTED, PAST HISTORY OF THE ASSESSEE CAN BE O NE REASONABLE METHOD OF ESTIMATING ASSESSEES PROFIT. HOWEVER, THE HONBLE RAJASTHAN HIGH COURT IN THE SAME CASE OF KANSARA BE ARING PVT. LTD. VS. ACIT 270 ITR 235 HAS HELD THAT LAST YEARS PROFIT DECLARED IS THE BEST GUIDE TO ESTIMATE THE PROFIT RATE. SIMI LAR VIEW HAS BEEN TAKEN BY THE HONBLE ITAT, JAIPUR BENCH IN THE CASE OF CIT VS. LAKHANI SHOES LTD. 34 TW 32 AND IN THE CASE OF J.C. SHARMA VS. ITO 33 TW 80. IT IS, THEREFORE, PRAYED THAT G.P. RATE OF 9.25% AP PLIED BY THE LD CIT(A) IN PLACE OF G.P. RATE OF 9.01% OF IMMEDIATELY LAST YEAR DESERVES TO BE REDUCED TO 9.01% OR ANY OTHER REASON ABLE RELIEF MAY KINDLY BE ALLOWED. 5. THE LD. DR SUPPORTED THE ORDER OF THE LD. ASSESS ING OFFICER AS WELL AS THE LD CIT(A) AND ARGUED THAT THE ASSESSING O FFICER HAD GIVEN DETAILED FINDINGS ON FACTS AND LEGAL PROPOSITION ON THIS ISSUE. HE ALSO CONFIRMED THE ADDITION REASONABLE ON THE BASIS OF O VERALL SURROUNDING CIRCUMSTANCES OF THE CASE. THE ASSESSEE COULD NOT P RODUCE THE PARTY FOR VERIFICATION. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. DURIN G THE YEAR UNDER CONSIDERATION, THE SALE HAS GONE DOWN FROM 13.63 CRO RES TO 11.91 CRORES. IT IS GENERAL TREND THAT WHEN SALES GO DOWN, THE PERCENTAGE OF ITA 175/JP/2013_ M/S SUMATI GEMS VS. ADDL.CIT 10 G.P. INCREASES. HOWEVER, IN THE INSTANT CASE, THE G. P. ALSO HAS GONE DOWN FROM 8.9% TO 8.82%. IN PRECEDING YEAR, THE ITAT HAS CONFIRMED THE ADDITION ON THE BASIS OF G.P. @ 9.01%. HOWEVER, DURING THE YEAR, THE ASSESSEE HAS DEBITED UNVERIFIABLE PURCHASES TO THE TUNE OF RS. 4,07,925/-, THIS BENCH HAS APPLIED 15% NET PROFIT O N UNVERIFIABLE PURCHASES, ACCORDINGLY, THE INCOME IS WORKED OUT AT RS. 61.189/- ON UNVERIFIABLE PURCHASES. HOWEVER, IN THIS CASE, THE L D ASSESSING OFFICER AS WELL AS LD CIT(A) OBSERVED THAT THERE WERE NUMBER OF SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT, WHICH HAS NOT BEEN CHALLENGED BY THE ASSESSEE, THEREFORE, WE CONFIRM THE G.P. RATE @ 9.2% INCLUDING THE ADDITION ON ACCOUNT OF UNVERIFIABLE PURCHASES, WHIC H WILL UPHOLD THE ADDITION TO THE EXTENT OF RS. 4,54,157/-. ACCORDING LY, THE ASSESSEES APPEAL IS ALLOWED PARTLY. 7. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17/07/2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 17 TH JULY, 2015 ITA 175/JP/2013_ M/S SUMATI GEMS VS. ADDL.CIT 11 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S SUMATI GEMS, JAIPUR 2. IZR;FKHZ @ THE RESPONDENT- THE ADDL.CIT, RANGE-1, JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 175/JP/2013) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR