Shri Bharatbhai Narandas Patel, Surat V. The Income tax Officer,Ward-9(1), Surat

ITA 186/AHD/2009

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6929 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 13-11-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 19-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND SR DR
• Assessee Lawyers: M K PATEL
• Keywords: Bogus purchase

Judgement Text

, , , , D, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH . .. . . .. . , !' !' !' !', , , , #$ %&'( #$ %&'( #$ %&'( #$ %&'(, , , , )* + ) ' )* + ) ' )* + ) ' )* + ) ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.186/AHD/2009 - [ASSTT.YEAR : 2005-2006] AND ITA NO.1920/AHD/2009 - [ASSTT.YEAR : 2006-2007] SHRI BHARATBHAI NARANDAS PATEL PROP. OF ARCHNA IMPEX (N.G.) 119-B, AKSHAR DIAMOND MANI BAZAR, VARACHHA ROAD, SURAT. PAN : ABIPP 6339 A /VS. ITO, WARD-9(1) SURAT. ( (( ( -. -. -. -. / APPELLANT) ( (( ( /0-. /0-. /0-. /0-. / RESPONDENT) 1& 2 3 ) / ASSESSEE BY : SHRI M.K. PATEL + 2 3 ) / REVENUE BY : SHRI ROOPCHAND, SR.DR 5 2 &(* / DATE OF HEARING : 13 TH NOVEMBER, 2014 67 8 2 &(* / DATE OF PRONOUNCEMENT : 19/12/2014 )9 / O R D E R PER G.C. GUPTA, VICE-PRESIDENT: THESE ARE TWO APPEALS BY THE ASSESSEE FOR THE ASSTT.YEAR 2005-06 AND 2006-07 ARE DIRECTED AGAINST THE ORDER OF THE CIT(A). THESE ARE BEING DISPOSED WI TH THIS CONSOLIDATED ORDER. ITA NO.186/AHD/2009 (ASST.YEAR 2005-2006) 2. THERE IS A DELAY OF 52 DAYS IN FILING THE PRESEN T APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE HAS FILED CONDONATION APPLI CATION WITH THE ITA NO.186 AND 1920/AHD/2009 -2- TRIBUNAL. AFTER HEARING THE PARTIES, WE ARE OF THE VIEW THAT THE DELAY OF 52 DAYS IN FILING THE PRESENT APPEAL BEFORE THE TRIBUN AL SHOULD BE CONDONED, AND WE DIRECT ACCORDINGLY. 3. THE ONLY GROUND OF THE APPEAL OF THE ASSESSEE IS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS LAW ON THE SUBJECT, THE LD.CIT(A) HAS ERRED CONFIRM ING THE ACTION OF THE AO IN DISALLOWING OF TOTAL PURCHASES OF RS.1,53 ,16,052/- ON ACCOUNT OF UNVERIFIABLE PURCHASES. 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE IS IN THE BUSINESS OF POLISHING AND TRADING IN DIAMONDS. HE SUBMITTED THAT IN THIS LINE OF TRADE CERTAIN PURCHASES OF DIAMONDS HA D TO BE IN CASH ONLY, AND THEREFORE, IT SHOULD NOT BE MADE A BASIS FOR MAKING A DISALLOWANCE AS HIGH AS RS.1.53 CRORES ON ACCOUNT OF UNVERIFIABLE PURCHA SES. HE SUBMITTED THAT THE SALE FIGURE OF DIAMONDS HAS BEEN ACCEPTED BY TH E AO AND HAS BEEN TAXED AS SUCH, BUT THE PURCHASES HAVE BEEN DISALLOW ED. THE ASSESSEE IS MAINTAINING QUANTITY-WISE STOCK REGISTER IN CARATS AND QUALITY WISE STOCK REGISTER IS NOT POSSIBLE TO BE MAINTAINED IN THIS L INE OF BUSINESS. ALL THE PURCHASES WERE BY WAY OF CHEQUE OR IN CASH AND WERE RECORDED IN THE ACCOUNT BOOKS OF THE ASSESSEE AS WELL IN THE QUANTI TY-WISE STOCK REGISTER MAINTAINED BY THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE HAS SHOWN BETTER GP RATE OF 0.42%, AS AGAINST 0.33% IN THE IM MEDIATELY PRECEDING ASSTT.YEAR 2004-05, AND THAT, THE TRADING ACCOUNT O F THE PRECEDING ASSTT.YEAR 2004-05 WAS ACCEPTED BY THE DEPARTMENT. HE SUBMITTED THAT MERELY BECAUSE CERTAIN PURCHASES OF DIAMONDS WERE I N CASH AND THE PARTIES FROM WHOM THE DIAMONDS WERE PURCHASED COULD NOT BE TRACED, IS NO REASON TO DISBELIEVE THE AUDITED ACCOUNTS OF THE ASSESSEE MAINTAINED IN THE NORMAL COURSE OF THE BUSINESS. ITA NO.186 AND 1920/AHD/2009 -3- 5. THE LEARNED DR HAS OPPOSED THE SUBMISSIONS OF TH E LEARNED COUNSEL FOR THE ASSESSEE. HE SUBMITTED THAT IN DIAMOND TRA DING, THE DETAILS OF EACH AND EVERY ITEM OF DIAMONDS IS DULY MAINTAINED BY TH E ASSESSEE, WITHOUT WHICH, IT IS NOT POSSIBLE TO CONDUCT THE BUSINESS O F THE DIAMONDS, AND THE ASSESSEE HAS INTENTIONALLY AVOIDED SUBMISSIONS OF T HE DETAILS THEREOF BEFORE THE AO. HE REFERRED TO RELEVANT PORTIONS OF THE OR DER OF THE AO AND THE CIT(A) IN SUPPORT OF THE CASE OF THE REVENUE. HE S UBMITTED THAT ALL THE CASH PURCHASES WERE LESS THAN RS.20,000/- EACH, WHI CH IS PRESCRIBED UNDER SECTION 40A(3), ALTHOUGH EVEN ON A SINGLE DAY THERE WERE CASH PURCHASES TO THE TUNE OF COUPLE OF LAKHS AND THIS IS NOT PRACTIC ABLE. HE RELIED ON THE ORDERS OF THE AO AND THE CIT(A). 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AO AND THE CIT(A), AND ALSO COPIES OF VARIOUS DETAI LS FILED IN THE COMPILATION BEFORE THE TRIBUNAL. THE ASSESSEE IS I N THE BUSINESS OF POLISHING AND TRADING OF DIAMONDS DURING THE YEAR. THE ASSESSEE HAS DECLARED GP RATE OF 0.42% ON TURNOVER OF 22.85 CROR ES AS AGAINST THE GP OF 0.33% ON TURNOVER OF RS.27.68 CRORES IN THE IMMEDIA TELY PRECEDING ASSTT.YEAR 2004-05. THE ASSESSEE HAS CLAIMED THAT THE TRADING RESULT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR WAS ACCEPTED BY THE DEPARTMENT, AND THE REVENUE HAS NOT CONTROVERTED THIS SUBMISSIO N OF THE ASSESSEE. WE FIND THAT THE ASSESSEE HAS MAINTAINED QUANTITY-WISE STOCK REGISTER DURING THE YEAR. THE CLAIM OF THE ASSESSEE THAT IN THE LI NE OF DIAMOND BUSINESS, IT IS HIGHLY DIFFICULT TO MAINTAIN QUALITY-WISE DETAIL ED STOCK REGISTER OF EACH AND EVERY ITEM OF DIAMONDS, SEEMS TO BE CONVINCING. WE FIND THAT THE AO HAS ACCEPTED THE SALE FIGURE OF THE ASSESSEE, MEANI NG THEREBY THAT THE QUANTITY DECLARED AS PURCHASES OF DIAMONDS IN CARAT S HAVE BEEN ACCEPTED BY THE AO. IN THESE FACTS OF THE CASE, WE ARE OF T HE VIEW THAT THE FIGURE OF CASH PURCHASES OF DIAMONDS COULD NOT BE DISALLOWED WHOLLY FOR MERE ITA NO.186 AND 1920/AHD/2009 -4- REASON THAT THERE WERE MADE IN CASH AND THE SELLER PARTIES COULD NOT BE MADE AVAILABLE BEFORE THE AO. HOWEVER, THE FACT RE MAINS THAT THE ASSESSEE COULD NOT LEAD ANY EVIDENCE WITH REGARD TO CORRECTNESS OR GENUINENESS OF THE PRICE OF DIAMONDS PURCHASED IN C ASH AND COULD NOT PROVE THE IDENTITY OF THE SELLER PARTIES. IN THESE FACTS OF THE CASE, AND CONSIDERING THE ENTIRE FACTUAL MATRIX OF THE CASE, WE ARE OF THE VIEW THAT THE ACTION OF THE AO IN DISALLOWING THE PURCHASES O F DIAMONDS IN CASH TO THE TUNE OF RS.1.53 CRORES IS NOT SUSTAINABLE, AND THE ENDS OF JUSTICE SHALL BE MET, IF A DISALLOWANCE OF 10% OF THESE PURCHASES IS MADE ON ACCOUNT OF INABILITY TO IDENTIFY THE SELLER PARTIES AND TO PRO VE THE CORRECTNESS OF THE PURCHASE RATE OF THE DIAMONDS, AND ACCORDINGLY, WE DIRECT A DISALLOWANCE OF RS.15,50,000/- BY WAY OF ESTIMATE OUT OF THE CAS H PURCHASE OF DIAMONDS AND THE BALANCE ADDITION MADE IS DELETED AND THE GR OUND OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1920/AHD/2009 (ASSTT.YEAR 2006-2007) 7. THE GROUND NO.1 OF THE ASSESSEES APPEAL IS AS U NDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE IMPUGNED ASSESSMENT ORDER IS BAD IN LAW AND DESERVES TO BE C ANCELLED. 8. THIS GROUND IS GENERAL IN NATURE, AND ACCORDINGL Y DESERVES NO ADJUDICATION. 9. THE GROUND NO.2 OF THE ASSESSEES APPEAL IS AS U NDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD.CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.19,04,896/- MADE BY THE AO ON THE ALLEGED GROUND OF BOGUS PURCHASES. THE SAID AMOUNT BE DELETED. ITA NO.186 AND 1920/AHD/2009 -5- 10. BOTH THE PARTIES BEFORE US SUBMITTED THAT FACTS OF THE CASE FOR THIS ISSUE ARE SIMILAR AS THE FACTS IN EARLIER ASSTT.YEA R 2005-06 OF THE ASSESSEE IN APPEAL BEFORE THE TRIBUNAL. WE HAVE CONSIDERED RIVAL SUBMISSIONS. IN VIEW OF OUR DECISION IN THE FOREGOING PARAS OF THIS ORDER MAKING A DISALLOWANCE OF 10% OF UNVERIFIABLE PURCHASES OF DI AMONDS BY WAY OF ESTIMATE, WE DIRECT THAT THE DISALLOWANCE/ADDITION OF RS.1,90,000/- BE MADE OUT OF THE TOTAL DISALLOWANCE OF RS.19,04,896/ - AND THE BALANCE ADDITION IS DELETED AND THE GROUND NO.2 OF THE ASSE SSEE IS PARTLY ALLOWED. 11. THE GROUND NO.3 OF THE ASSESSEES APPEAL IS AS UNDER: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD.CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.97,21,982/- MADE BY THE AO ON THE GROUND OF ALLEGED LOW RATE OF GP. THE SAID AMOUNT BE DELETED. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE GP ADDITION OF RS.97.21 LAKHS WAS MADE ON THE GROUND OF LOW RAT E OF GP BY THE AO. HE SUBMITTED THAT THE DECLARED GP RATE OF 0.34% ON TURNOVER OF RS.17.98 CRORES AS AGAINST THE GP RATE OF 0.42% ON TURNOVER OF RS.22.85 CRORES IN THE IMMEDIATELY PRECEDING ASST.YEAR 2005-06. HE SU BMITTED THAT THE AO HAS WRONGLY TAKEN A FIGURE OF GP AT 6.80% IN THE IM MEDIATELY PRECEDING ASSTT.YEAR 2005-06, WHICH IN FACT HAS CONSIDERED TH E ADDITION OF RS.1,53,16,052/- ON ACCOUNT OF UNVERIFIABLE PURCHAS ES OF THE ASSTT.YEAR 2005-06. HE SUBMITTED THAT THIS YEAR THE ASSESSEE WAS HIT BY A VERY HARD COMPETITION AND DECLINE IN PROFIT IN THE LINE OF TR ADE, WHICH HAS RESULTED IN LESS GP DURING THE YEAR. THE LEARNED DR HAS OPPOSE D THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE HAS DECLARED A LESS GP RATE ON LESSER TURNOVER DURING T HE RELEVANT PERIOD AS COMPARED TO IMMEDIATELY PRECEDING ASSTT.YEAR 2005-0 6. HE REFERRED TO ITA NO.186 AND 1920/AHD/2009 -6- THE RELEVANT PORTIONS OF THE ASSESSMENT ORDER AND A PPELLATE ORDER OF THE CIT(A) IN SUPPORT OF THE CASE OF THE REVENUE. 13. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE AO AND THE CIT(A) AS WELL AS COPIES OF DOCUMENTS FI LED BY THE ASSESSEE IN THE COMPILATION BEFORE US. WE FIND THAT THERE IS A DECLINE IN GP RATE OF 0.34% ON TURNOVER OF RS.17.98 CRORES DURING THE REL EVANT PERIOD, AS AGAINST GP OF 0.42% ON HIGHER TURNOVER OF RS.22.85 CRORES I N THE IMMEDIATELY PRECEDING ASSTT.YEAR 2005-06. THE REASONS ADVANCED BY THE ASSESSEE WERE GENERAL IN NATURE. WE FIND THAT PART OF THE P URCHASES REMAINED UNVERIFIABLE AND THERE WERE CERTAIN DISCREPANCIES I N THE ACCOUNT BOOKS OF THE ASSESSEE. HOWEVER, THE ACTION OF THE AO AND TH E CIT(A) IN DETERMINING THE TRADING ADDITION ON THE BASIS OF TH E ASSESSED INCOME GIVING GP RATE OF 6.8% IN THE IMMEDIATELY PRECEDING ASSTT. YEAR 2005-06, IS NOT SUSTAINABLE. WE, WHILE DISPOSING OF THE APPEAL OF THE ASSESSEE IN THE IMMEDIATELY PRECEDING ASST.YEAR 2005-06, IN THE FOR EGOING PARAS OF THIS ORDER, HAVE RESTRICTED THE DISALLOWANCE TO RS.15.50 LAKHS AS AGAINST THE ADDITION OF RS.1,53,16,052/- ON ACCOUNT OF UNVERIFI ABLE PURCHASES, AND THEREFORE, THE GP RATE OF LAST YEAR I.E. A.Y.2005-0 6, ON THE BASIS OF THE ASSESSED INCOME, DOES NOT STAND AT 6.8% AFTER GIVIN G EFFECT TO OUR APPELLATE ORDER FOR THE ASSTT.YEAR 2005-06. WE FIND THAT WE HAVE ALREADY SUSTAINED AN ADDITION OF RS.1,90,000/- OUT OF THE PURCHASES O F THE DIAMONDS MADE BY THE ASSESSEE, WHILE DISPOSING OF GROUND NO.2 OF THI S APPEAL OF THE ASSESSEE. CONSIDERING TOTALITY OF THE FACTS OF THE CASE, WE A RE OF THE VIEW THAT THE ENDS OF JUSTICE SHALL BE MET, IF GP RATE OF THE ASS ESSEE IS INCREASED BY 1% OF THE TURNOVER DECLARED BY THE ASSESSEE, WHICH COM ES TO RS.18,00,000/- (IN ROUND FIGURE) AS AGAINST THE ADDITION OF RS.97, 21,982/- MADE BY THE AO ON ACCOUNT OF LOW RATE OF GP AND THE BALANCE ADDITI ON IS DELETED AND THE GROUND NO.3 OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.186 AND 1920/AHD/2009 -7- 15. THE GROUND NO.4 OF THE ASSESSEE IS AS UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE APPELLANT DENIES ITS LIABILITY TO PAY INTEREST OF R S.12,93,258/-. THE APPELLANT CANNOT ANTICIPATE THESE ADDITIONS. RELIA NCE IN THIS REGARD IS PLACED ON THE DECISION OF CIT VS. JAYENDRA H. KH ARAWALA (2006) 282 ITR 205 (GUJ) AND CIT VS. RAINBOW INDUSTRIES P. LTD. (2005) 277 ITR 507 (GUJ) 16. WE HAVE HEARD THE PARTIES. THE INTEREST LIABIL ITY IS CONSEQUENTIAL IN NATURE AND WE DIRECT ACCORDINGLY. 17. IN THE RESULT, APPEALS OF THE ASSESSEE FOR THE ASSTT.YEAR 2005-06 AND 2006-207 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( %&'( %&'( %&'( %&'( / ANIL CHATURVEDI) )* + )* + )* + )* + /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD