ANIL KUMAR GARG, Jaipur V. ITO, Jaipur

ITA 197/JPR/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5205 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 14-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DR DHK
• Keywords: Bogus purchase; Rejection of books of accounts; Income from undisclosed sources; Question of law
• Section: 40A(3); 10B; 131; 68

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. 197/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2007-08 SHRI ANIL KUMAR GARG 60, RAJAMAL KA TALAB JAIPUR CUKE VS. THE ITO WARD- 5(1) JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: ACXPG 9568 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI SATISH GUPTA, CA JKTLO DH VKSJ LS@ REVENUE BY :SHRI R.A. VERMA, ADDL CIT-. DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 03/08/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 04 /08/2016 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD. CIT(A)-II, JAIPUR DATED 10-01-2014 FOR THE ASSESSM ENT YEAR 2007-08 RAISING THEREIN FOLLOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE AO GROSSLY ERRED IN REJECTING THE BOOKS OF ACCOUNT OF M/S. A.K. EXPORTS AND A.K. JEWELLERS 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE AO GROSSLY ERRED IN MAKING TRADING ADDITION OF RS. 12,50,905/- IN M/S. A.K. EXPORTS AND OF RS. 1,06,84 5/- IN THE CASE OF M/S. A.K. JEWELLERS. ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 2 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE A O GROSSLY ERRED IN MAKING THE DISALLOWANCE OF RS. 1,3 5,725/- ON ACCOUNT OF SALARY, RS. 4,42717/- ON ACCOUNT OF FARES AND RS. 1,27,184/- ON ACCOUNT OF TRAVELING EXPENSES IN M/S. A.K. JEWELLES 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE A O GROSSLY ERRED IN MAKING DISALLOWANCE OF RS. 3,21,33 3/- ON ACCOUNT OF INTEREST PAYMENT. 2.1 ALTERNATIVELY THE LD. AR OF THE ASSESSEE SUBMIT TED THAT ITAT JAIPUR BENCH IN THE CASE OF ANUJ KUMAR VARSHNEY VS. ITO I N APPEAL NO. 187/JP/2012 HAS HELD 15% DISALLOWANCE OF UNVERIFIAB LE PURCHASES IS JUSTIFIED. 3.1 BRIEF FACTS OF THE CASE WITH REGARD TO GROUND N O. 1 AND 2 OF THE ASSESSEE ARE THAT THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 30-10- 2007 ALONGWITH AUDIT REPORT U/S 44AB OF THE ACT DEC LARING TOTAL INCOME AT RS. 1,24,620/-. THE CASE OF THE ASSESSEE WAS SELECT ED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED AND SERVED UPON THE ASSESSEE. IN COMPLIANCE TO NOTICE, THE LD. AR OF THE ASSESSEE AT TENDED ASSESSMENT PROCEEDINGS AND FURNISHED NECESSARY DETAILS / INFOR MATION LIKE CASH BOOK, BANK BOOK, PURCHASE VOUCHER, SALES VOUCHERS, JOURNA L, LEDGER, STOCK RECORD AND OTHER DOCUMENTS WHICH WERE TEST CHECKED BY THE AO. THE AO OBSERVED THAT THE ASSESSEE IS PROPRIETOR OF TWO FIR MS NAMELY M/S. A.K. EXPORTS (100% EOU) AND M/S. A.K. JEWELLERS. BOTH TH E FIRMS CONTINUED ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 3 TO DERIVE INCOME FROM MANUFACTURING, PROCESSING, TR ADING AND EXPORT OF GEM STONES ETC. THE GROSS PROFIT RATE OF BOTH THE F IRMS DURING THE YEAR UNDER CONSIDERATION AND LAST TWO YEARS ARE AS UNDER :- M/S. A.K. EXPORTS A.Y. SALES GROSS PROFIT GROSS PROFIT RATE 2005-06 30352923.00 7982835.00 26.30% 2006-07 30361353.00 8219331.00 27.07 2007-08 2549323.00 7889678.00 27.08% M/S. A.K. JEWELLERS A.Y. SALES GROSS PROFIT GROSS PROFIT RATE 2005-06 1307175.00 109207.00 8.33% 2006-07 3305680.00 635288.00 19.22 2007-08 5518381.00 1164947.34 21.11% DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED IN THE CASE OF M/S. A.K. EXPORTS THAT THE ASSESSEE HAD MADE TOT AL PURCHASES OF RS. 1,50,43,859/- FOR WHICH THE ASSESSEE WAS ASKED THE PROVIDE THE COPIES OF THE PURCHASE BILLS OF THE GEMS AND JEWELLERY ITEMS. SUMMONS U/S 131 WERE ISSUED WERE ISSUED TO 65 PARTIES AND OUT OF TH ESE PARTIES, FOLLOWING PARTIES SUMMON RETURNED UNSERVED WITH REMARKS THAT ADDRESS IS NOT VERIFIABLE OR FIRMS DO NOT EXIST AND ALSO IT WAS FO UND BY THE INVESTIGATION DEPARTMENT THAT THESE PURCHASES ARE NOT GENUINE. HO WEVER, THE AO ASKED THE ASSESSEE TO SUBMIT CONFIRMATION FROM ALL SUPPLI ER OF GOODS ALONGWITH THEIR LATEST COMPLETE POSTAL ADDRESSES, PAN AND BAN K STATEMENTS OF THE ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 4 ASSESSEE AND SIMULTANEOUSLY PRODUCED THESE PARTIES FOR EXAMINATION. IT IS NOTICED BY THE AO THAT THE ASSESSEE NEITHER PRODUCE D THE FOLLOWING SUPPLIERS NOR SUBMITTED ANY DOCUMENTARY EVIDENCE RE GARDING GENUINENESS OF THE PURCHASES MADE FROM THEM. S.N. NAME AMOUNT 1. D.J. IMPEX 374967 2. GAURAV EXPORT 163800 3. VAISHALI GEMS 200000 4. K.S. EXPORT 259371 5. JODHPUR GEMS 500000 6. SHREE ENTERPRISES 610537 TOTAL 2108675 THE AO AGAIN ASKED THE ASSESSEE TO SUBSTANTIATE THE PURCHASES AS ALL THE SUMMONS WERE RETURNED UNSERVED AND HENCE THE VERIFI CATION OF THE PURCHASES MADE FROM THE PARTIES ARE NOT ASCERTAINED . THE ASSESSEE NEITHER FILED ANY CONFIRMATION IN RESPECT OF THE PURCHASES MADE FROM THE PARTIES NOR PRODUCED THE PARTIES BEFORE THE AO FOR CROSS-EX AMINATION. THE AO CONSIDERING THE REPLY OF THE ASSESSEE AS MENTIONED IN THE ASSESSMENT ORDER OBSERVED THAT BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT CORRECT AND COMPLETE AND SAME DOES NOT SHOW TRUE AN D CORRECT PROFITS AS PURCHASES ARE NOT OPEN TO VERIFICATION AND THEREFOR E, THE BOOKS OF ACCOUNT CANNOT BE RELIED UPON AND THE SAME ARE REJECTED BY APPLYING THE PROVISIONS OF SECTION 145(3) OF THE I.T. ACT. THE AO ALSO TOOK THE RECOURSE OF DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF M/S. ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 5 SANJAY OIL CAKE INDUSTRIES VS. CIT (2008) 10 DTR 15 3 IN WHICH IT IS OBSERVED THAT IN SUCH CASE WHERE PURCHASES ARE UNVE RIFIABLE THEN IT WOULD BE REASONABLE TO DISALLOW 25% OF SUCH PURCHASES. TH E AO THUS REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE BY INVOKING TH E PROVISIONS OF SECTION 145(3) OF THE ACT AND OBSERVED THAT BALANCE PROFIT OF RS. 12,50,905/-IS ADDED TO THE TRADING RESULTS OF M/S. A.K.EXPORTS (100% EOU) AND THUS ADDED TO THE TOTAL INCOME OF THIS FIR M. 3.2 THE AO FURTHER OBSERVED IN THE CASE OF M/S. A. K. JEWELLERS OBSERVED THAT THE ASSESSEE HAD SHOWN SALES OF RS. 5 5,18,381/- AND GROSS PROFIT RATE AT 21.11% ON WHICH GROSS PROFIT COMES TO RS. 11,64,947/-.. THE AO OBSERVED THAT THE ASSESSEE MADE PURCHASES FR OM FOLLOWING PARTIES IN WHICH NOTICES SERVED WERE RETURNED UNSER VED. S.N. NAME OF SUPPLIERS AMOUNT 1. SELECTIVE GEMS 45948.00 2. AYUSH ENTERPRISES 15417.00 3. ROYAL GEMS & ART 187096.00 4. ANUPAM EXPORT & IMPORT 178918.00 THE AO IN ORDER TO FIND OUT THE GENUINENESS OF THE PURCHASES DIRECTED THE ASSESSEE TO PRODUCE THE PARTIES FOR EXAMINATION BUT THE ASSESSEE NEITHER PRODUCED THE PARTIES FOR EXAMINATION NOR SUBMITTED ANY SATISFACTORY DOCUMENTARY EVIDENCE REGARDING GENUINENESS OF THE P URCHASE. THE AO ISSUED SUMMONS TO THESE PARTIES BUT THEY WERE RETUR NED UNSERVED WITH THE ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 6 POSTAL REMARKS THAT NO SUCH PARTY EXISTS AT THE G IVEN ADDRESS. THE AO THUS OBSERVED THAT THE ABOVE PARTIES ARE INVOLVED I N ISSUING BOGUS BILLS ONLY FOR WHICH PAYMENT IS RECEIVED THROUGH CHEQUES AND IMMEDIATELY CASH IS WITHDRAWN. IN NUT SHELL, THE AO OBSERVED TH AT SIMILAR TYPE OF MODUS OPERANDI WAS MADE BY THE ASSESSEE AS MADE IN THE CASE OF M/S. A.K.EXPORTS. THE AO THUS CONSIDERING THE OVERALL SU BMISSIONS OF THE ASSESSEE AND THE FACTS AVAILABLE ON RECORD CAME TO THE CONCLUSION OF APPLYING THE PROVISIONS OF SECTION 145(3) OF THE AC T FOR NON-MAINTENANCE OF BOOKS OF ACCOUNT BY THE ASSESSEE AND MADE A TRAD ING ADDITION OF RS. 1,06,845/- @ 25% ON THE TOTAL PURCHASES OF THE ASSESSEE I.E. AMOUNTING TO RS. 4,27,379/- AND THE ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 3.3 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ACTION OF THE AO BY OB SERVING AS UNDER:- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND APPELLANTS WRITTEN SUBMISSION . ASSESSING OFFICER NOTICED THAT PURCHASE MADE BY THE APPELLANT FROM 6 AND 4 PARTIES IN HIS PROPRIETARY C ONCERNS A.K. EXPORTS AND A.K.JEWELLERS ARE NOT VERIFIABLE A ND THEREFORE, BOOKS OF ACCOUNTS WERE REJECTED. AFTER R EJECTING BOOK RESULTS, ASSESSING OFFICER ESTIMATED GROSS PRO FIT IN THE CASE F M/S. A.K. EXPORTS AND DISALLOWED 25% OF SUCH UNVERIFIABLE PURCHASES IN THE CASE OF A..K. JEWELLE RS. SINCE ENTIRE INCOME IN THE CASE OF A.K. EXPORTS IS EXEMPT U/S 10B, THERE IS NO EFFECT ON TOTAL INCOME. HOWEVER, IN THE CDASE OF A.K. JEWELLERS, THE DISALLOWANCE OF 25% PURCHASE HA S EFFECT ON TOTAL INCOME. THEREFORE, 25% DISALLOWANCE OF BOG US ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 7 PURCHASES IN THE CASE OF A.K. JEWELLERS WILL ONLY B E DISCUSSED. ON THE IDENTICAL FACTS IN THE CASE OF SH RI DEEPAK DALELA, ITA NO. 13/JP/2010 IN ASSESSMENT YEAR 2006- 07, ITAT BY ORDER DATED 16-07-2010 OBSERVED AS UNDER:- 6.14 LOOKING TO THE CIRCUMSTANTIAL EVIDENCE, THE A.O. HELD THAT PURCHASES FROM FEW PARTIES WERE NOT GENUINE AND SUCH PURCHASE S WERE MADE FROM OPEN MARKET. HENCE THE LIABILITY AT THE END OF YEAR IN RESPECT O F SUCH SUPPLIERS IS NOT GENUINE. ONE HAS TO CONSIDER THE TOTALITY OF FACTS, SURROUNDINGS CIRCUMSTANCES AND HUMAN PROBABILITY FOR ARRIVING AT A CONCLUSION. IT IS NO T THE CASE OF THE ASSESSEE THAT PURCHASES WERE ON CREDIT FROM ANOTHERS ONLY WHICH PROVIDED THE BILLS OF SUCH CONCERN. THE ASSESSEE IS NOT WITLING TO COME CLEAN AND HENCE ONE WILL HAVE TO TAKE RECOURSE FOR ARRIVING AT A CONCLUSION IN THE BASIS OF MATERIAL ON RECORD. 6.15 WE ARE AWARE THAT JAIPUR BENCH IN THE CASE OF SHANTI KUMAR CHORDIA V ACIT 128 TTJ 708 HELD THAT 25% ADDITION CAN NOT B E MADE IN RESPECT OF BOGUS PURCHASES THOUGH BOOKS OF ACCOUNT CAN BE REJECTED. IN THIS CASE THE TRIBUNAL HELD THAT A.O. HAS NOT MADE SPECIFIC ENQUIRIES AND SUMMONS WE RE NOT ISSUED. IN THAT CASE THE TRIBUNAL OBSERVED THAT PURCHASES FROM THREE CONCERN S OUT OF EIGHT CONCERNS COULD HAVE BEEN TREATED AS NON VERIFIABLE. SUCH PURCHASE S WERE ONLY TO THE EXTENT OF RS.23,97,454 WHILE THE A.O. TREATED THE UNACCOUNTED PURCHASES AT HIGHER FIGURE. THE TRIBUNAL THEREFORE HELD THAT G.P. RATE OF 25% ON TH E ENTIRE TURNOVER IS NOT JUSTIFIED. ADDITION OF RS.5 LAKH WAS CONFIRMED. IF ONE CONSID ERS THE NON VERIFIABLE PURCHASES OF RS.23,97,454/-, IT IS CLEAR THAT ADDITION OF THE 5 LAKH IS AROUND 22% OF NON- VERIFIABLE PURCHASES. 6.16 THE HONBLE APEX COURT IN THE CASE OF KACHWALA GEMS V CIT 288 ITR 10 HAD ON OCCASION TO CONSIDER THE APPLICABILIT Y OF PROVISIONS OF SECTION 145(3). IN THIS CASE, THE ASSESSEE CONTENDED THAT NO BOGUS PURCHASES HAVE BEEN SHOWN. THE HONBLE APEX COURT OBSERVED THAT IT CAN NOT INTERFE RE WITH THE FINDING OF FACT AS THE ISSUE OF BOGUS PURCHASES IS A FINDING OF FACT. THE FACTS AS NOTICED BY THE HON'BLE APEX COURT ARE AS UNDER:- : GENUINENESS OF PURCHASE OF ABOUT 42 LAKHS WERE NO T PROVED. G.P. RATE DURING THE YEAR UNDER CONSIDERATION WAS 13.49% AS IT WAS NOT A MATCH THE RESULT DECLARED IS EARLIER YEAR. M/S.GEM PLAZA SHO WED A RATE OF 35% ON DOMESTIC SALES WHILE M/S DHADDA EXPORTS SHOWED A RA TE OF 43.8% IN EXPORT SALES (WITHOUT CONSIDERING THE VALUE OF EXPORT INCE NTIVE). THE A.O. APPLIED G.P. RATE OF 40% WHICH WAS REDUCED TO 35% BY CIT(A) AND THE TRIBUNAL UPHELD THE G.P.RATE OF 30%. 6.17 THE SAME WAS UPHELD BY THE HONBLE RAJ HIGH COURT A ND THE HONBLE APEX COURT UPHELD THE DECISION OF HONBLE R AJ HIGH COURT AFTER OBSERVING AS UNDER :- IT IS WELL SETTLED THAT IN BEST JUDGEMENT ASSESSME NT THERE IS ALWAYS A CERTAIN DEGREE OF GUESSWORK. NO DOUBT THE AUTHORITIES CONC ERNED SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN B EST JUDGEMENT ASSESSMENT AND SHOULD NOT ACT ARBITRARILY,BUT THERE IS SOME AM OUNT OF GUESSWORK INVOLVED IN A BEST JUDGEMENT ASSESSMENT, AND IT IS THE ASSES SEE HIMSELF WHO IS TO BLAME AS HE DID NOT SUBMIT PROPER ACCOUNTS. IN OUR OPINI ON THERE WAS NO ARBIT ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 8 RAINERS IN THE PRESENT CASE AS THE PART OF THE I.T. ACT AUTHORITIES. THUS THERE IS NO FORCE IN THUS APPEAL AND IS DISMISSED ACCORDINGL Y. 6.18 THE HONBLE RAJ HIGH COURT IN THE CASE OF CIT V SHRI SINDHUJA FOODS (P) LTD 16 DTR 278 HAD AN OCCASION TO CONSIDE R THE FOLLOWING QUESTION OF LAW. WHETHER THE ORDER OF TRIBUNAL IS VITIATED AN ACCO UNT OF NON CONSIDERATION OF MATERIAL EVIDENCE AND CONSIDERATION OF TOTALLY IRRE LEVANT MATERIAL IN REDUCING THE ADDITIONS MADE IN THE ACCOUNTS OF ASSESSEE BY A .O. 6.19 IN THIS CASE A.O. FOUND THE DISCREPANCY IN PUR CHASE OF RAW MATERIAL. THE TRIBUNAL FOUND THAT IT WAS NOT IN DISPUTE THAT THE ASSESSEE HAS RECORDED BOGUS PURCHASES IN HIS BOOKS OF ACCOUNT WITH A VIEW OF SH OW EXCESSIVE EXPENSES IN THE PURCHASE OF RAW MATERIAL. BOOKS OF ACCOUNT WERE RE JECTED. THE HONBLE HIGH COURT OBSERVED THAT THE LD.COUNSEL FOR THE REVENUE COULD NOT SHOW AS TO WHAT MATERIAL HAS NOT BEEN CONSIDERED BY THE TRIBUNAL AND WHAT IRRELE VANT MATERIAL HAS BEEN CONSIDERED IN REDUCING THE ADDITIONS MADE. IN MAKING BEST JU DGEMENT, THE ONLY RELEVANT THING REQUIRED TO BE CONSIDERED WAS APPLICATION OF G.P. R ATE, WHICH HAS BEEN APPLIED BY THE LD.TRIBUNAL HENCE THE HONBLE HIGH COURT HELD : IN OUR VIEW, IT CAN NOT BE SAID THAT ANY MATERIAL HAS NOT BEEN CONSIDERED, OR ANY IRRELEVANT CONSIDERATION HAS BEEN TAKEN INTO AC COUNT BY THE LEARNED TRIBUNAL. 6.20 THUS THE QUESTION BEFORE JURISDICTIONAL HIGH C OURT WAS TO SEE WHETHER TRIBUNAL HAS NOT CONSIDERED THE MATERIAL EV IDENCE OR HAS CONSIDERED IRRELEVANT MATERIAL. THE ISSUE WAS NOT BEFORE THE HONBLE HIGH COURT THAT AS TO WHETHER BOGUS PURCHASES CAN BE ALLOWED AS EXPENDITU RE WHEN LIABILITY OF BOGUS PURCHASES IS APPEARING AS LIABILITY IN THE BALANCE SHEET AT THE END OF THE YEAR. 6.21 THE ITAT MUMBAI BENCH HAD AN OCCASION TO CONSI DER THE ADDITION UNDER INCOME FROM UNDISCLOSED SOURCES IN THE CASE O F G.G.DIAMOND INTERNATIONAL V DCIT 104 TTJ 809. THE CASE OF REVENUE IS THAT THER E WERE PURCHASES FROM 11 PARTIES AND SUCH PARTIES ARE BILL ACCOMMODATING PARTIES. I N THIS CASE STATEMENT OF THE PARTIES WHO EFFECTED SALES TO THE ASSESSEE ADMITTED SUCH SA LES AND THE A.O. HAS NOT PUT ANY QUESTION TO SUCH PARTIES AS TO WHETHER AMOUNT WAS G IVEN BACK TO THE ASSESSEE. HENCE DISALLOWANCE U/S 40A(3) WAS DELETED. IN THIS CASE THE ASSESSEE SHOWED OBNORMAL PROFIT. THE FACTS OF THIS CASE ARE DIFFERENT AS TH E PARTIES WERE PRODUCED AND THEIR STATEMENTS WERE RECORDED. MOREOVER THE ISSUE WAS I N RESPECT OF DISALLOWANCE U/S 40A(3). 6.22 THE HONBLE DELHI HIGH COURT IN THE CASE OF CI T V J.M.D. COMPUTERS AND COMMUNICATIONS (P) LTD. 180 TAXMAN 48 5 HAD AN OCCASION TO CONSIDER AS TO WHETHER A SUBSTANTIAL QUESTION OF LA W ARISES. IN THIS CASE INVESTIGATION WING COLLECTED MATERIAL TO SHOW THAT BOGUS BILLS WE RE BEING ISSUED IN FAVOUR OF ASSESSEE BUT SUCH INFORMATION WAS NOT AVAILABLE WIT H A.O. STATEMENT OF THE PERSON ON THE BASIS OF WHICH ADDITION WAS MADE WAS NOT PUT TO THE ASSESSEE. HENCE IT WAS HELD THAT NO SUBSTANTIAL QUESTION OF LAW ARISES. THIS D ECISION IS NOT RELEVANT TO THE ISSUE BEFORE US. ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 9 6.23 THE TRIBUNAL IN THE CASE OF ACIT V AMAR MINING TO 121 ITD 273 (AHM) TM HELD THAT LD.CIT(A) WAS NOT JUSTIFIED IN D ELETING DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES ON THE GROUND THAT PRODUCTION/SA LE COULD NOT HAVE BEEN POSSIBLE IN ABSENCE OF PURCHASES. ONCE IT IS ACCEPTED THAT THE PURCHASES ARE BOGUS AND THE ASSESSEE HAS NOT PROVED SUCH PURCHASES THEN ONLY CO URSE IN SUCH CIRCUMSTANCES IS EITHER TO UPHOLD THE ADDITION OR INVESTIGATE THE CL AIM OF THE ASSESSEE BY GIVING ANOTHER OPPORTUNITY AFRESH TO PROVE THE GENUINENESS OF THE CLAIM. 6.24 THE .DELHI BENCH IN THE CASE OF ELAND INTERNAT IONAL (P) LTD. V DCIT 124 TTJ 554 HAD ON OCCASION TO CONSIDER AS TO WHETH ER SECTION 68 CAN BE APPLIED WHEN PURCHASES & SALES ARE RECORDED IN BOOKS AND PR OFIT IS BROUGHT TO TAX THEN SUCH TRANSACTION CAN NOT BE REGARDED AS BOGUS. THE ISSU E WAS IN RESPECT OF TRANSACTION OF PURCHASE & SALE AND IN THE INSTANT CASE TRANSACTION OF SALE IS NOT DOUBTED. 7. WE HAVE ALSO NOTICED THAT THE ASSESSEE HAS FAILE D TO PRODUCE THE QUANTITATIVE DETAILS AND STOCK REGISTER AND THE ASS ESSEE WAS ALSO NOT ABLE TO GET THE CLOSING STOCK VERIFIED AND HENCE THE BOOKS OF ACCOU NT HAVE CORRECTLY BEEN REJECTED. CONSIDERING THE DISCUSSION AS CONTAINED IN EARLIER PARAS, WE FEEL THAT THE ADDITION AS CONFIRMED BY THE LD. CIT(A) IS PROPER AS THE AMOUNT S WERE STILL PAYABLE TO THE TRADE CREDITORS FROM WHOM PURCHASES COULD NOT BE ESTABLIS HED AND SUCH AMOUNT EXCEEDS THE ADDITION CONFIRMED BY THE LD. CIT(A). ACCORDINGLY W E UPHOLD THE ORDER OF THE LD. CIT(A) AND THE APPEAL OF THE ASSESSEE IS DISMISSED. CONSIDERING THE FACT THAT JURISDICTIONAL TRIBUNAL I N IDENTICAL FACTS CONFIRMED THE 25% OF UNVERIFIABLE PURCHASES, THIS ISSUE IS COVERED AGAINST THE APPELLANT. APPELLANTS REPEATED ARGUMENTS THAT BILLS WERE SUBMITTED AND PAYMENTS TO THESE PARTIES WERE MADE BY CHEQUE ARE NOT RELEVANT SINCE THESE PARTIES WERE NO T AVAILABLE ON THE ADDRESS GIVEN BY APPELLANT. BY NOT PROVING THE GENUINENESS OF PURCHASES ONUS WAS NOT DISCHARGED BY THE APPELLANT. RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL ITAT IN ID ENTICAL FACTS AND ALSO DECISION OF HON'BLE GUJARAT HIGH COURT RELIED UPON BY THE AO, REJECTION OF BOOK RESULTS AND ADDITION OF BOGUS PURCHASES MADE BY THE AO ARE CONFIRMED IN THE CASE OF A.K. JE WELLERS . 3.4 THE LD. AR OF THE ASSESSEE PRAYED FOR DELETION OF TRADING ADDITION OF RS. 12,50,905/- IN THE CASE OF M/S. A.K. EXPORTS AND OF RS. 1,06,845/- IN THE CASE OF A.K. JEWELLERS FILED FOLLOWING WRITT EN SUBMISSION THAT DISALLOWANCE OF 25% OF SUCH ALLEGED UNVERIFIABLE PU RCHASES IS UNLAWFUL. ALTERNATIVELY , THE LD. AR OF THE ASSESSEE PRAYED T O CONSIDER 15% ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 10 DISALLOWANCE OF UNVERIFIABLE PURCHASES AS HELD BY THE COORDINATE BENCH IN THE CASE OF ANUJ KUMAR VARSHNEY AND ANOTHER VS. ITO IN ITA NO. 187/JP/2012. GROUND NO. 1 AND 2 :- UNLAWFUL REJECTION OF BOOKS OF ACCOUNTS OF M/S A.K. EXPORTS & M/S A.K JEWELLERS & TRADING ADDI TION OF RS.12,50,905/- & RS. 106845/- RESPECTIVELY . M/S A.K.EXPORTS : - LD AO HAS MADE THE ADDITION OF RS.12,50,905/- AT PA GE 4 OF THE ASSESSMENT ORDER AFTER REJECTING THE BOOKS OF ACCOU NTS. LD AO HAS REPRODUCED THE CHART OF GROSS PROFIT AT P ARA 1 PAGE 2 OF THE ASSESSMENT ORDER. FROM THE PERUSAL OF THE SAME, IT IS CLEAR THAT GROSS PROFIT IS BETTER DURING THE YEAR UNDER CONSIDERATIO N AS GP IS 27.08% FOR A.Y 2007-08 AND IT WAS 27.07% IN A.Y 2006-07 & WAS 26.3 0% IN A.Y 2005-06. DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD AO ISSUED SUMMONS U/S 131 TO 65 PARTIES OF THE ASSESSEE. OUT OF THESE 65 PARTIES SUMMONS WERE RETURNED UNSERVED OF SIX PARTIES, LIST OF WHICH IS AT LAST PARA PAGE 2 OF THE ASSESSMENT ORDER. THE TOTAL AMOUNT INVOLVED IS RS.2 1,08,675/-. A LETTER WAS SUBMITTED BEFORE LD AO STATING THAT CO NFIRMATION OF THE ALL SUPPLIERS HAVE BEEN FILED. COPY OF THE BILLS OF THE SUPPLIERS WERE ALSO FILED. COPY OF THE BANK ACCOUNTS CONFIRMING THE PAYMENT T O SUPPLIER WAS ALSO FILED. THE COPIES OF BILLS WERE HAVING THE COMPLETE ADDRES S, SALES TAX REGISTRATION NUMBER ETC. MOREOVER, THE ASSESSEE IS A 100% EXPORT ORIENTED UN IT WHO HAS SOLD THE GOODS PURCHASED DURING THE COURSE OF EXPORT AND IN EXPORT ALL THE QUALITY & QUANTITY OF GOODS ARE APPRAISED AND CHECKED. ASSESSEE HAS MAINTAINED THE COMPLETE DAY TO DAY STO CK REGISTER & QUANTITATIVE TALLY & HAS FURNISHED THE SAME BEFORE THE LD AO ALONG WITH RETURN OF INCOME. IT WAS ALSO REQUESTED THAT SINCE THE PURCHASES WERE MADE IN F.Y. 2006- 07 WHEREAS THE ENQUIRY FOR VERIFICATION ARE BEING D ONE IN THE F.Y. 2009-10 I.E. AFTER THE LAPSE OF MORE THAN 3 YEARS. SO THE ASSESS EE REQUESTED BEFORE THE LD AO THAT IT IS BEYOND HIS CONTROL TO PRODUCE THE SUP PLIERS BECAUSE THE ASSESSEE DOESNT HAVE ANY CONTROL OVER THEM. IT WAS ALSO REQ UESTED THAT NOTICE U/S 131 OF THE INCOME TAX ACT, 1961 MAY KINDLY BE ISSUED ON THE ADDRESS GIVEN ON CONFIRMATION ON BILLS. NO ENQUIRY WHATSOEVER WAS MADE BY THE LD AO AT THEI R END. ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 11 NO ENQUIRY FROM THE BANK OR FROM THE SALES TAX DEPA RTMENT WAS MADE TO GET THE CHANGED ADDRESSES. NO RECORD OF INCOME TAX DEPARTMENT WAS VERIFIED TO FIND THE LATEST ADDRESS OF THE SUPPLIERS. THE COPY OF THE REPORT OF THE INVESTIGATION DEPARTMENT STATING THAT THESE PURCHASES ARE NOT GENUINE WAS NO T PROVIDED TO THE ASSESSEE & THE CONTENTS WERE ALSO NOT BROUGHT TO THE RECORD. IT IS ALMOST IMPOSSIBLE FOR A PURCHASER TO COMPEL I TS SUPPLIERS TO APPEAR BEFORE THE INCOME TAX AUTHORITIES WITH THE B OOKS OF ACCOUNTS AFTER THE LAPSE OF 3 YEARS. THERE WAS NO OTHER MATERIAL BEFOR E THE LD AO. IT WAS ALSO A WRONG FACT GIVEN BY THE LD AO THAT THE AUDITORS IN PARA NO.28 HAVE STATED THAT ASSESSEE HAS NOT MAINTAINED THE DAY TO DAY REG ISTERS. IN FACT ASSESSEE HAS FILED THE DETAILS OF STOCK ALONG WITH AUDIT REPORT AND HAS MENTIONED ACCORDINGLY IN THEIR AUDIT REPORT. WE ARE SUBMITTIN G THE COPY OF AUDIT REPORT OF YOUR KIND PERUSAL AND VERIFICATION . THE ASSESSEE BY FILING THE COPY OF BILLS, COPY OF C ONFIRMATION, BANK DETAILS OF PAYMENT AND THE STOCK REGISTER HAVE DISC HARGED HIS OWNS & THE BURDEN HAS SHIFTED TO THE DEPARTMENT. AND NOW THE D EPARTMENT SIMPLY ON WRONG FACTS AND RELYING ON THE CASE LAWS FAVORING T O THEM, IGNORING THE CASE LAWS OF ASSESSEES FAVOUR, REJECTED THE BOOKS OF AC COUNTS WHICH IS TOTALLY UNLAWFUL. MOREOVER, THE GROSS PROFIT RATE DECLARED BY THE ASS ESSEE DURING THE YEAR UNDER CONSIDERATION IS BETTER. LD AO HAS ACCEP TED THE TURNOVER AS DECLARED THEREFORE APPLICATION OF GROSS PROFIT TO T HE EXTENT OF 32% MAKING AN ADDITION OF RS.12,90,505/- IS UNLAWFUL & WITHOUT AN Y MATERIAL. HONBLE RAJASTHAN HIGH COURT IN THE CASE 256 ITR 24 3 HAS HELD THAT EVEN AFTER REJECTION OF BOOKS OF ACCOUNTS, NO ADDIT ION SHOULD BE MADE WITHOUT HAVING ANY MATERIAL. HONBLE RAJASTHAN HIGH COURT IN ANOTHER CASE 322 IT R 71 HAS AGAIN HELD THAT NO ADDITIONS SHOULD BE MADE WITHOUT HAVIN G ANY MATERIAL. WE ALSO SUBMIT THE EFFECT OF THIS ADDITION IS NIL B ECAUSE THE LD AO HAS ALLOWED THE DEDUCTION U/S 10B OF THE INCOME TAX ACT , 1961. LD CIT (A) IN THE CASE OF M/S A.K. EXPORTS DID NOT DISCUSS THE ISSUE BY HOLDING AT PARA 2.3 AT PAGE 7 OF APPEAL ORDER THAT SINCE INCOME IN THE CASE OF A.K. EXPORTS IS EXEMPT UNDER SECTION 10B, THERE IS NO EFFECT ON TOTAL INCOME. IT IS HOWEVER HUMBLY SUBMITTED THAT THE DISALLOWANC E OF 25% OF SUCH ALLEGED UNVERIFIABLE PURCHASES IS UNLAWFUL. ALTERNATIVELY IT IS ALSO SUBMITTED THAT HONBLE JAI PUR BRANCH OF ITAT IN THE CASE OF ANUJ KUMAR VASHNEY V/S ITO IN APPEAL NO. 187/JP/2012 HAS HELD THAT 15% DISALLOWANCE OF UNVERIFIABLE PURCHASE S IS JUSTIFIED. ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 12 M/S A.K. JEWELLERS IN THIS FIRM ALSO THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE IS BETTER IN COMPARISON TO THE PRECEDING YEAR. IN THIS CASE T URNOVER HAS ALSO INCREASED DURING THE YEAR. LD AO, TO VERIFY THE PURCHASES ISS UED NOTICES U/S 131 & IN FOUR CASES THE NOTICES RETURNED UNSERVED. THE LIST OF SUCH SUPPLIERS HAS BEEN GIVEN BY THE LD AO AT LAST PARA AT PAGE 4 OF THE AS SESSMENT ORDER. THE GROSS PROFIT RATE FOR THE YEAR WAS 21.11% AS AGAINST 19.2 2% OF LAST YEAR. LD AO SIMPLY BECAUSE THESE FOUR NOTICES REMAINED U NSERVED FRAMED THE VIEW THAT THE PURCHASES ARE BOGUS. WE SUBMIT TH AT ASSESSEE HAS FILED THE CONFIRMATIONS, COPY OF PURCHASES & BANK DETAILS ABO UT THE PAYMENTS MADE TO THEM. COPY OF STOCK REGISTER WAS ALSO SUBMITTED ALO NG WITH THE RETURN OF INCOME. THERE WAS NO OTHER MATERIAL BEFORE THE LD A O EXCEPT THESE UNSERVED NOTICES. NO ENQUIRY WAS MADE EITHER FROM THE BANK OR FROM TH E SALES TAX DEPARTMENT OR FROM THE RECORDS OF INCOME TAX. NO CO PY OF THE REPORT OF THE INVESTIGATION WING OF DIT WAS PRODUCED TO THE ASSES SEE. EVEN IT IS NOT CLEAR FROM PARA 2 PAGE 6 OF THE ASSESSMENT ORDER WHETHER THE REPORT WAS HAVING THE NAMES OF PARTIES FROM WHICH THE ASSESSEE HAS MA DE THE PURCHASES. LD AO HAS MADE THE ADDITIONS OF RS.1,06,845/- @ 25% OF ALLEGED BOGUS PURCHASES OF RS.4,27,379/-. NO MATERIAL WAS B ROUGHT ON THE RECORD BEFORE MAKING THE ADDITIONS SALES OF THE ASSESSEE H AS BEEN ACCEPTED. IT IS IMPOSSIBLE TO PRODUCE THE SUPPLIERS TO WHOM T HE PAYMENT WAS MADE BEFORE THE DEPARTMENT AFTER THE LAPSE OF 3 YEA RS WHEN THERE IS NO CONTROL OF ASSESSEE OVER THE SUPPLIERS. LD CIT (A) AT PAGE 10 OF HIS ORDER CONFIRMED THE AD DITION OF RS. 106845/- BY HOLDING THAT APPELLANTS ARGUMENTS THAT BILLS WERE SUBMITTED AND PAYMENTS TO THESE PARTIES WERE MADE BY CHEQUES ARE NOT RELAVANT SINCE THESE PARTIES WERE NOT AVAILABLE ON THE ADDRESS GIVEN BY THE APPELLANT . ON THE FACTS OF THE CASE AND ESPECIALLY WITH BETTER RESULTS AS DISCUSSED ABOVE IT IS HUMBLY SUBMITTED THAT THE DISALLOWANCE IS UNLAWFUL. WE RELY ON HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT V/S INANI MARBLES 316 ITR 125. ALTERNATIVELY IT IS ALSO SUBMITTED THAT HONBL E ITAT JAIPUR BENCH IN THE CASE OF ANUJ KUMAR VASHNEY & ORS ITAN. 187/JP/ 2012 HAS HELD 15% DISALLOWANCE AS REASONABLE . 3.5 THE LD. DR RELIED ON THE ORDER OF THE AUTHORITI ES BELOW. 3.6 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. I FIND THAT THE ASSESSEE IS NO T MAINTAINING THE BOOKS OF ACCOUNT IN THE CASES OF M/S. A.K. EXPORTS AND A .K. JEWELLERS FROM ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 13 WHICH CORRECT TAXABLE PROFIT CAN BE DEDUCED. THEREF ORE, THE BOOK RESULTS ARE RIGHTLY REJECTED AND THE AO HAS RIGHTLY INVOKE D THE PROVISIONS OF SECTION 145(3) OF THE ACT. TRADING ADDITION OF RS. 12,50,905/- IN THE CASE OF M/S. A.K.EXPORTS AND RS. 1,06,845/-IN THE CASE O F M/S. A.K. JEWELLERS WERE MADE FOR UNVERIFIABLE PURCHASES. THE LD. CIT(A ) HAS CONFIRMED THE ACTION OF THE AO. I HAVE NOTICED THAT COORDINATE BE NCH IN THE CASE OF ANUJ KUMAR VARSHSNEY (SUPRA) VIDE ITS ORDER DATED 2 2-10-2014 REGARDING UNVERIFIABLE PURCHASES HAS OBSERVED AS UNDER:- 14.5 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE R ECORD. THE ASSESSEE HAS NOT CHALLENGED THE REJECTION OF BOOK R ESULT AS DEFECTS POINTED OUT BY THE ASSESSING OFFICER ARE SU FFICIENT TO REJECT THE BOOK RESULT U/S 145(3) OF THE ACT. THE DE PARTMENT HAD CONDUCTED SURVEY AND SEARCH IN VARIOUS CASES AS MEN TIONED BY THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A). ON INVESTIGATION, IT IS FOUND THAT THREE PARTIES WERE A LSO INDULGED IN PROVIDING ACCOMMODATION BILLS. THE SUFFICIENT OPPORT UNITIES HAVE BEEN GIVEN BY THE ASSESSING OFFICER TO PROVE THE GE NUINENESS OF THE PURCHASES. THE ASSESSING OFFICER HIMSELF ISSUED THE NOTICES TO THESE PARTIES BUT EITHER NOTICES WERE NOT SERVED OR NOT RETURNED BACK. THE ASSESSEE COULD NOT PRODUCE THESE PARTIES F OR VERIFICATION DURING THE COURSE OF ASSESSMENT PROCEE DINGS. EVEN THE ASSESSING OFFICER PROVIDES REASONABLE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. THE LEARNED ASSESSING OFFICER APPLIED HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF SANJAY OIL CAKE INDUSTRIES (SUPRA) AND ITAT AHMADABAD BENCH DECISION IN THE CASE OF VIJAY PROTEINS WHERE 25% DISALLOWANCE HELD RE ASONABLE ON UNVERIFIABLE PURCHASES. THE A.R. OF THE ASSESSEE TRIED TO DISTINGUISH THIS CASE WITH FACTS AND CIRCUMSTANCES A ND ARGUED TO APPLY PAST HISTORY OF THE CASE. THE ONUS IS ON THE ASSESSEE TO PROVE THESE PURCHASES GENUINE. THE ASSESSEE ALSO CO ULD NOT BE ABLE BE LEAD ANY EVIDENCE IN FURTHERANCE OF FILING OF CONFIRMATORY LETTER OR MERELY SHOWING THAT THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUES. THE ASSESSEE WAS AWARE OF THE ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 14 WHEREABOUTS OF THE PARTIES AND HE SHOULD HAVE PRODUC ED THESE PARTIES BEFORE THE ASSESSING OFFICER FOR VERIFICATI ON OF PURCHASES, WHICH COULD NOT BE DONE AT THE STAGE OF ASSESSMENT P ROCEEDINGS. IT HAS BEEN ESTABLISHED THAT THESE PARTIES WERE PROV IDING ACCOMMODATION BILLS, NO GOODS WERE SUPPLIED BY THEM. THE ASSESSEE ONLY PRODUCED CONFIRMATION, PAN AND TIN NU MBER AND CLAIMED THAT PAYMENTS WERE MADE THROUGH ACCOUNT PAYE E CHEQUES WHEREAS IN INVESTIGATION, THE CASH HAS BEEN WITHDRAWN FROM THE SELLERS ACCOUNT IMMEDIATELY AFTER CLEARANC E OF THE CHEQUES. THE PAST HISTORY OF THE ASSESSEE IS ALSO N OT RELIABLE. THIS FINDING IS ALSO GOT SUPPORT FROM THE DECISION OF HO NBLE RAJASTHAN HIGH COURT IN THE CASE OF VENUS ARTS & GEMS ORDER D ATED 20/8/2014 WHEREIN IT HAS BEEN HELD THAT ORDER PASSED BY THE ITAT FOR CONFIRMING G.P. AFTER REJECTION OF BOOKS OF ACCOUNTS ON THE BASIS OF VARIOUS DISCREPANCIES FOUND BY THE ASS ESSING OFFICER. IN THE HONBLE COURTS VIEW, THERE IS NO QUESTION OF LAW. EVEN THE ASSESSEE MAY BE 100% EXPORTER WHICH DOES NOT PRECLUD E THE ASSESSING OFFICER FROM ENQUIRING INTO THE GENUINENE SS OF THE PURCHASES. THEREFORE, WE HAVE CONSIDERED VIEW THAT 15% N.P. ON UNVERIFIABLE PURCHASES IS REASONABLE IN THIS CASE. ACCORDINGLY, THE ASSESSEES APPEAL IS PARTLY ALLOWED. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE CASE OF ANUJ KUMAR VARSHNEY AND ANOTHER VS. ITO IN ITA N O. 187/JP/2012, THE DISALLOWANCE OF 15% IS UPHELD IN THE CASES OF M /S. A.K. EXPORTS AND M/S. A.K. JEWELLERS. HENCE, THE GROUND NO. 1 OF THE ASSESSEE APPEAL IS DISMISSED AND GROUND NO. 2 OF THE ASSESSEE APPEAL IS PARTLY ALLOWED. 4.1 IN GROUND NO. 3, THE ASSESSEE IS AGGRIEVED THAT THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE OF RS. 1,35,725/- ON ACC OUNT OF SALARY, RS. 4,42,717/- ON ACCOUNT OF FARES AND RS. 1,27,184 ON ACCOUNT OF TRAVELING EXPENSES IN THE ACCOUNT OF M/S. A.K. JEWELLERS. REV ENUE CLAIMS THAT THE ASSESSEE IS RUNNING TWO PROPRIETARY CONCERNS FROM T HE SAME PLACE. ONE ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 15 WAS CLAIMING DEDUCTION U/S 10B AND THEREFORE, INCOM E FROM THAT UNDERTAKING WAS EXEMPT FROM TAX. AS AGAINST THIS, O THER CONCERN WAS TAXABLE ENTITY WITHOUT CLAIMING ANY DEDUCTION. THE AO OBSERVED THAT THE ASSESSEE CLAIMED MORE EXPENSES IN TAXABLE ENTITY AS COMPARED TO EXEMPT ENTITY AND THEREBY REDUCED THE INCOME OF TAXABLE EN TITY AND INCREASED THE INCOME OF TAX EXEMPT ENTITY. THE AO OBSERVED THAT W HEN BOTH THE CONCERNS ARE OPERATING FROM THE SAME PLACE, COMMON EXPENSES LIKE SALARY, TRAVEL AND MARKETING EXPENSES WILL HAVE TO BE APPORTIONED ON THE BASIS OF TURNOVER. THE OBSERVATION OF THE AO IS THA T THESE EXPENSES ARE COMMON AND THEIR APPORTIONMENT HAS TO BE BASED ON S OME CRITERIA. THE ASSESSEE CANNOT BOOK SOME EXPENSES IN EXPORT ENTITY AND REMAINING EXPENSES IN DOMESTIC ENTITY WITHOUT ANY BASIS. THE ASSESSEE DID NOT SUBMIT ANY EVIDENCE THAT THESE EXPENSES WERE MORE I N DOMESTIC ENTITY AS COMPARED TO EXPORT ENTITY. THE AO FURTHER OBSERVED THAT THE ASSESSEE DID NOT CLAIM COMMON EXPENSES ON PROPER BASIS. HENCE, T HE AO DISALLOWED THE EXPENSES OF RS. 1,35,725/- IN THE A/C OF STAFF SALARY, RS. 4,42,71/- IN THE ACCOUNT OF FARES EXPENSES AND RS. 1,27,814/- IN THE A/C OF TRAVELING EXPENSES WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A) . 4.2 NOW THE LD. AR OF THE ASSESSEE IS BEFORE ME PRA YING THAT THE SAME SHOULD BE DELETED. THE ASSESSEE HAS FILED THE FOLLO WING WRITTEN ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 16 SUBMISSION THAT DISALLOWANCES HAVE BEEN SIMPLY MADE ON THE BASIS OF SURMISE AND CONJECTURES. GROUND OF APPEAL NO.3- UNLAWFUL DISALLOWANCE OF RS.135725/- ON ACCOUNT OF SALARY OF RS.442717/- ON ACCOUNT OF FARES AND OF RS.1,27,184/- ON ACCOUNT OF TRAVELLING EXPENSES IN THE BOOKS OF M/S A.K. JEWELLERS- LD AO HAS MADE THESE DISALLOWANCES IN THE BOOKS OF M/S A.K. JEWELLERS ON THE LOGIC THAT THESE EXPENSES ARE MORE IN THE TAXABLE UNIT I.E M/S A.K. JEWELLERS IN COMPARISON T O TAX FREE UNIT I.E. M/S A.K. EXPORTS. IT IS ON RECORD ALL THE EXPENSES ARE VOUCHED AND AS SESSEE HAS PRODUCED ALL THE NECESSARY SUPPORTING. NO SUCH DISALLOWANCE WAS MADE IN PAST. IN FACT THE ASSESSEE HAS TO MAKE MORE EFFORTS IN M/S A.K. JEWELLERS TO INCREASE THE SALES & TO OPEN A NEW AREA OF BUSINESS. SEPARATE BOOKS OF ACCOUNTS HAVE BEEN MAIN TAINED FOR BOTH THE UNITS/FIRMS ALL THE VOUCHERS HAVE BEEN MAI NTAINED AND SUPPORTING HAS BEEN PRODUCED. SALES HAVE ALSO BEEN INCREASED DURING THE YEAR FROM RS 3305680/- TO RS 5518381/-. LD CIT(A) CONFIRMED THE DISALLOWANCE. IT IS SUBMITT ED THAT LD LOWER AUTHORITIES IGNORED THE FACT THAT TURNOVER OF A.K. EXPORT HAS DECREASED TO RS 2.54 CRORE FROM RS 3.04 CRORE A ND TURNOVER OF M/S A.K. JEWELLERS HAS INCREASED . IT IS ALSO IMPOR TANT TO SUBMIT THAT M/S A.K. JEWELLERS IS ALSO TOTALLY ENGAGED IN EXPORT DURING THE YEAR. BOTH THE UNITS HAVE SEPARATE SET OF BOOKS OF ACCOUN TS. BOTH UNITS HAVE BEEN AUDITED SEPARATELY. NO DEFECT IN T HE VOUCHERS HAVE BEEN FOUND. DISALLOWANCE HAS BEEN MADE SIMPLY ON TH E BASIS OF SURMISES & CONJECTURES. 4.3 THE LD. DR RELIED ON THE ORDERS OF THE AUTHORIT IES BELOW. ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 17 4.4 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE DISPUTE OF THE ISSUE IS TH AT THE ASSESSEE HAS NOT MADE PROPER APPORTIONMENT OF THE EXPENSES AS THE AS SESSEE IS RUNNING TWO FIRMS NAMELY M/S. A.K. EXPORTS AND M/S. A.K. JEWELL ERS. REVENUE CLAIMS THAT BOTH CONCERNS WERE RUNNING FROM SAME PREMISES BUT LD. AR SUBMITTED THAT THIS IS NOT TRUE. HE DREW OUR ATTENT ION TOWARDS THE AUDITED A/CS AND ADDRESS OF THE CONCERNS. THUS TO ARRIVE AT CURRENT FACTUAL POSITION AND CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCU MSTANCES OF THE CASE, THE ISSUE IN QUESTION IS RESTORED TO THE FILE OF THE AO TO DECIDE IT AFRESH IN ACCORDANCE WITH LAW AND BY PROVIDING REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IS DIRECTED TO PRODUCE THE RELEVANT RECORDS AS REQUIRED BY THE AO TO THIS EFFECT. THUS GROUND NO. 3 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5.1 THE GROUND NO. 4 OF THE ASSESSEE IS THAT THE LD . CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 3,21,333/- ON AC COUNT OF INTEREST PAYMENT. BRIEF FACTS OF THIS GROUND IS THAT THE ASS ESSEE HAD CLAIMED THE INTEREST EXPENSES OF RS. 3,21,333/-UNDER THE HEAD I NCOME FROM OTHER SOURCES AND AGAINST THE SAME ASSESSEE HAS CLAIMED T HE INTEREST PAID AMOUNTING TO RS. 3,21,333/-. THE AO ASKED ASSESSEE TO SUBMIT THE CORRELATION BETWEEN THE BORROWED FUND AND SAME HAS BEEN UTILIZED TO EARN THE INTEREST INCOME. THE AO OBSERVED THAT THE ASSES SEE HAD SUBMITTED TWO ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 18 LONEE (PROVIDER OF FUND) I.E. MANORAMA MITTAL AND GOVERDHANDAS NANDKISHORE ACCOUNT LEDGER COPY FROM WHICH ASSESSEE HAD RECEIVED THE UNSECURED LOAN OF RS. 20.00 LACS AS ON 28-12-2006 ( MANORAMA MITTAL) AND RS. 1.00 LAC AS ON 07-07-2006 (GOVERDHANDAS NAN DKISHORE) BUT THE ASSESSEE HAD FAILED TO PROVE THE NEXUS OF UTILIZATI ON BETWEEN THE BORROWED FUND AND SAME FUND HAD BEEN UTILIZED TO EARN THE IN TEREST INCOME. HENCE, THE AO DISALLOWED THE INTEREST PAID OF RS. 3,21,333 /- CLAMED AGAINST INCOME FROM OTHER SOURCES WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A). 5.2 NOW THE LD. AR OF THE ASSESSEE IS BEFORE ME PRA YING THAT THE SAME SHOULD BE DELETED. THE ASSESSEE HAS FILED THE FOLLO WING WRITTEN SUBMISSION TO THIS EFFECT. GROUND OF APPEAL NO.4- UNLAWFUL DISALLOWANCE OF R S.3,21,333/- ON ACCOUNT OF INTEREST PAYMENT- IT IS ON THE RECORD AND LD AO HIMSELF HAS ACCEPTED THAT THE ASSESSEE HAS SHOWN THE INTEREST INCOME OF RS.3,21,333. ACTU AL PAYMENT WAS OF RS.9,66,861/- AND THE ASSESSEE HIMSELF HAS DISALLOW ED PAYMENT OF INTEREST TO THE EXTENT OF RS.6,45,528/- AND HAS CLAIMED INTERES T PAYMENT OF RS 3,21,333/-. IT IS NOT UNDERSTANDABLE THAT WHAT NEXUS IS REQUIR ED IN THIS CASE. IT IS NOT THE CASE OF THE LD AO THAT THE ASSESSEE HAS PAI D INTEREST ON THE BORROWED FUNDS WHICH WERE USED FOR GIVING ADVANCES WITHOUT C HARGING INTEREST. WE THEREFORE SUBMIT THAT THE DISALLOWANCE MADE BY T HE LD AO IS UNLAWFUL. ASSESSEE HAS MADE THE INTEREST PAYMENT OF RS.9,66,861/- DURING THE YEAR BUT RESTRICTED THE DEDUCTION TO THE EXTENT OF INCOME I.E. RS.3,21,333/-. 5.3 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT EMERGES FROM THE RECORD THA T THE ASSESSEE HAD SHOWN INTEREST INCOME OF RS. 3,21,333/-. THE ACTUAL PAYMENT OF INTEREST ITA NO. 197/JP/2014 SHRI ANIL KUMAR GARG VS. . ITO, WARD- 5 (1), JAIPUR . 19 WAS OF RS. 9,66,861/- IN WHICH THE ASSESSEE ITSELF DISALLOWED THE PAYMENT OF INTEREST TO THE EXTENT OF RS. 6,45,528/-. THUS T HE ASSESSEE HAS CLAIMED INTEREST PAYMENT OF RS. 3,21,333/-. THE ASSESSEE SU BMITTED THAT THE ASSESSEE HAS PAID INTEREST PAYMENT OF RS. 9,66,861/ - DURING THE YEAR AND HAS RESTRICTED IT TO THE TUNE OF RS. 3,21,333/-. I FEEL CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 3,21,333/- IS NOT JUSTIF IED. HENCE, THE GROUND NO. 4 OF THE ASSESSEE IS ALLOWED. 6.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 04 /08/2016 SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 04 /08/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI ANIL KUMAR GARG, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, WARD- 5 (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. 197/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR