ACIT, Jaipur V. M/S SAMBHAV GEMS LTD., Jaipur

ITA 220/JPR/2012

• Counselvise Citation: 22023114 RSA 2012
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 06-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: G G MUNDRA
• Keywords: Rejection of books of accounts; Opportunity of being heard

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. ME ENA) ITA NO. 220/JP/2012 ASSESSMENT YEAR : 2008-09 PAN : AAFCS 3365 L THE ACIT VS. M/S. SAMBHAV GEMS LTD. CIRCLE- 5 F-64, GEMS & JEWELLERY ZONE, JAIPUR EPIP SITAPURA INDUSTRIAL AREA, JAIPUR (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI D.C. SHARMA ASSESSEE BY : SHRI G.G. MUNDRA DATE OF HEARING: 14-08-2014 DATE OF PRONOUNCEMENT: 28 -08-2014 ORDER PER T.R. MEENA, AM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST T HE ORDER OF THE LD. CIT (A)-II, JAIPUR DATED 12-12-2011 FOR THE ASSE SSMENT YEAR 2008-09 WHEREIN THE REVENUE HAS RAISED THE SOLITARY GROUND AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN:- (I) DELETING TRADING ADDITION OF RS. 89,36,730/- MA DE BY THE AO HOLDING THAT THERE WAS NO CASE FOR REJECT ION OF BOOKS OF ACCOUNT WITHOUT APPRECIATING THAT NEITHER QUANT ITATIVE AND QUALITATIVE DETAILS OF STOCK WERE MAINTAINED NOR DA Y-TO-DAY STOCK REGISTER OF RAW MATERIAL CONSUMED WAS KEPT WH ICH CONSTITUTED DEFECT IN BOOKS OF ACCOUNTS. 2 2.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE DERIVES INCOME FROM MANUFACTURING AND EXPORT OF GEMS, STONES AND JEWELL ERY ETC. THE AO OBSERVED THAT THE ASSESSEE HAD NOT MAINTAINED ANY D AY-TO-DAY QUANTITATIVE AND QUALITIATIVE DETAILS PERTAINING TO VARIOUS ITEM S PURCHASED AND SOLD, OPENING STOCK, CLOSING STOCK ETC. IN THE ABSENCE OF THESE DETAILS, IT WAS NOT POSSIBLE FOR THE AO TO VERIFY THE VERACITY OF TRADI NG ACCOUNT BECAUSE IT COULD NOT BE FOUND OUT WHETHER A PARTICULAR ITEM PURCHASE D DURING THE YEAR REMAINED IN THE CLOSING STOCK OR IT WAS SOLD OUT. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS ADMITTED BY THE ASSE SSEE THAT IT HAD NOT MAINTAINED DAY-TO-DAY PRODUCTION REGISTER OR STOCK REGISTER OR QUANTITATIVE DETAILS ETC. FOR EACH OF THE ITEMS. THE AUDITOR HAD ALSO MADE REMARKS IN THE AUDIT REPORT IN FORM NO. 3CD IN THIS REGARD. THE AO GAVE THE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHICH WA S AVAILED BY THE ASSESSEE VIDE LETTER DATED 29-09-2010. THE ASSESSEE HAS FILE D ITS REPLY BEFORE THE AO WHO HAS REPRODUCED THE REPLY OF THE ASSESSEE VIDE P ARA 3.6 OF HIS ORDER. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, IT HAS BEEN NOTICED BY THE AO THAT GROSS PROFIT RATE OF 20% WAS APPLIED IN THE AS SESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS MAINLY IN THE GROUND THERE WERE UN VERIFIABLE PURCHASES FROM CERTAIN BOGUS PARTIES. THE AO ALSO FOUND THAT THERE WAS A SIGNIFICANT CHANGE IN THE PRODUCT-MIX OF THE SALES FROM THE FIN ANCIAL YEAR 2002-03 TO 3 2008-09 AND THE PERCENTAGE OF SALE OF JEWELLERY WA S AT 74.86% DURING THE YEAR UNDER CONSIDERATION. THE AO CONSIDERED THE DOL LAR PRICE FLUCTUATION FOR JUDGING THE ASSESSEE'S TRADING RESULT BUT THE ASSES SEE HAS NOT MAINTAINED ITEMWISE, COLOUR AND SIZE-WISE DAY-TO-DAY STOCK REG ISTER. THUS THE AO REJECTED THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT AND APPLIED THE GROSS PROFIT RATE OF 18% ON DECLARED SALES OF RS. 27,40,9 8,156/- AND MADE A TRADING ADDITION OF RS. 89,36,730/-. 2.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CIT(A) WHO DELETED THE ADDITION MADE BY THE AO BY OBSERVIN G AS UNDER:- 3. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE AP PELLANT. IT IS SEEN THAT IN THE APPELLANT OWN CASE FOR AY 2005- 06, THE CIT(A) HAD APPLIED GP OF 11% HOWEVER THE ORDER OF CIT(A) W AS REVERSED BY THE HON'BLE TRIBUNAL VIDE ITS ORDER ITA NO.128/J P/2008 DATED 31.12.2008 AND THE DECLARED RESULTS WERE ACCEPTED. IN AY 2006-07, THE CIT(A) HIMSELF ACCEPTED THE DECLARED RESULTS I. E. GP OF 11.09% AND APPEAL OF THE DEPARTMENT WAS DISMISSED BY HON'B LE ITAT, JAIPUR VIDE ITS ORDER ITA NO. 94/JP/2010 DATED 29.10.2010. IN AY 2007-08, THE CIT(A) HIMSELF ACCEPTED THE DECLARED RESULTS I. E. GP OF 12.77% AND APPEAL OF THE DEPARTMENT WAS DISMISSED BY HON'B LE ITAT, JAIPUR VIDE ITS ORDER ITA NO. 1296/JP/2010 DATED 11.02.201 1. IN THE YEAR UNDER REFERENCE, THE APPELLANT HAS SHOWN GP OF 14.7 4% WHICH IS BETTER THAN THE DECLARED GP OF 12.77% IN AY 2007-08 AND GP OF 11.09% IN AY 2008-09. THE OBSERVATIONS OF HON'BLE JAIPUR TRIBUNAL IN PARA 2.3 OF ITS ORDER (ITA NO 1296/JP /2010 DATED 11.02.2011) FOR AY 2007-08 ARE REPRODUCED AS UNDER: - 'WE HAVE HEARD BOTH THE PARTIES. THE TRIBUNAL VIDE ORDER DATED 29.10.2010 IN THE CASE OF THE ASSESSEE FOR TH E ASSESSMENT YEAR 2006-07 DELETED THE TRADING ADDITION AFTER CONSIDER ING THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESS EE FOR THE EARLIER YEARS. THE RELEVANT PORTION FROM THE ORDER OF THE TRIBUNAL DATED 29.10.2010 IS REPRODUCED AS UNDER:- 4 THE FACTS OF THE CASE ARE THAT THE AO APPLIED GRO SS PROFIT RATE OF 20% AS APPLIED BY HIM IN ASSESSMENT YEAR 2005-06 AND IN THAT ASSESSMENT YEAR , THE SAID GROSS PROFIT RATE WAS AP PLIED ON THE BASIS OF ASSESSMENT YEARS 2002-03 TO 2004-05. IN ALL THE ASS ESSMENT YEARS I.E. ASSESSMENT YEAR 2002-03 TO ASSESSMENT YEAR 2005-06, THE SAID GROSS PROFIT RATE OF 20% WAS NOT UPHELD EITHER BY LD. CIT (A) NOR BY THIS BENCH. THIS IS VERIFIABLE FROM THE FOLLOWING CHART A.Y. TURNOVER GROSS PROFIT %AGE REMARK 2002-03 22,60,38,793 1,02,89,189 4.55% DECLARED RES ULTS ACCEPTED BY ITAT 2003-04 25,06,73,258 1,56,81,901 6.26% CIT (A) APPL IED 7.5% ITAT ACCEPTED DECLARE4D RESULTS 2004-05 23,09,71,249 1,67,38,406 7.25% CIT (A) APPL IED 7.5% ITAT ACCEPTED RESULTS IN APPLICATION OF GROSS PROFIT RATE OF 7.5% O URD PURCHASES OF RS. 27,65,532/- 2005-06 21,67,71,915 2,29,71,429 10.60% CIT (A) AP PLIED 11% ITAT ACCEPTED DECLARED RESULTS 2006-07 27,69,23,564 3,05,96,845 11.09% CIT (A) ACC EPTED DECLARED RESULTS UNDER APPEAL BEFORE ITAT FROM THE ABOVE CHART, IT IS APPARENT THAT IN THE YE AR UNDER CONSIDERATION, THE ASSESSEE HAS DECLARED BETTER GROSS PROFIT RATE IN COMPARISON TO THE PRECEDING YEARS. IT IS SETTLED LAW THAT WHILE COMPA RING THE DECLARED RESULTS, THE PAST HISTORY IS THE BEST GUIDE AND PARTICULARLY THAT OF IMMEDIATELY PRECEDING YEAR. THOUGH THE LD CIT(A) HAS UPHELD THE ACTION OF THE AO BY REJECTING THE BOOKS OF ACCOUNT BY INVOKING THE PROV ISIONS OF SECTION 145(3) OF THE ACT YET IT IS NOT NECESSARY TO MAKE ANY ADDITIO N IN EACH AND EVERY CASE AFTER REJECTING THE BOOKS OF ACCOUNT AS HELD BY JUR ISDICTIONAL HIGH COURT IN THE CASE OF CIT VS GOTAN LIME KHANIJ UDYOG (256 ITR 243) (RAJ.). THUS IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD CITA(A). HENCE, GROUND NO. 2 OF THE REVENUE IS DISMISSED. WE HAVE ALSO NOTICED THAT THE TRIBUNAL HAS ACCEPTED TH E TRADING RESULTS OF THE ASSESSMENT YEAR 2004-05 THROUGH THERE WERE PURCHASE S FROM UNREGISTERED DEALERS. IT IS TRUE THAT THERE ARE NON-VERIFIABLE P URCHASES AND THEREFORE, THE 5 PROVISIONS OF SECTION 145(3) ARE APPLICABLE. BUT LO OKING TO THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE EARLIE R YEARS, WE UPHOLD THE TRADING RESULTS DECLARED BY THE ASSESSEE. IN THE RE SULTS, THE APPEAL OF THE REVENUE IS DISMISSED. 3.1 THE OBSERVATIONS OF HON'BLE JAIPUR TRIBUNA L IN PARA 6 AND 7 OF ITS ORDER (ITA NO 94/JP/2010 DATED 29.10.2010) FOR AY 2006-07 ARE REPRODUCED AS UNDER: 'THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD CIT(A) HAS ERRED IN DELETING THE TRADING ADDITION O F RS 2,06,01,115/- THOUGH CONFIRMING THE REJECTION OF BO OKS OF ACCOUNT WITHOUT APPRECIATING THE FACTS THAT VARIOUS DEFECTS WERE NOTICED IN THE BOOKS OF ACCOUNT. THE FACTS OF THE CASE ARE THAT THE AO APPLIED THE GROSS PROFIT RATE OF 20% AS APPLIED BY HIM IN ASSESSMENT YEAR 2005-06 AND IN THAT ASSESSME NT YEAR, THE SAID GROSS PROFIT RATE WAS APPLIED ON THE BASIS OF ASSESSMENT YEARS 2002-03 TO 2004-05. IN ALL THE ASS ESSMENT YEARS I.E. ASSESSMENT YEAR 2002-03 TO ASSESSMENT YE AR 2005-06, THE SAID GROSS PROFIT OF 20% WAS NOT UPHELD EITHER BY ID CIT(A) NOR BY THIS BENCH. THIS IS VERIFIABLE FROM THE FOLL OWING CHART. A.Y. TURNOVER GROSS PROFIT %AGE REMARK 2002-03 22,60,38,793 1,02,89,189 4.55% DECLARED RES ULTS ACCEPTED BY ITAT 2003-04 25,06,73,258 1,56,81,901 6.26% CIT (A) APPL IED 7.5% ITAT ACCEPTED DECLARED RESULTS 2004-05 23,09,71,249 1,67,38,406 7.25% CIT (A) APPL IED 7.5% ITAT ACCEPTED RESULTS IN APPLICATION OF GROSS PROFIT RATE OF 7.5% O URD PURCHASES OF RS. 27,65,532/- 2005-06 21,67,71,915 2,29,71,429 10.60% CIT (A) AP PLIED 11% ITAT ACCEPTED DECLARED RESULTS 2006-07 27,69,23,564 3,05,96,845 11.09% CIT (A) ACC EPTED DECLARED RESULTS UNDER APPEAL BEFORE ITAT 6 FROM THE ABOVE CHART, IT IS APPARENT THAT IN THE YE AR UNDER CONSIDERATION, THE ASSESSEE HAS DECLARED BETTER GROSS PROFIT RATE IN C OMPARISON TO THE PRECEDING YEARS. IT IS SETTLED LAW THAT WHILE COMPARING THE D ECLARED RESULTS, THE PAST HISTORY IS THE BEST GUIDE AND PARTICULARLY THAT OF IMMEDIATEL Y PRECEDING YEAR. THOUGH THE LD. CIT(A) HAS UPHELD THE ACTION OF THE AO BY REJECTING THE BOOKS OF ACCOUNT BY INVOKING THE PROVISION OF SECTION 145(3) OF THE ACT YET IT IS NOT NECESSARY TO MAKE ANY ADDITION IN EACH AND EVERY CASE AFTER REJECTING THE BOOKS OF ACCOUNT AS HELD BY JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GO TAN LIME KHANIJ UDYOG (256 ITR 243) (RAJ.). THUS IN VIEW OF THE FACTS AND CIRC UMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). HENCE, GR OUND NO. 2 OF THE REVENUE IS DISMISSED. 3.2 ON PERUSAL OF THE ASSESSMENT ORDER, I FIND THAT THE AO HAS MADE CERTAIN THEORETICAL OBSERVATIONS FOR REJECTING THE BOOKS OF ACCOUNT. THE AO HAS FAILED TO PIN POINT ANY MATERIA L DEFECT IN THE BOOKS OF ACCOUNT. THE SALES AND PURCHASES OF THE AP PELLANT HAVE BEEN ACCEPTED AS GENUINE. THE GRIEVANCE OF THE AO H INGES AROUND THE WASTAGE AND YIELD SHOWN BY THE APPELLANT. HOWEV ER THE BOOKS OF THE ACCOUNT WERE AUDITED AND THERE COULD NOT BE ANY STANDARD RATE OF YIELD FOR FINISHED GOODS OR WASTAGE IN THE MANUFACTURING. SIMILARLY THE PERCENTAGE OF WASTAGE/REJECTION WOULD ALSO DEPEND ON THE QUALITY OF RAW MATERIAL. IN THE CASE OF CIT VS OM OVERSEAS (315 ITR 185), THE ADDITION WAS MADE BY TH E ASSESSING OFFICER WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER HAD REJECTED THE BOO KS OF ACCOUNT ONLY ON THE GROUND THAT THE ASSESSEE HAD NOT BEEN A BLE TO KEEP RECORDS OF RAW MATERIAL CONSUMED IN RESPECT OF EACH AND EVERY ITEM PRODUCED BY THE ASSESSEE. THE ASSESSING OFFICE R HAD REJECTED WITHOUT ANY JUSTIFICATION THE EXPLANATION OF THE AP PELLANT THAT CONSUMPTION OF RAW MATERIALS FOR EACH OF THE PRODUC TS COULD NOT BE RECONCILED IN THE CASE OF THE ASSESSEE BECAUSE T HE PRODUCT PATTERN WAS LARGE ARID ITEMS OF DIFFERENT DESIGNS A ND SIZES WERE PRODUCED BY THE ASSESSEE. IT WAS HELD BY HON'BLE PU NJAB & HARYANA HIGH COURT THAT THERE WAS NO LEGAL OBLIGATI ON ON THE PART OF THE ASSESSEE TO MAINTAIN SUCH A RECORD AND THE A UDITED ACCOUNTS COULD NOT HAVE BEEN REJECTED WITHOUT POINT ING OUT ANY SPECIFIC DEFECT OR DEFICIENCIES IN THE BOOKS OF ACC OUNT MAINTAINED BY THE ASSESSEE. THERE IS NO DISPUTE TO THE WELL SE TTLED LEGAL PROPOSITION THAT THE BOOKS OF ACCOUNT REGULARLY MAI NTAINED BY THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS, WHICH AR E SUBJECT TO AUDIT AS PER THE PROVISIONS OF IT ACT SHOULD BE TAK EN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO I NDICATE THAT THEY ARE UNRELIABLE. FURTHER THE GP OF 14.74% DECLARED I N THE CURRENT YEAR WAS FAR BETTER THAN THE GP OF 12.77% IN THE IMMEDIA TELY PRECEDING YEAR. IN THE PRESENT CASE, EVEN AFTER REJECTION OF BOOKS OF ACCOUNTS, THE 7 AO HAD RESORTED TO ADHOC GP RATE OF 18% THEREFORE T HE TRADING ADDITION WAS NOT BACKED UP ANY COGENT MATERIAL. THE AO HAD NOT CITED ANY COMPARABLE CASE TO APPLY THE PARTICULAR G P RATE. RELIANCE IS PLACED ON DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KACHWALA GEMS (288 ITR 10) FOR THE PROPOSITION THAT AO WHILE MAKING ASSESSMENT SHOULD MAKE AN HONEST AND FAIR ES TIMATE OF INCOME EVEN IN THE BEST JUDGMENT ASSESSMENT AND SHO ULD NOT ACT TOTALLY ARBITRARILY. FURTHER THE AO HAD WRONGLY TAK EN THE DECLARED SALES AT RS 27,40,98,155/- INSTEAD OF RS 27,23,91,7 67/-. FOLLOWING THE PAST HISTORY AND THE APPELLATE ORDERS OF ITAT FOR E ARLIER YEARS, I ACCORDINGLY DIRECT THE AO TO DELETE THE TRADING ADD ITION OF RS 89,36,730/- MADE BY HIM. THIS GROUND OF APPEAL IS ALLOWED . 2.3 NOW THE REVENUE IS BEFORE US AGAINST THE ORDER OF THE LD. CIT(A) AND THE LD. DR SUPPORTED THE ORDER OF THE AO. 2.4 AT THE OUTSET, THE LD. AR RELIED ON THE ORDER O F THE LD. CIT(A) AND ARGUED THAT THE ASSESSEE'S CASE IN ASSESSMENT YEAR WAS BEFORE ITAT WHICH HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE IT S ORDER DATED 29-10-2010 IN ITA NO. 94/JP/2010 FOR THE ASSESSMENT YEAR 2006- 007 AND FOR ASSESSMENT YEAR 2007-08, IT WAS ALSO DECIDED IN FAVOUR OF THE ASSESSEE BY ITAT VIDE ITS ORDER DATED 11-02-2011 IN ITA NO. 1296/JP/2010. THU S THE LD. AR OF THE ASSESSEE PRAYED TO CONFIRM THE ORDER OF THE LD. CIT (A). 2.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. DURING THE COURSE OF HEARING, THE LD. DR COULD NOT CONTROVERT THE FINDINGS OF THE LD. CIT(A) IN ASSESS EES CASE AND IN THE PAST ALSO THE CASES OF THE ASSESSEE ON THIS ISSUE WERE D ECIDED IN FAVOUR OF THE ASSESSEE. THUS IN VIEW OF THE ABOVE FACTS AND CIRCU MSTANCES OF THE CASE, WE DO NOT FIND ANY REASON TO DEVIATE FROM THE DECISION S GIVEN BY THE COORDINATE 8 BENCH IN THE CASE OF THE ASSESSEE. THEREFORE, WE CO NFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 3.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED . THE ORDER PRONOUNCED IN OPEN COURT ON 28 -08-201 4 SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED: 28 TH AUG, 2014 *MISHRA COPY FORWARDED TO:- 1. THE ACIT, CIRCLE- 5,JAIPUR 2. M/S. SAMBHAV GEMS LTD., JAIPUR BY ORDER 3. THE LD. CIT 4. THE LD. CIT(A), JAIPUR 5..THE LD. DR 6.THE GUARD FILE (IT NO. 220/JP/2012) A.R. , ITAT JAIPUR 9