SHRI ANIL KUMAR GARG, Jaipur V. INCOME TAX OFFICER, WARD-5-1, Jaipur

ITA 339/JPR/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3298 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 13-03-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MONISHA CHAUDHORY CIT A
• Keywords: Bogus purchase; Rejection of books of accounts; Depreciation; Accommodation entries
• Section: 145(3); 131

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,A JAIPUR JH LAANHI XKSLKBZ] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 339/JP/2019 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2012-13 SHRI ANIL KUMAR GARG 60, RAJMAL KA TALAB, CHANDI KI TAKSAL, 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 L S@ ASSESSEE BY : SHRI VEDANT AGARWAL (ADV.) JKTLO DH VKSJ LS @ REVENUE BY : SMT. MONISHA CHAUDHORY (ADDL.CIT) A LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 13/10/2021 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 21/10/2021 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)-1, JODHPUR (CAMP AT JAIPUR) DATED 18.12.2018 PERTAINING TO ASSESSMENT YEAR 2012-13 WHEREIN THE ASSESSEE HAS TA KEN THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE, LD. A O GROSSLY ERRED IN REJECTING THE BOOKS OF ACCOUNTS BY INVOKIN G THE PROVISIONS OF SECTION 145(3) OF THE ACT. 2. ON THE FACTS & CIRCUMSTANCES OF THE CASE, LD. LO WER AUTHORITIES GROSSLY ERRED IN MAKING AND CONFIRMING ADDITION OF RS. ITA NO. 339/JP/2019 SHRI ANIL KUMAR GARG VS. ITO 2 90,785/- BY UNLAWFULLY DECLARING THE PURCHASES OF R S. 3,63,139/- AS BOGUS PURCHASES & APPLYING 25% OF PROFIT THEREON . 3. ON THE FACTS & CIRCUMSTANCES OF THE CASE LD. LOW ER AUTHORITIES GROSSLY ERRED IN MAKING AND CONFIRMING LUMP SUM DIS ALLOWANCE OF RS. 20,000/- OUT OF CERTAIN EXPENDITURES. 2. IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED THE REJECTING OF BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECT ION 145(3) OF THE ACT. DURING THE COURSE OF HEARING, THE LD. AR OF TH E ASSESSEE HAS NOT PRESSED THE GROUND NO. 1. HENCE, THE SAME IS DISMIS SED AS NOT PRESSED. 3. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF ADDITION OF RS. 90,785/- BY DECLARING PURCHASES OF RS. 3,63,139/- AS BOGUS PURCHASES AND APPLYING 25% PROFIT THEREON. 4. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G AND EXPORT OF GEMS AND JEWELLERY IN THE NAME OF M/S A.K. EXPORTS. DURING THE YEAR UNDER CONSIDERATION, ON A TOTAL TURNOVER OF RS. 1,3 8,49,375/-, THE ASSESSEE HAS SHOWN GROSS PROFIT OF RS. 34,34,282/- WHICH GIVES A G.P @ 24.80%. IT WAS SUBMITTED THAT ALL THE PURCHASES AR E GENUINE AND BILLS OF PURCHASES CONTAINING TIN NO. AND PAN NO. WERE DU LLY SUBMITTED BEFORE THE ASSESSING OFFICER AND THE SAME HAVE BEEN INCORPORATED IN THE STOCK REGISTER AND HAVE BEEN USED FOR MANUFACTU RING JEWELLERY. THE PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQU E AND FURTHER, THE SALES HAVE NOT BEEN DISPUTED BY THE ASSESSING O FFICER. IT WAS ITA NO. 339/JP/2019 SHRI ANIL KUMAR GARG VS. ITO 3 ACCORDINGLY, SUBMITTED THAT THERE IS NO BASIS FOR T HE AO TO TREAT THE PURCHASES AS BOGUS AND DISALLOW 25% OF THE SAID PUR CHASES. 5. PER CONTRA, THE LD. DR SUBMITTED THAT IT IS NO D OUBT THROUGH THAT THE ASSESSEE HAS MADE PURCHASES FROM M/S RED ROSE E NTERPRISES, HOWEVER IN ORDER TO VERIFY THE SAID PURCHASES, SUMM ONS U/S 131 WERE ISSUED WHICH WERE RETURN UNSERVED WITH THE REPORT T HAT THE SAID CONCERN WAS NOT FOUND AT THE GIVEN ADDRESS. IT WAS ACCORDIN GLY SUBMITTED THAT THE MERE FACTS THAT THE PAYMENT HAS BEEN MADE BY TH E ACCOUNT PAYEE CHEQUE DOES NOT PROVE THAT THE ASSESSEE HAS PROVED THE GENUINENESS OF THE PURCHASES SO MADE BY IT. IT WAS ACCORDINGLY SUBMITTED THAT THE AO DISALLOWED 25% OF THE BOGUS PURCHASES WHICH IS A PPROXIMATELY EQUALLY TO THE G.P. SHOWN BY THE ASSESSEE AND THE S AME HAS RIGHTLY BEEN CONFIRMED BY THE LD. CIT(A) AND THEREFORE, THE SAID ORDER SHOULD BE CONFIRMED. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSING OFF ICER HAS REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SEC TION 145(3) AND THE SAME ARE NOT UNDER DISPUTE BEFORE US. THEREFORE, W HERE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED, THE APPROPRIATE COURSE OF ACTION FOR THE AO IS TO ESTIMATE THE GROSS PROFIT IN THE HANDS OF THE ASSESSEE ON SOME REASONABLE BASIS AND IN THIS REGARD, THE PAST HISTO RY HAS BEEN STATED TO PROVIDE RELIABLE AND REASONABLE BASIS FOR ESTIMATIN G GROSS PROFIT IN THE HANDS OF THE ASSESSEE. IN THIS REGARD, REFERENCE C AN BE DRAWN TO THE ITA NO. 339/JP/2019 SHRI ANIL KUMAR GARG VS. ITO 4 DECISION OF THE COORDINATE BENCH IN CASE OF ACIT VS . M/S ALLIED GEMS CORPORATION (794/JP/11, 795/JP/2011 AND 716/JP/2012 DATED 15.12.2017) WHEREIN IT WAS HELD THAT WHERE THE BOOKS OF ACCOU NTS HAVE BEEN REJECTED, THE LD. CIT(A) WAS CORRECT IN R ESTRICTING THE ADDITION TO THE AVERAGE G.P RATE BASED ON THE PAST HISTORY A ND THE RELEVANT FINDINGS READ AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 145(3 ). THE ISSUE OF REJECTION OF BOOKS OF ACCOUNTS IS INVOLVED IN THE C ROSS OBJECTION FILED BY THE ASSESSEE, THEREFORE, WE DEAL WITH THIS ISSUE WHILE DECIDING THE CROSS OBJECTION. ONCE, THE BOOKS OF AC COUNTS ARE REJECTED BY THE AO THE ONLY COURSE OF ACTION LEFT T O THE AO IS TO ASSESS THE INCOME OF THE ASSESSEE ON THE BASIS OF B EST JUDGMENT AND GP RATE IS CONSIDERED AS PROPER AND REASONABLE BASIS AND GUIDANCE FOR THE BEST JUDGMENT. ONCE, THE BOOKS RES ULT ARE REJECTED THE ASSESSING OFFICER CANNOT PROCEED TO MA KE AN ADDITION TO THE INCOME OFFERED BY THE ASSESSEE AS PER BOOKS RESULT. HOWEVER, THE AO IN THE CASE OF THE ASSESSEE INSTEAD OF APPLYING THE GP RATE MADE ON ADDITION@ 25% OF THE PURCHASES TO THE BOOK RESULTS. THIS ACT OF THE ASSESSING OFFICER ITSELF C ONTRADICTS THE DECISION OF REJECTING THE BOOKS OF ACCOUNTS AND BOO KS RESULT. THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 HAS CONSIDERED THIS ISSUE AND UPHELD THE ORDER OF T HE LD. CIT(A) IN PARA 2.20 AND 2.30 AS UNDER:- ITA NO. 339/JP/2019 SHRI ANIL KUMAR GARG VS. ITO 5 2.20 HENCE, THERE ARE CERTAIN CONCERNS FOR WHICH R EVENUE GOT EVIDENCE IN THE FORM OF STATEMENT RECORDED IN RESPE CT OF SUCH PARTIES, OPENING BALANCE IS RS. 37,06,175/- WHILE T HE CLOSING BALANCE IS RS. 42,81,496/-. IT MEANS THAT THERE IS AN ACCRETION OF AMOUNT OF RS. 5.75/- LACS. IT MEANS THAT TO THIS EX TENT, ACCRETION ITA NO.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 6 0/JP/12 ACIT VS. M/S ALLIED GEMS CORPORATION 8 IN PURCHASE IS WITHOUT SUPPORTING THE CORRECT BILLS. OF COURSE, TOTAL OPEN TING BALANCE OF ALL PARTIES IS RS. 1,15,43,782/- AND THE CLOSING BA LANCE IS RS. 1,33,36,193/-. HOWEVER, LOOKING TO THE ACCRETION IN THE CLOSING BALANCE OF THE CONCERNS FOR WHICH REVENUE HAS MATER IAL, THE ADDITION CONFIRMED BY THE LD. CIT(A) IS REASONABLE 2.30 THE HONBLE P & H HIGH COURT IN THE CASE OF U PLAKESH METAL INDUSTRIAL V CIT 177 TAXMAN 298 HELD THAT ISSUE DEC IDED BY THIS IS IN THE REALM OF APPRECIATION EVIDENCE. THE FIND OF TRIBUNAL AS MENTIONED IN THIS JUDGMENT IS AS UNDER:- 'HOWEVER, IN OUR OPINION THE OBSERVATION OF THE ASSESSING OFFICER THAT THE A SSESSEE WAS PRIMA FACIE REQUIRED TO PROVE THE GENUINENESS OF TH E TRANSACTION AND IDENTITY OF THE CREDITORS IS NOT MISPLACED BECA USE THERE IS NO DISTINCTION LAID BETWEEN THE TRADE CREDITOR AND THE NON-TRADE CREDITOR AND WE ARE FURTHER OF THE OPINION THAT IN CASE THE ASSESSEE CLAIMS LIABILITY OF PAYMENT TO THE TRADE C REDITORS SHOWN IN THE BALANCE-SHEET, THE ASSESSEE IS DEFINITELY RE QUIRED TO PRIMA FACIE PROVE THE IDENTITY OF THE TRADE CREDITORS AS WELL AS THE GENUINENESS OF THE TRANSACTION. IN THIS CASE, ADMIT TEDLY THE ASSESSEE HAS NEITHER BEEN ABLE TO DISCLOSE THE COMP LETE ITA NO. 339/JP/2019 SHRI ANIL KUMAR GARG VS. ITO 6 ADDRESSES OF THE TRADE CREDITORS NOR IS ABLE TO GIV E THE COMPLETE ADDRESSES OF THE CONSIGNORS NOR THE NAME HAS BEEN M ENTIONED ON THE CHALLAN FORMS, SO THE VERIFICATION OF THE SAME BY THE ASSESSING OFFICER BECAME TOTALLY IMPRACTICABLE ON ACCOUNT OF LACK OF THIS COMPLETE INFORMATION SUPPLIED BY THE ASSESSEE. IT M EANS THAT THE ASSESSEE FAILED IN ESTABLISHING THE GENUINENESS OF THE SO CALLED TRADE CREDITORS APPEARING IN ITS BOOKS OF ACCOUNT. WE ARE FURTHER OF THE OPINION THAT SINCE IN THE INSTANT CASE OF TH E ASSESSEE, THE POINT UNDER CONSIDERATION BEFORE US IS REGARDING TH E GENUINENESS OF THE LIABILITY AMOUNTING TO RS. 1,75,26,586 SHOWN BY THE ASSESSEE IN ITS BALANCE-SHEET AS TRADE CREDITORS, S O IT WAS NOT RELEVANT FOR US TO CONSIDER AS TO WHETHER THE PURCH ASES MADE BY THE ASSESSEE WERE GENUINE OR NOT OR TO WHETHER THE ASSESSEE HAS INFLATED THOSE PURCHASES OR NOT. IT IS ALSO NOT MAT ERIAL TO CONSIDER WHETHER THE GRS FROM SALE-TAX DEPARTMENT WERE VERIF IED OR NOT, SO, THE CIT(A) ON CONSIDERING THESE POINTS WAS NOT JUSTIFIED IN DELETING THE IMPUGNED ADDITION WITHOUT DISCUSSING A S TO WHETHER THE LIABILITY OF TRADE CREDITORS SHOWN BY THE ASSES SEE IN THE ABSENCE OF FURNISHING COMPLETE ADDRESSES OF TRADE CREDITORS/CONSIGNORS AND THE PAYMENT VOUCHERS WAS G ENUINE OR NOT.' WHILE EVALUATING THE MATERIAL COLLECTED BY TH E REVENUE ON THE TOUCH STONE ON HUMAN PROBABILITY AND CONSIDERIN G THE ACCRETION IN THE CLOSING BALANCE IN RESPECT OF PART IES FOR WHICH REVENUE HAS MATERIAL IN THE FORM OF STATEMENT. WE F ELL THAT THE LD. CIT(A) WAS REASONABLE IN CONFIRMING THE ADDITIO N OF RS. 5.00 LACS. HENCE BOTH THE GROUNDS OF ASSESSEE AS WELL AS REVENUE ARE DISMISSED. WE FURTHER NOTED THAT WHEN THE CORRESPO NDING SALE IS ITA NO. 339/JP/2019 SHRI ANIL KUMAR GARG VS. ITO 7 NOT IN DISPUTE THEN THE QUESTION IS ONLY REGARDING THE CORRECT AMOUNT OF PURCHASES AND VERIFICATION OF THE SAME. T HE LD. DR HAS RELIED UPON THE VARIOUS DECISIONS OF HONBLE GUJARA T HIGH COURT HOWEVER, WE FIND THAT IN ALL THOSE DECISIONS THERE WAS A FINDING OF FACTS THAT THE ASSESSEE INFLATED THE PURCHASES UPTO 25% AND THEREFORE, IT WAS NOT A CASE OF NON VERIFICATION OF THE PURCHASE AND REJECTION OF BOOKS OF ACCOUNTS BUT THE FACT WAS ESTABLISHED IN THE INVESTIGATION THAT THE ASSESSEE INFLATED THE PU RCHASE PRICE AND ACCORDINGLY THE ADDITION OF 25% BEING INFLATED PURC HASES WAS MADE AND UPHELD BY THE TRIBUNAL WHICH WAS AGAIN UPH ELD BY THE HONBLE HIGH COURT. ON THE CONTRARY IN THE CASE OF THE ASSESSEE THE AO NOT GIVEN ANY FINDING OF INFLATED PURCHASES BY THE ASSESSEE BUT DOUBTED THE VERY TRANSACTION OF PURCHA SES DUE TO NON PRODUCTION OF THESE PARTIES BEFORE THE AO. THE AO HAS NOT GIVEN THE FINDING THAT THE PRICES OF THE GOODS WAS INFLATED BY THE ASSESSEE BUT THE AO DOUBTED THE GENUINENESS OF THE PURCHASES ON THE GROUND THAT THE SUPPLIERS WERE FOUND TO BE ACCOMMODATION ENTRIES PROVIDERS. WHEN THE AO REJECT ED THE BOOK RESULTS U/S 145(3) OF THE ACT, THEN THE AO AFTER RE JECTION OF THE BOOKS OF ACCOUNT CAN PROCEED TO MAKE THE ASSESSMENT ON THE BASIS OF BEST JUDGMENT INSTEAD OF RESORTING MAKE TH E ADDITION TO THE BOOK RESULTS. ACCORDINGLY, IN THE FACTS AND CIR CUMSTANCES OF THE CASE AND IN VIEW OF THE DECISION OF THIS TRIBUN AL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDERS OF THE LD. CIT(A) IN RESTRICTING THE ADD ITION TO THE AVERAGE GP RATE BASED ON THE PAST HISTORY. HENCE, T HE GROUNDS ITA NO. 339/JP/2019 SHRI ANIL KUMAR GARG VS. ITO 8 RAISED IN THE REVENUE APPEALS ARE REJECTED BEING WI THOUT ANY SUBSTANCE OR MERITS. 7. IN THE INSTANT CASE, THE AVERAGE GROSS PROFIT FO R THE PAST TWO ASSESSMENT YEARS AS AVAILABLE ON RECORD COMES TO 25 .18% AS AGAINST 24.80% DECLARED BY THE ASSESSEE. THEREFORE, THE AD DITION TO THE EXTENT OF DIFFERENTIAL OF 0.38% IS SUSTAINED AND THE REMAI NING ADDITION SUSTAINED BY THE LD CIT(A) IS HEREBY DIRECTED TO BE DELETED. IN THE RESULT, THE GROUND OF APPEAL IS PARTLY ALLOWED. 8. IN GROUND NO. 3, THE ASSESSEE HAS CHALLENGED TH E LUMP SUM DISALLOWANCE OF RS. 20,000/- OUT OF CERTAIN EXPENSE S CLAIMED IN ITS PROFIT/LOSS ACCOUNT. DURING THE COURSE OF HEARING, THE LD. AR SUBMITTED THAT THESE EXPENSES RELATES TO TELEPHONE, MOBILE, V EHICLE RUNNING & MAINTENANCE AND DEPRECIATION ON CAR AND SUBMITTED T HAT ALL THESE EXPENSES WERE REASONABLE AND INCURRED FOR BUSINESS PURPOSES ONLY AND NO SPECIFIC EXPENDITURE HAS BEEN IDENTIFIED BY THE ASSESSING OFFICER WHICH IS NOT RELATED TO THE ASSESSEES BUSINESS. IT WAS ACCORDINGLY SUBMITTED THAT THE DISALLOWANCE SO CONFIRMED BY THE LD. CIT(A) MAY KINDLY BE DELETED. 9. PER CONTRA, THE LD. DR HAS RELIED ON THE LOWER A UTHORITIES AND SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE ASSESSING OFFICER ON PERUSAL OF TAX AUDIT REPORT NO TED THAT THE TAX AUDITOR HAS REPORTED THAT IT IS NOT POSSIBLE TO ID ENTIFY THE PERSONAL ITA NO. 339/JP/2019 SHRI ANIL KUMAR GARG VS. ITO 9 ELEMENT INVOLVED, IF ANY, IN THE TELEPHONE EXPENSES AND RUNNING AND MAINTENANCE EXPENSES INCURRED DURING THE YEAR. ACC ORDINGLY, THE ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF RS. 2 0,000/- ONLY OUT OF TOTAL EXPENDITURE OF RS. 1,82,510/- ON ACCOUNT OF P ERSONAL AND NON BUSINESS USED. IT WAS ACCORDINGLY SUBMITTED THAT CO NSIDERING THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, THE NATURE AND INVOLVEMENT OF THE ASSESSEES BUSINESS, THE LD. CIT(A) HAS RIGHTLY UPH ELD THE DISALLOWANCES OF RS. 20,000/- TO COVER POSSIBLE LEAKAGE ON ACCOUN T OF PERSONAL EXPENSES. IT WAS ACCORDINGLY SUBMITTED THAT THERE I S NO INFIRMITY IN THE ORDER SO PASSED BY THE LD. CIT(A) AND THE SAME MAY BE CONFIRMED. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE EXPENSES HAVE BEEN DISALLOWED PURELY ON AN ADHOC BASIS AND THE SAME IS DIRECTED T O BE DELETED. IN THE RESULT, THE GROUND OF APPEAL IS ALLOWED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/10/2021. SD/- SD/- LANHI XKSLKBZ FOE FLAG ;KNO ( SANDEEP GOSAIN ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 21/10/2021. *SANTOSH ITA NO. 339/JP/2019 SHRI ANIL KUMAR GARG VS. ITO 10 VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI ANIL KUMAR GARG, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- ITO, WARD-5(1), JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 339/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR