MAN MOHAN SHARMA, Jaipur V. ITO, Jaipur

ITA 35/JPR/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2475 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 05-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEENA JEPH CIT DHK
• Assessee Lawyers: ARUN GANGWAL
• Keywords: Bogus purchase; Unexplained cash credit; Rejection of books of accounts; Business income; Additional evidence; Onus to prove
• Section: 133(6); 68; 144

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,OA JH FOE FLAG ;K NO ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA NO.35/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2008-09. SHRI MAN MOHAN SHARMA 946, KHUTETON KA RASTA, KISHANPOLE BAZAR, JAIPUR. CUKE VS. THE INCOME TAX OFFICER, WARD 1(2), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ANYPS 5691 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI ARUN GANGWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SMT. NEENA JEPH (ADDL. CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 27.08.2018. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 29/08/2018. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 9 TH OCTOBER, 2015 OF LD. CIT (A)-1, JAIPUR FOR THE ASSESSMENT YEAR 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LEARNED CIT (APPEALS)-1,JAIPUR ERRED IN LA W AS WELL AS ON FACTS WHILE CONFIRMING FOLLOWING ADDITIONS :- GP RATE APPLIED BY AO TRADING ADDITIONS MADE BY A O 20% (ON SALES) 743147.00 GP RATE APPLIED BY CIT (APPEALS) TRADING ADDITIONS CONFIRMED 15% (ON PURCHASES) BY CIT (APPEALS) 723745.00 THE LEARNED CIT (APPEALS) WENT WRONG WHILE APPLYING GP RATE @ 15% ON PURCHASES, IGNORING THE NATURE, ORGANIZATIONAL S TRUCTURE AND OPERATIONAL PROCEDURE OF THE BUSINESS. 2 ITA NO. 35/JP/2016 SHRI MAN MOHAN SHARMA, JAIPUR. 2. THAT THE LEARNED CIT (APPEALS)-1, JAIPUR, WENT WRON G BY CONFIRMING THE ADDITION U/S 68 BY TREATING THE UNSECURED CREDI TORS OF RS. 9,28,000/- AS UNGENUINE. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, OR W ITHDRAW ANY GROUNDS OF THE APPEAL BEFORE OR AT THE TIME OF HEAR ING OF APPEAL. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS AS UNDER :- 1. THAT THE LEARNED CIT (A) HAS TREATED THE PURCHASES MADE FROM 9 PARTIES AS UNVERIFIED PURCHASES AS AGAINST 3 PARTIE S WHICH DID NOT CONFIRM AND SUBMITTED THE INFORMATION SOUGHT UNDER SECTION 133(6) AND THE LEARNED CIT (A) THEREBY MADE ADDITION OF RU PEES 723745/- BY APPLYING 15% GP ON THE UNVERIFIED PURCHASE MADE FROM 9 PARTIES, WITHOUT GIVING SHOW CAUSE NOTICE, HENCE TH E ACTION OF THE CIT (A) IS BAD IN LAW AND THE ADDITION MADE IS BAD IN LAW. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED ON FACTS AND IN LAW IN DECIDING THE APPEAL WITHOUT ADMITTING THE ADDITIONAL EVIDENCE FILED UNDER RULE 46A. 2. WE HAVE HEARD THE LD. A/R AS WELL AS THE LD. D/R ON THE ADMISSION OF ADDITIONAL GROUNDS RAISED BY THE ASSESSEE. AS IT I S CLEAR FROM THE GROUND NO. 1 OF THE ORIGINAL GROUNDS AND THE ADDITIONAL GROUND NO. 1 RAISED BY THE ASSESSEE THAT BOTH THESE GROUNDS ARE RAISED IN RESPECT OF THE ISS UE OF TRADING ADDITION MADE BY THE AO WHICH WAS RESTRICTED BY THE LD. CIT (A) BY APPLY ING 15% GP ON UNVERIFIABLE PURCHASES AND THEREBY A PART RELIEF WAS GRANTED BY THE LD. CIT (A), HENCE WE FIND THAT THE ADDITIONAL GROUND IS NOT A FRESH ISSUE RAI SED BY THE ASSESSEE BUT IT IS ONLY PART AND PARCEL OF GROUND NO. 1 OF THE ASSESSEES A PPEAL. ACCORDINGLY, WE WILL DISPOSE OFF THE GROUND NO. 1 AS WELL AS THE ADDITIO NAL GROUND AS UNDER :- 3. THE ASSESSEE IS AN INDIVIDUAL AND DOING BUSINESS OF PURCHASE AND SALE OF PRECIOUS AND SEMI PRECIOUS STONES. DURING THE SCRUT INY ASSESSMENT, THE AO NOTED THAT THE ASSESSEE HAS MADE PURCHASES OF RS. 48,24,9 72/- FROM 9 PARTIES. THE AO 3 ITA NO. 35/JP/2016 SHRI MAN MOHAN SHARMA, JAIPUR. MADE ATTEMPTS TO VERIFY THE GENUINENESS OF THE PURC HASES. HOWEVER, THE SUMMONS ISSUED TO THE PARTIES UNDER SECTION 133(6) OF THE I T ACT COULD NOT BE SERVED AND THEREFORE, IN THE ABSENCE OF ANY RESPONSE FROM THE PARTIES, THE AO HELD THAT THE PURCHASES ARE NOT VERIFIABLE FROM THESE 9 PARTIES A ND ACCORDINGLY, THE AO REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE BY INVOKING T HE PROVISIONS OF SECTION 145(3). THE AO ESTIMATED THE INCOME OF THE ASSESSEE BY APPL YING GP RATE OF 20% ON TOTAL SALES AND CONSEQUENTLY MADE AN ADDITION OF RS. 7,43 ,147/-. ON APPEAL, THE LD. CIT (A) CHANGED THE BASIS OF ADDITION FROM GP ON SALE T O GP ON UNVERIFIABLE PURCHASES MADE FROM 9 PARTIES. THE LD. CIT (A) HAS APPLIED T HE GP RATE OF 15% AS AGAINST GP RATE OF 20% APPLIED BY THE AO AND CONSEQUENTLY REST RICTED THE TRADING ADDITION TO RS. 7,23,745/- AS AGAINST RS. 7,43,147/- MADE BY TH E AO. 4. AGGRIEVED BY THE ORDER OF THE LD. CIT (A), THE A SSESSEE HAS FILED THE PRESENT APPEAL. THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT THE ADDITION MADE BY THE AO AS WELL AS BY THE LD. CIT (A) IS WITHOUT ANY BASIS AS THE GP RATE ADOPTED BY THE AO AT 20% IS NOT PREVAILING EITHER IN THE INDUSTRY OR AS PER THE PAST HISTORY OF THE ASSESSEE AND, THEREFORE, THE ACTION OF THE AO IS HI GHLY ARBITRARY. SIMILARLY, THE LD. CIT (A) HAS ALSO COMMITTED AN ERROR BY APPLYING THE GP RATE OF 15% ON UNVERIFIABLE PURCHASES, ONCE THE BOOKS OF ACCOUNTS OF THE ASSESS EE ARE REJECTED THEN THE INCOME OF THE ASSESSEE IS REQUIRED TO BE ESTIMATED ON SOME REASONABLE BASIS. THE LD. A/R HAS THUS CONTENDED THAT THE ASSESSEE HAS PRODUCED A LL THE RELEVANT RECORD INCLUDING AUDITED BOOKS OF ACCOUNTS, STOCK REGISTER, AS WELL AS OTHER DETAILS. HOWEVER, THE AO REJECTED THE BOOKS OF ACCOUNTS BY FOLLOWING AN EARL IER ORDER INSTEAD OF POINTING OUT SPECIFIC DEFECTS IN THE BOOKS OF THE ASSESSEE. THE LD. A/R HAS FURTHER SUBMITTED THAT 4 ITA NO. 35/JP/2016 SHRI MAN MOHAN SHARMA, JAIPUR. THE ASSESSEES DECLARED GP RATE FOR THE PAST YEARS IS FROM 11.52% TO 13.9% AND, THEREFORE, THE GP APPLIED BY THE LD. CIT (A) IS EXC ESSIVE AND NOT ON THE BASIS OF THE AVERAGE GP OF THE PRECEDING YEARS. IN SUPPORT OF HI S CONTENTION HE HAS RELIED UPON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. VAIBHAV GEMS LTD., 112 DTR 84 (RAJ.) AS WELL AS CIT VS. GUPTA K. N. CONSTRUCTION CO., 116 DTR 377 (RAJ.). THE LD. A/R HAS ALSO RELIED UPON VARIOUS D ECISIONS OF HONBLE JURISDICTIONAL HIGH COURT AS WELL AS THE COORDINATE BENCHES OF THE TRIBUNAL AND SUBMITTED THAT THE AVERAGE GP OF PREVIOUS YEAR HAS BEEN CONSIDERED AS A REASONABLE AND PROPER BASIS FOR ESTIMATION OF INCOME OF THE ASSESSEE. 4.1. ON THE OTHER HAND, THE LD. D/R HAS SUBMITTED T HAT IT IS A CASE OF BOGUS PURCHASES AND, THEREFORE, THE LD. CIT (A) INSTEAD O F DISALLOWING THE TOTAL PURCHASES HAS TAKEN A VERY REASONABLE AND LENIENT VIEW BY MAK ING THE DISALLOWANCE OF 15% OF THE PURCHASES. HE HAS RELIED UPON THE ORDERS OF TH E AUTHORITIES BELOW. 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, AT THE OUTSET WE NOTE THAT THE AO REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND THE N PROCEEDED TO ESTIMATE THE INCOME OF THE ASSESSEE BY APPLYING A GP RATE OF 20% . THUS TO THE EXTENT OF ESTIMATION OF INCOME OF THE ASSESSEE AFTER REJECTIO N OF BOOKS OF ACCOUNTS IS CONCERNED, WE FIND THAT THE AO HAS PROCEEDED AS PER THE MANDATE OF PROVISIONS OF SECTION 144 READ WITH SECTION 145(3) OF THE ACT WHE REBY ONCE THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE REJECTED, THE AO OUGHT TO HAVE ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING SOME REASONABLE AND PROPER BAS IS. IT IS SETTLED POSITION OF LAW THAT THE AVERAGE OF PAST HISTORY OF GP DECLARED BY THE ASSESSEE WHICH HAS ATTAINED 5 ITA NO. 35/JP/2016 SHRI MAN MOHAN SHARMA, JAIPUR. THE FINALITY IS A PROPER AND REASONABLE BASIS AS WE LL AS GUIDANCE FOR ESTIMATION OF THE INCOME OF THE ASSESSEE. THE LD. CIT (A) HAS TAKEN A DIFFERENT BASIS OF SUSTAINING THE ADDITION BY APPLYING THE GP RATE OF 15% ON THE PURC HASES MADE FROM 9 PARTIES TREATING IT AS UNVERIFIABLE PURCHASES. WE FIND THAT ONCE THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE REJECTED THEN THE ONLY OPTION LEFT WIT H THE AO IS TO ESTIMATE THE INCOME ON A PROPER AND REASONABLE BASIS. THE GP RATE OF T HE PRECEDING YEARS CAN BE CONSIDERED AS A REASONABLE AND PROPER BASIS FOR EST IMATION OF INCOME OF THE ASSESSEE. THE PURCHASES ARE PART OF THE TRADING AC COUNT AND, THEREFORE, ANY DEFECT FOUND IN THE PURCHASES WOULD BE SUBSUMED IN THE EST IMATION OF INCOME BY APPLYING THE GP RATE. HENCE, WE ARE OF THE CONSIDERED VIEW THAT AFTER REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3), THE PROPER AND APPROP RIATE COURSE OF ACTION IS TO ESTIMATE THE INCOME BY APPLYING THE GP RATE WHICH C AN BE TAKEN FROM THE AVERAGE GP OF THE PRECEDING YEARS OF THE ASSESSEE WHICH HAS ATTAINED THE FINALITY. THE DETAILS OF THE GP RATES DECLARED BY THE ASSESSEE IN THE EARLIER YEARS FROM A.YS. 2006- 07 TO 08-09 ARE AS UNDER :- A.Y. SALES GROSS PROFIT G.P. RATE 2006 - 07 94,22,141.15 11,64,258.00 12.36% 2007 - 08 97,51,832.45 11,23,352.74 11.52% 2008 - 09 1,07,61,731.18 14,09,198.76 13.09% THUS IF THE PAST HISTORY OF THE ASSESSEE IS TAKEN I NTO CONSIDERATION, WE FIND THAT THE GP DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONS IDERATION IS AT PAR OR RATHER MORE THAN THE PAST GP RATES OF THE ASSESSEE. HOWEV ER, DETAILS ARE NOT READILY 6 ITA NO. 35/JP/2016 SHRI MAN MOHAN SHARMA, JAIPUR. AVAILABLE ABOUT THE FINALITY OF THE GP DECLARED BY THE ASSESSEE FOR THE PRECEDING YEARS. THEREFORE, WE DIRECT THE AO TO ESTIMATE THE INCOME OF THE ASSESSEE BY TAKING THE AVERAGE GP OF PAST YEARS AT LEAST THREE YEARS E XCLUDING THE YEAR UNDER CONSIDERATION WHICH HAS ATTAINED THE FINALITY AND A PPLYING THE SAID AVERAGE GP, THE INCOME OF THE ASSESSEE HAS TO BE ESTIMATED. WE FIN D THAT THE HONBLE JURISDICTIONAL HIGH COURT IN A SERIES OF DECISIONS INCLUDING THE D ECISIONS RELIED UPON BY THE LD. A/R OF THE ASSESSEE HAS HELD THAT THE AVERAGE GP DECLAR ED BY THE ASSESSEE IN THE PRECEDING YEARS CAN BE TAKEN AS A GUIDANCE FOR ESTI MATION OF INCOME OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE AO FOR LIMITED PURPOSE OF ESTIMATION OF INCOME OF THE ASSESSEE BY TAKING THE AVERAGE GP OF THE PAST YEARS OF THE ASSESSEE WHICH ATTAINED THE FINAL ITY. WE MAY CLARIFY THAT SINCE THE ASSESSEE HAS NOT CHALLENGED THE ACTION OF THE AO RE GARDING THE REJECTION OF BOOKS OF ACCOUNTS UNDER SECTION 145(3) OF THE ACT, THEREFORE , THE ISSUE BEFORE US IS CONFINED ONLY ON THE ESTIMATION OF INCOME OF THE ASSESSEE. GROUND NO. 2 IS REGARDING THE ADDITION MADE UNDER S ECTION 68 OF THE IT ACT ON ACCOUNT OF UNSECURED CREDITS OF RS. 9,28, 000/-. 6. THE ASSESSEE HAS ALSO FILED AN ADDITIONAL GROUND WHICH IS NOTHING BUT A PLEA FOR ADMITTING THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BEFORE THE LD. CIT (A) UNDER RULE 46A OF THE IT RULES. 7. WE HAVE HEARD THE LD. A/R AS WELL AS THE LD. D/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE AO HAS MADE AN ADDITION OF RS. 9,28,000/- ON ACCOUNT OF UNSECURED CREDITS FOR WANT OF CONFIRMATIONS AND TRE ATED THE SAME AS UNEXPLAINED CASH CREDITS. ON APPEAL, THE ASSESSEE FILED ADDITIO NAL EVIDENCES BEFORE THE LD. CIT 7 ITA NO. 35/JP/2016 SHRI MAN MOHAN SHARMA, JAIPUR. (A) WITH A REQUEST TO ADMIT THE ADDITIONAL EVIDENCE S UNDER RULE 46A OF THE IT RULES. HOWEVER, THE LD. CIT (APPEALS) DECLINED TO ADMIT TH E ADDITIONAL EVIDENCES AS HELD IN PARA (III) PAGE 8 OF THE IMPUGNED ORDER AS UNDER :- (III) HERE, IT MAY BE MENTIONED THAT DURING ASSES SMENT PROCEEDINGS, THE APPELLANT ASSESSEE DID NOT FURNISH THE CONFIRMA TIONS FROM THE CREDITORS OF THE UNSECURED LOANS. NOW THE ASSESSEE FILED CONFIRMATIONS FROM THE SO CALLED CREDITORS OF UNSECURED LOANS AND MADE PRAYER FOR THEIR ADMITTANCE AS ADDITIONAL EVIDENCE UNDER RULE 46A OF THE IT RULES. THESE ADDITIONAL EVIDENCES COULD NOT BE ADMITTED AT THIS STAGE AS THE APPELLANT FAILED TO MAKE OUT ANY CASE FOR ADMITTANC E OF THESE ADDITIONAL EVIDENCES. THE ASSESSMENT PROCEEDINGS WE RE DULY ATTENDED BY THE SON OF THE ASSESSEE WHO WAS LOOKING AFTER TH E BUSINESS OF THE ASSESSEE. THE ASSESSEE HAS NOT BEEN ABLE TO PROVE ANY SUFFICIENT CAUSE WHICH PREVENTED HIM FROM FILING THE REQUIRED DETAILS BEFORE THE AO AND THUS THE ADDITIONAL EVIDENCES FILED BY THE A SSESSEE COULD NOT BE ADMITTED. EVEN OTHERWISE, DURING THE APPELLATE P ROCEEDINGS, THE ASSESSEE WAS NOT ABLE TO PROVE THE IDENTITY, CREDIT WORTHINESS AND GENUINENESS OF THESE TRANSACTIONS AS NEITHER COPIES OF THEIR BANK ACCOUNTS NOR COPIES OF THEIR RELEVANT INCOME TAX RE TURNS WERE FILED. SINCE THE ASSESSEE FAILED TO SUBSTANTIATE THE IDENT ITY, GENUINENESS AND CREDIT WORTHINESS OF THE CASH CREDITORS, I DO NOT S EE ANY REASON TO INTERFERE WITH THE DECISION OF THE AO IN THIS REGAR D AS PRIMARY ONUS TO PROVE CASH CREDIT LIE ON THE ASSESSEE AND THE ASSES SEE FAILED MISERABLY TO DISCHARGE THAT ONUS. THEREFORE, THE ADDITION OF RS. 9.28,000/- MADE BY AO U/S 68 OF THE ACT STANDS CONFIRMED. THE LD. A/R OF THE ASSESSEE HAS SUBMITTED THAT ONCE THE ADDITION WAS MADE BY THE AO FOR WANT OF CONFIRMATIONS WHICH WERE SUBMITTED B Y THE ASSESSEE BEFORE THE LD. 8 ITA NO. 35/JP/2016 SHRI MAN MOHAN SHARMA, JAIPUR. CIT (A), THEN THE SAID ADDITIONAL EVIDENCES OUGHT T O HAVE BEEN ADMITTED FOR DECIDING THE ISSUE ON MERITS. WE FIND THAT THE ASSESSEE HAS SOUGHT TO PRODUCE THE CONFIRMATIONS OF THE CREDITORS AS ADDITIONAL EVIDEN CE. THE ADDITION WAS MADE BY THE AO IN RESPECT OF THREE CREDITORS AND THE ASSESSEE S OUGHT TO PRODUCE THE CONFIRMATIONS OF THESE CREDITORS ALONG WITH THE BAN K STATEMENT OF ONLY ONE CREDITOR. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WHEN THE AO HAS MADE THE ADDITION FOR WANT OF CONFIRMATIONS FROM THE CRE DITORS AND THE ASSESSEE PRODUCED THE CONFIRMATIONS BEFORE THE LD. CIT (A), WE SET AS IDE THIS ISSUE TO THE RECORD OF THE AO FOR CONSIDERATION OF THE CONFIRMATIONS PRODUCED BY THE ASSESSEE ALONG WITH THE BANK STATEMENTS OF THE CREDITORS. THE ASSESSEE IS DIRECTED TO PRODUCE THE BANK STATEMENTS OF ALL THE CREDITORS FOR WHICH THE ADDIT ION UNDER SECTION 68 WAS MADE BY THE AO ALONG WITH THE CONFIRMATIONS ISSUED BY THE C REDITORS. THE AO AFTER EXAMINATION AND VERIFICATION OF THE CONFIRMATIONS A S WELL AS THE BANK STATEMENTS, HAS TO ADJUDICATE THE ISSUE AS PER LAW. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 29/08/2 018. SD/- SD/- ( FOE FLAG ;KNO ) ( FOT; IKY JKWO (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 29/08/2018. DAS/ 9 ITA NO. 35/JP/2016 SHRI MAN MOHAN SHARMA, JAIPUR. VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI MAN MOHAN SHARMA, JAIPUR. 2. THE RESPONDENT THE ITO WARD 1(2), JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 35/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 10 ITA NO. 35/JP/2016 SHRI MAN MOHAN SHARMA, JAIPUR.