KOTHARI JEWELS PRIVATE LIMITED, MUMBAI V. ACIT, Jaipur

ITA 455/JPR/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6209 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 07-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Transfer pricing; Search and seizure; Maximum Marginal Rate; International transaction; Fair market value; Documents seized
• Section: 43CA; 143(3); 92D; 133A; 153A; 80IB; 145; 132; 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; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA NO.455/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 M/S KOTHARI JEWELS PRIVATE LTD., 5 TH FLOOR, KGK TOWER, DUTTA PADA ROAD, NEAR EKTA BHOOMI GARDEN, RAJENDRA NAGAR, BORIVALI (EAST) MUMBAI-66 CUKE VS. THE ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCA2717Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI S. R. SHARMA & SHRI R. K. BHATRA (CA) JKTLO DH VKSJ LS @ REVENUE : SHRI VARINDAR MEHTA (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 22/03/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 04/04/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)- 4, JAIPUR DATED 16.03.2015 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL AS UNDER:- 1. ON FACTS AND IN LAW, THE LEARNED COMMISSIONER O F INCOME-TAX (APPEALS) HAD ERRED IN CONFIRMING THE ADDITION OF R S. 1,04,49,607/- TO THE TOTAL INCOME OF THE APPELLANT COMPANY BY ESTIMA TING THE GROSS PROFIT AT A SUM OF RS. 1,65,79,147/- AS AGAINST RS. 61,29,540/- DECLARED BY APPELLANT. ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 2 2. ON FACTS AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAD ERRED IN CONFIRMING THE REJECTION OF BOOKS OF ACCOUNTS OF THE APPELLANT UNDER SECTION 145(3) OF THE IT ACT, 1 961, MERELY ON THE GROUND THAT THE APPELLANT COMPANY SHOULD HAVE SOLD ITS TOTAL STOCK OF GOODS TO ITS SISTER CONCERN AT ARMS LENGTH PRICE A ND NOT AT MUTUALLY AGREED PRICE. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SEARCH AND SEIZURE ACTION U/S 132 OF THE INCOME TAX ACT, 1961 AND/OR SURVEY A CTION U/S 133A OF THE ACT WERE CARRIED OUT BY THE DEPARTMENT ON THE MEMBERS O F KGK GROUP ON 06.05.2010 OF WHICH THE ASSESSEE IS ONE OF THE MEMB ERS. PURSUANT TO ISSUANCE OF NOTICE U/S 153A OF THE ACT, THE ASSESSE E FILED ITS RETURN OF INCOME ON 22.12.2011 DECLARING INCOME OF RS. 19,93,359/- I NCLUDING AN AMOUNT OF RS. 7,90,000/- ON ACCOUNT OF DOCUMENTS SEIZED DURING SE ARCH AND ADMITTED IN THE POST SEARCH PROCEEDINGS. DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS ENTERED INTO AN A GREEMENT DATED 24.11.2009 WITH M/S KGK CREATION (I) PVT. LTD., WHI CH IS A SISTER CONCERN OF THE ASSESSEE COMPANY AND IN TERMS OF THE SAID AGREE MENT, THE ASSESSEE HAS AGREED TO TRANSFER TO THE PURCHASER COMPANY, THE EN TIRE STOCK OF RAW MATERIAL AND FINISHED GOODS VALUED AT RS. 6,64,62,716/-. AN ANALYSIS WAS MADE BY THE AO IN RESPECT OF 18CT GOLD WEIGHING 18.10337/- KG W HICH HAS BEEN SOLD FOR RS. 1,95,54,089/-. THE AO OBSERVED THAT AS A RESULT OF THIS TRANSFER, THE GROSS PROFIT HAS FALLEN DRASTICALLY AS COMPARED TO THE PR EVIOUS YEARS AND THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHETHER T HE STOCK HAS BEEN TRANSFERRED AT FAIR MARKET VALUE CONSIDERING THE FA CT THAT THE TRANSFEREE CONCERN IS A RELATED CONCERN. THE REPLY OF THE ASSE SSEE WAS CONSIDERED. IT WAS OBSERVED BY THE AO THAT 18CT GOLD WEIGHING 18.1 0337/- KG WAS SOLD FOR RS. 1,95,54,089/- AND THE RATE PER GRAM WORKS OUT T O RS. 1074.61 WHEREAS THE RATE OF PURE GOLD ON THE DATE OF SUCH TRANSFER WAS RS. 1756/- PER GRAM AND RATE OF 18CT GOLD WAS ACCORDINGLY WORKED OUT AT RS. 1317 PER GRAM. THE ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 3 AO THUS DETERMINED LOSS OF RS. 43,99,029/- IN RESPE CT OF THE SAID TRANSACTION WHICH HAS BEEN HELD AS NOT DONE AT ARMS LENGTH PRI CE. IN ITS REPLY, THE ASSESSEE SUBMITTED THAT THE ENTIRE STOCK HAS BEEN S OLD BECAUSE OF THE CLOSURE OF THE BUSINESS ACTIVITIES AND THE STOCK WAS OBSOLE TE AND SLOW MOVING AND EVEN IN THE BOOKS OF ACCOUNTS OF THE PURCHASER, THE SOLD ITEMS ARE SLOW MOVING AND SOME OF THE ITEMS HAD TO BE MELTED. IT W AS FURTHER SUBMITTED THAT NO INCRIMINATING MATERIAL HAS BEEN FOUND TO SUGGEST THAT THE ASSESSEE RECEIVED MONEY OVER AND ABOVE THE AGREED CONSIDERAT ION. IT WAS FURTHER SUBMITTED THAT THE STOCK TRANSFER DECISION WAS TAKE N IN THE BOARD MEETING OF THE COMPANY HELD ON 17.08.2009 AND AT THAT TIME, TH E STANDARD RATE OF 18CT GOLD WAS RS. 1135 PER GRAM AND THAT NEGOTIATIONS WE RE GOING BETWEEN THE ASSESSEE COMPANY AND THE PURCHASER SINCE AUGUST, 20 09 AND FINALLY AN AGREEMENT WAS ENTERED INTO ON 24.11.2009. FURTHER, IT WAS SUBMITTED THAT THE FALL IN THE GP RATE AS COMPARED TO THE PREVIOUS YEA RS WAS ON ACCOUNT OF FACT THAT DUE TO ECONOMIC SLOWDOWN, THE DIAMOND INDUSTRY WAS WORST IMPACTED AND THE PRICES OF DIAMONDS HAD FALLEN BY AROUND 40% COUPLED WITH THE FACT THAT ASSESSEE COMPANY HAS CLOSED DOWN ITS OPERATION S IN NOVEMBER 2009 AND DISPOSAL OF SLOW MOVING STOCK. IT WAS FURTHER SUBMI TTED THAT THE TRANSACTION IS AT ARMS LENGTH AND BOTH THE COMPANIES ARE TAXABLE ENTITIES. THE REPLY FILED BY THE ASSESSEE WAS CONSIDERED BUT WAS NOT FOUND ACCEP TABLE BY THE AO FOR THE VARIOUS REASONS. THE AO OBSERVED THAT BOTH THE ENTI TIES ARE HELD AND CONTROLLED BY THE SAME FAMILY AS IT IS CLEAR FROM T HE SHARE HOLDING PATTERN OF THESE TWO COMPANIES AS ON 31.03.2010. IT WAS FURTH ER OBSERVED BY THE AO THAT THE CLAIM OF THE ASSESSEE THAT STOCK TRANSFER WAS OBSOLETE AND SLOW MOVING DOES NOT HAVE ANY BASIS/EVIDENCE AND THE ASS ESSEES SUBMISSION REGARDING DETAILS OF THE ITEM WISE MOVEMENT IN THE TRANSFEREE COMPANY WHEREIN IT WAS TRIED TO BE SHOWN THAT EVEN THOUGH T HE STOCK HAS BEEN SOLD, THE GOODS ARE NOT BEING SOLD REGULARLY, WAS NOT FOU ND ACCEPTABLE. REGARDING THE CLAIM THAT SOME OF THE ITEMS HAVE BEEN MELTED A ND THE LOSS HAS BEEN SUFFERED BY THE TRANSFEREE COMPANY, THE AO OBSERVED THAT RESULTANT PROFIT/LOSS ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 4 BELONGS TO THE TRANSFEREE COMPANY AND THE ASSESSEE SHOULD NOT BE BOTHERED ABOUT THE SAME ONCE IT HAS SOLD THE STOCK. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS DILIGENTLY PREPARED AND SUBMITTED QUAN TITATIVE DAILY CHART FOR LAST 3 YEARS BUT HAS FAILED TO ESTABLISH WHETHER THE ITE MS SOLD IN STOCK TRANSFER AGREEMENT WERE EXISTING FOR LAST MANY YEARS. IT WAS ACCORDINGLY HELD THAT IT CANNOT BE SAID THAT SALES TO SISTERS CONCERN ARE AT ARMS LENGTH PRICE AND WHETHER THE ASSESSEE WOULD HAVE SOLD THESE GOODS AT THE SAME PRICES TO ANY OTHER UNRELATED THIRD PARTY. THE AO OBSERVED THAT I T CANNOT BE SAID WITH CERTAINTY THAT THE TRANSACTION OF SALE TO SISTER CO NCERN IS AT ARMS LENGTH PRICE AND AN ADJUSTMENT IS REQUIRED TO BE MADE AS THE ACC OUNTS OF THE ASSESSEE DO NOT REPRESENT A TRUE PICTURE OF THE STATE OF AFFAIR S AND THE BOOKS OF ACCOUNTS WERE ACCORDINGLY REJECTED IN TERMS OF THE PROVISION S OF SECTION 145(3) OF THE ACT. REGARDING ESTIMATION OF GP RATE, THE AO OBSERV ED THAT UNDER NO CIRCUMSTANCES, CAN GOLD AND OTHER PRECIOUS METALS B E SOLD AT BELOW MARKET PRICE AND THIS CLEARLY SHOWS THAT IN THE INSTANT CA SE, THE ASSESSEE HAS NOT REFLECTED TRUE GP ON ITS SALE BY STOCK TRANSFER TO ITS SISTER CONCERNS AND AS PER DISCUSSION ABOVE, THE DIFFERENCE IN GOLD RATES ON T HE DATE OF TRANSFER COMES TO RS. 43,99,029/-. THE AO THEREAFTER WORKED OUT THE A VERAGE GP (2003-04 TO 2009-10) AT 17.14% AND AFTER GIVING CREDIT TO THE A SSESSEE ON ACCOUNT OF BULK DEAL AND CLOSER OF ITS BUSINESS, THE AO APPLIED A G P RATE OF 15% TO THE DECLARED SALES TURNOVER OF THE ASSESSEE I.E. RS. 11,05,27,652/- AND WORKS OUT GP OF RS 1,65,79,1 47 AND AFTER GIVEN CREDIT OF GP DECLARED BY THE ASSESSEE OF RS. 61,29,540/-, AN ADDITION OF RS. 1,04,49,607/- WAS MADE IN THE HANDS OF THE ASSESSEE COMPANY. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT WHO HAS CONFIRMED THE FINDINGS OF THE ASSES SING OFFICER AND HIS RELEVANT OBSERVATIONS ARE CONTAINED AT PARA 5.4 OF HIS ORDER WHICH IS REPRODUCED AS UNDER:- ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 5 5.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AS ALSO THE FINDINGS OF THE AO. IT MAY BE NOTED THAT ASSESSEE H AS SOLD ITS ENTIRE STOCK TO ITS SISTER CONCERN NAMELY M/S KGK CREATIONS PVT. LT D. THE AO'S CASE WAS THAT THE ASSESSEE HAS NOT SOLD SUCH STOCK TO ITS SISTER CONCERN AT THE PREVAILING MARKET RATE AND THAT DUE TO SUCH TRANSACTION BETWEE N THE TWO SISTER CONCERNS THE PROFIT OF ASSESSEE COMPANY DRASTICALLY REDUCED IN AS MUCH AS IN EARLIER YEARS THE GROSS PROFIT USED TO BE IN THE RATE OF 11 TO 20% WHEREAS IN THE A.Y. UNDER CONSIDERATION DUE TO SUCH TRANSACTION THE GP WAS REDUCED TO 6%. THE AO FURTHER NOTED THAT SOME OF THE STOCK PARTICULARL Y THE 18KT GOLD FINISHED STOCK WEIGHING 18.1033 KG. WHICH WAS SOLD AT RS. 19 454089 AND THAT THE STOCK OF THE GOLD ITEMS WAS EVEN SOLD BELOW THE PRE VAILING MARKET RATES IN AS MUCH AS IN SUCH SALE OF GOLD ITEMS ITSELF THE ASSES SEE SUFFERED LOSS OF RS. 43,99,029. ACCORDINGLY AS PER AO SUCH SALE TRANSACT ION CANNOT SAID TO BE OF GENUINE NATURE AND THAT THE BOOK RESULT SHOWN BY TH E ASSESSEE ON THE BASIS OF SUCH SALE TRANSACTION TO THE SISTER CONCERN CANN OT SAID TO BE TRUE AND CORRECT. ACCORDINGLY, THE AO APPLIED PROVISIONS OF SEC. 145(3) OF IT ACT AND ESTIMATED THE PROFIT BY APPLYING GP RATE OF 15% AS COMPARED TO GP RATE OF 20% IN THE IMMEDIATE PRECEDING A.Y. ON THE OTHER HA ND THE APPELLANTS CASE IS THAT THE SALE TRANSACTIONS TO THE SISTER CONCERN WERE MADE AT THE LOWER RATE BECAUSE OF THE REASON THAT THE ASSESSEE WAS TO CLOS E SUCH BUSINESS AS ALSO THAT SUCH STOCK WAS OF OBSOLETE NATURE. IN SUPPORT OF SUCH CONTENTION THE ASSESSEE ALSO SUB MITTED THAT SUCH STOCK WAS EVEN NOT EASILY SALEABLE BY THE SISTER CONCERN IN AS MUCH AS THE SISTER CONCERN COULD MANAGE TO SALE ONLY 665 ITEMS OF GOLD JEWELLERY AND REMAINING 538 ITEMS OF GOLD JEWELLERY HAS TO BE MELTED. IT IS ALSO STATED THAT THERE IS NOTHING ON RECORD WHICH MAY INDICATE THAT ANY EXTRA CONSIDERATION WAS RECEIVED FROM THE SISTER CONCERN ON ACCOUNT OF SUCH SALE AND THAT REDUCTION IN GP RATE CANNOT BE THE SOLE GROUND FOR REJECTION OF BOOKS OF ACCOUNTS. THE APPELLANT ALSO PLACED RELIANCE ON VARIOUS CASE LAWS AS MENTIONED IN THE ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 6 WRITTEN SUBMISSION IN ITS SUPPORT. ON CAREFUL CONSI DERATION OF ALL THE RELEVANT FACTS IT MAY BE NOTED THAT THE APPELLANT HAS SOLD S UCH STOCK OF GOLD AND OTHER PRECIOUS/ SEMI PRECIOUS ITEMS AND THERE IS NO DISPU TE ON THE FACT THAT THE SALE HAS BEEN MADE TO ITS OWN SISTER CONCERN. THERE IS A LSO NO DISPUTE ON THE FACT THAT THE ASSESSEE CONCERN HAS ALWAYS SHOWN GP RATE OF 11 TO 21% BETWEEN THE PERIODS A.Y. 2003-04 TO 2011-12 WHEREAS DURING THE A.Y. UNDER CONSIDERATION DUE TO SUCH SALE THE GP RATE HAS DECR EASED TO 6%. IT IS FURTHER NOTED THAT THERE WERE NO COMPELLING CIRCUMSTANCES T O MAKE SUCH SALE AT SUCH A LOWER RATE. IT IS ALSO TO BE NOTED THAT THE STOCK OF THE GOLD PRECIOUS/ SEMI PRECIOUS ITEMS WAS NEITHER OF PERISHABLE NATURE NOR OF OBSOLETE NATURE. IN THIS CIRCUMSTANCES THE QUESTION ARISES WHETHER IF SUCH S TOCK WAS NOT TO BE SOLD TO THE SISTER CONCERN, WHETHER THE ASSESSEE WOULD HAVE SOLD SUCH STOCK TO ANY THIRD PARTY ON SUCH REDUCED RATE AND THE ANSWER MAY THAT THE ASSESSEE WOULD NOT HAVE SOLD SUCH STOCK TO ANY THIRD PARTY ON SUCH REDUCED RATE AS THE STOCK IS NOT OF THAT TYPE WHICH MAY LOST ITS VALUE IN SHO RT OR LONG TERM. IN THESE CIRCUMSTANCES WHEN PRIMA FACIE THERE WERE NO COMPEL LING CIRCUMSTANCES TO SALE THE STOCK AT SUCH REDUCED RATE PARTICULARLY IN CASE OF GOLD ORNAMENTS WHEN THE SELLING RATE IS EVEN FOUND TO BE LOWER THA N THE PREVAILING RATE THEN DEFINITELY THE SALE OF SUCH ITEMS TO THE SISTER CON CERN CANNOT BE SAID TO BE FAIR AND REASONABLE. AS REGARD, THE CONTENTION OF THE AP PELLANT THAT THERE WAS NOTHING ON RECORD WHICH MAY INDICATE THAT ANY EXTRA CONSIDERATION WAS RECEIVED ON ACCOUNT OF SUCH SALE, IT MAY BE MENTION ED THAT THE TRANSACTION WAS BETWEEN THE TWO SISTER CONCERN AND IN SUCH TRAN SACTION IT CANNOT BE EXPECTED THAT THE REVENUE MAY BROUGHT ON RECORD ANY SUCH EVIDENCE. ACCORDINGLY, AS ONE MAIN ITEM OF THE TRADING ACCOUN T I.E. SALES WERE FOUND TO BE MADE NOT ON THE NORMAL PREVAILING RATE THAT TOO TO A SISTER CONCERN THEN THE AO WAS JUSTIFIED TO INVOKE PROVISIONS OF SEC. 1 45(3) OF IT. ACT. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT EVEN THE BUYER PARTY I.E. THE SISTER CONCERN WAS NOT ABLE TO SELL ALL THE ITEMS AND THAT PART OF THE ITEMS HAS TO BE MELTED, IT MAY BE MENTIONED THAT THE MELTING OF SOM E OF THE ITEMS CAN ALSO ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 7 BE DUE TO THE FACT THAT SUCH ACTIVITY MAY HAVE BEEN MORE PROFITABLE TO THE SISTER CONCERN. ACCORDINGLY THE ACTION OF THE AO OF REJECTION OF THE BOOKS OF ACCOUNTS IS CONFIRMED. AS REGARDS THE ESTIMATION OF PROFIT AFTER REJECTION OF BOOKS OF ACCOUNTS, IT MAY BE MENTIONED THAT IT IS A SETTLED LAW THAT AFTER REJECTION OF BOOKS OF ACCOUNTS THE PROFIT IS TO BE ESTIMATED EITHER ON THE BASIS OF PAST HISTORY OF THE APPELLANT'S CASE OR ON THE B ASIS OF ANY COMPARABLE CASE. RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS: I) CIT VS. INANI MARBLES PVT. LTD. (2009) 316 ITR 125 (RAJ) II) AJAY GOYAL VS. ITO (2006) 99 TTJ 164 (ITAT, JAIPUR) III) ITO WARD 2 CHURU VS. JAI CONSTRUCTION CO., ITA NO. 64/JU/2014 (ITAT, JODHPUR) IV) M/S BHIKA RAM DEVRATH VS. ITO WARD-1, CHURU, ITA NO . 245/JODH/2013 (ITAT, JODHPUR). AS REGARDS THE VARIOUS CASE LAWS RELIED UPON BY THE APPELLANT IT MAY BE MENTIONED THAT IN THESE CASE LAWS ESSENTIALLY IT HA S BEEN HELD THAT THE DECREASE IN GP RATE CANNOT BE THE SOLE BASIS FOR RE JECTION OF BOOKS OF ACCOUNTS. HOWEVER THE FACTS OF THE APPELLANTS CASE ARE DIFFERENT IN AS MUCH AS THE DECREASE IN GP RATE WAS SOLELY DUE TO T HE SALE OF WHOLE STOCK TO THE SISTER CONCERN AT A DRASTICALLY REDUCED RATE THAT TOO IN THE CIRCUMSTANCES WHEN THERE WAS PRIMA FACIE NO JUSTIFI CATION FOR SALE OF SUCH STOCK AT SUCH REDUCED RATES. EVEN THE RATIO LAID DO WN IN THE CASE OF MALANI RAMJEEVAN JAGGANATH VS. ACIT (2009) 316 ITR 120 BY HON. RAJASTHAN HIGH COURT IS NOT APPLICABLE TO THE FACTS OF THE AP PELLANTS CASE IN AS MUCH AS IN THIS CASE THE HON. RAJASTHAN HIGH COURT HAS H ELD THAT THE WHEN OPENING STOCK, PURCHASE, SALES AND CLOSING STOCK WA S NOT DOUBTED AND THE ASSESSEE HAS FURNISHED PROPER EXPLANATION FOR DECRE ASE IN THE GP RATE THEN THE BOOKS OF ACCOUNTS CANNOT BE REJECTED AND NO TRA DING ADDITION CAN BE MADE. HOWEVER IN THE APPELLANTS CASE THE SALES SHO WN TO THE SISTER CONCERNS AT A DRASTICALLY REDUCED RATE WAS NOT FOUN D TO BE OF GENUINE ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 8 NATURE AS ALSO THAT THE ASSESSEE HAS NOT PROPERLY J USTIFIED DECREASE IN THE GP RATE. THEREFORE THE FACTS OF THE APPELLANTS CAS E DEFINITELY DIFFERED WITH THE FACTS OF THE CASE DECIDED BY THE HON. RAJASTHAN HIGH COURT. IN THIS BACKGROUND, IT MAY BE NOTED THAT THE IMMED IATE PRECEDING AY THE ASSESSEE HAS SHOWN GP RATE 20%. TH E AO HAS ALSO NOTED THAT AVERAGE GP RATE DURING THE AY 2003-04 TO 2009-10 WAS 17.14%. CONSIDERING THESE FACTS AS ALSO THE FACT TH AT BULK DEAL OF SALE OF STOCK WAS MADE AS ALSO THAT THE BUSINESS WAS TO BE CLOSED THE AO HAS GIVEN NECESSARY CREDIT AND ACCORDINGLY ESTIMATED TH E PROFIT BY APPLYING GP RATE OF 15%. THE ESTIMATION OF THE PROFIT BY THE AO BY APPLYING GP RATE 15% IS FOUND TO BE VERY REASONED AND ACCORDINGLY, N O INTERFERENCE IS CALLED FOR IN RESPECT OF TRADING ADDITION OF RS. 1, 04,49,607 AND THE SAME IS CONFIRMED. 4. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT THE SUBMISSIONS MADE BEFORE LD. CIT(A) INCLUDING THE JUDICIAL PRECE DENTS CITED BEFORE HIM HAVE NOT BEEN APPRECIATED IN CORRECT PERSPECTIVE BY THE LD CIT(A). THE LD AR THEREAFTER TOOK US THROUGH THE FINDINGS OF THE LD C IT(A) AND REITERATED THE CONTENTIONS SO MADE IN THE WRITTEN SUBMISSIONS WHIC H ARE REPRODUCED AS UNDER : 3.2 LD. CIT(A) HAS CONFIRMED THE REJECTION OF BOOKS BY HOLDING, AS UNDER:- ACCORDINGLY, AS ONE MAIN ITEM OF THE TRADING ACCO UNT I.E. SALES WERE FOUND TO BE MADE NOT ON THE NORMAL PREVAILING RATE THAT TOO TO A SISTER CONCERN THEN THE AO WAS JUSTIFIED TO INVOKE PROVISI ON OF SECTION 145(3) OF IT ACT 3.3 IT IS UNDISPUTED THAT COMPLETE SET OF BOOKS OF ACCO UNTS WERE PRODUCED DURING ASSESSMENT PROCEEDINGS AND NOT A SINGLE DEFE CT WAS FOUND OR POINTED OUT IN THOSE RECORDS. TO SUBSTANTIATE THE T RANSACTION WITH THE ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 9 SISTER CONCERN BELOW MENTIONED DETAILED EXPLANATION ALONG WITH FACTUAL DATA WERE SUBMITTED BEFORE THE LOWER AUTHORITIES:- S.NO. PARTICULARS PB 1 SUBMISSIONS, DATED 18.03.2013, MADE TO THE LD. AO, REGARDING FALL IN THE GP RATE AND SALE OF GOODS AT FAIR MARKET VALUE 14-19 2 QUANTITATIVE DETAILS OF RAW MATERIAL, WORK IN PROGR ESS AND FINISHED GOODS OF THE ASSESSEE COMPANY FOR THE FY 2005-06 TO 2009-10 32-36 3 STATEMENT SHOWING JEWELLERY PURCHASE REGISTER OF KGK CREATIONS (I) PVT. LTD. IN RESPECT OF GOODS PURCHASED FROM THE ASSESSEE COMPANY 37-59 4 STATEMENT SHOWING YEAR WISE MOVEMENT OF FINISHED GOODS PURCHASED FROM ASSESSEE COMPANY BY KGK CREATIONS (I) PVT. LTD. VIDE AGREEMENT DATED 24.11.2009. 60 5 JEWELLERY MELTING REGISTER OF KGK CREATIONS (I) PVT . LTD. FOR THE FY 2009-10 TO 2012-13. 61-73 6 SUBMISSION DATED 22.03. 2013 TO THE LD. AO WITH REGARD TO ESTABLISHED NORMS OF WASTAGE/MANUFACTURING LOSS IN THE JEWELLERY SECTOR. 82-83 7 SUBMISSION DATED 25.03.2013 TO THE LD. AO EXPLAINING THAT THE SALE MADE BY THE ASSESSEE COMPANY TO ITS SISTER CONCERN WAS AT ALP AND DID NO T RESULT IN DIVERSION OF PROFIT TO THE SISTER CONCERN . 91-92 3.4 BOOKS OF ACCOUNTS MAINTAINED IN REGULAR COURSE OF B USINESS CANNOT BE REJECTED UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE. HONBLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PRIVATE LIMITED [2009] 312 ITR 254 (SC) ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 10 HELD THAT ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSI NESS ARE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE... 3.5 THE PRIMARY CONDITION FOR REJECTING THE BOOK RESULT S AS LAID DOWN UNDER SECTION 145 OF THE INCOME-TAX ACT, 1961 IS TH AT THE LD. AO SHOULD BE SATISFIED THAT THE BOOKS OF ACCOUNT MAINT AINED BY THE ASSESSEE ARE NOT COMPLETE AND CORRECT. AS CAN BE SE EN FROM THE FINDINGS OF THE LOWER AUTHORITIES, THERE IS NO INST ANCE OF FALSITY OR INCOMPLETENESS OF THE BOOKS OF ACCOUNT. THE BOOKS O F ACCOUNT REFLECT THE TRUE STATE OF AFFAIRS OF THE ASSESSEE COMPANY. UNDER SUCH CIRCUMSTANCES MERELY BECAUSE THE ASSESSEE COMPANY S OLD ITS PRODUCTS TO ITS SISTER-CONCERN, AT A PRICE LESSER T HAN THE PREVALENT MARKET PRICE ON THE DATE OF SALE, WOULD NOT BE A SU FFICIENT GROUND TO COME TO A CONCLUSION THAT BOOKS OF ACCOUNT OF ASSES SEE COMPANY WERE NOT COMPLETE OR CORRECT. THIS FINDING CANNOT, IN ANY WAY, WARRANT REJECTION OF BOOKS OF ACCOUNTS. SIMILAR RAT IO, UNDER IDENTICAL SET OF FACTS, HAS BEEN LAID DOWN BY THE HONBLE ITA T BANGALORE BENCH IN THE CASE OF SPHOORTI MACHINE TOOLS (P.) LT D [2013] 30 TAXMANN.COM 413 (BANGALORE - TRIB.) IN WHICH THE HO NBLE BENCH HELD THAT THE FACT THAT THE ASSESSEE HAS SOLD ITS PRODUCTS TO ITS SISTER-CONCERNS AT A PRICE LESSER THAN THE PRICE AT WHICH THE SAME PRODUCT IS SOLD TO THE THIRD PARTIES, IN OUR OPINIO N, WOULD NOT BE A SUFFICIENT GROUND TO COME TO A CONCLUSION THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT COMPLETE AND CORRECT. THERE IS NO EVIDENCE BROUGHT ON RECORD THAT OVER AND ABOVE THE PRICE SHO WN IN THE BOOKS OF ACCOUNT, THE ASSESSEE RECEIVED SOMETHING MORE FR OM M/S. PRAGATHI AUTOMATION P. LTD. AS RIGHTLY CONTENDED ON BEHALF O F THE ASSESSEE IT IS FOR THE BUSINESSMAN TO DECIDE THE PRICE AT WHICH HE HAS TO SELL ITS PRODUCTS TO ITS CUSTOMERS. THE LAW IS WELL-SETTLED THAT THE REVENUE ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 11 CANNOT INSIST ON THE WAY IN WHICH BUSINESSMEN SHOUL D CONDUCT HIS BUSINESS. THE REVENUE CANNOT COMPEL A BUSINESSMAN T O SELL ITS PRODUCTS AT A PARTICULAR PRICE, SO THAT THE ASSESSE E DERIVES MAXIMUM PROFIT 3.6 RELIANCE IS ALSO PLACED ON THE ORDER OF HONBLE PU NJAB & HARYANA HIGH COURT IN THE CASE OF SAIMBHI CYCLES & AUTO IND USTRIES, LUDHIANA [2015] 229 TAXMAN 552 (PUNJAB & HARYANA)WHEREIN THE HONBLE HIGH COURT HAS UPHELD THE FOLLOWING FINDING OF HON BLE ITAT CONTAINED IN PARA 7 OF THE ORDER. THE SAME IS REPRO DUCED FOR THE SAKE OF CONVENIENCE:- THE ABOVE FINDINGS WERE AFFIRMED BY THE TRIBUNAL VIDE ORDER DATED 29.4.2013, ANNEXURE A.III WITH THE FOLLOWING OBSERV ATIONS: '8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT FIRST OF ALL THE ASSESSEE IS A CONCERN WHEREIN ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 80IB OF THE ACT @ 25% WHICH WOULD MEAN THAT EFFECTIVE TAX RATE WOULD BE 22.50% WHEREAS THE SISTER CONCERN M/S DARSHAN UDYOG IS REQUIRED TO PAY TAX @ 30%, THEREFORE, THERE WAS NO INCENTIVE TO MAKE SALES AT LOWER RATE. IN ANY CASE, IN THE DETAILED SUBMISSIONS BEFORE THE AS SESSING OFFICER AND CIT(A) IT DEMONSTRATED THAT PRACTICALLY NO SALE S HAVE BEEN MADE TO OUTSIDE PARTIES AND THEREFORE, COMPARISON I S NOT CORRECT. IN ANY CASE, THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. GLAXO SMITHKINE ASIA (P) LIMITED HAS CLEARLY HELD T HAT SINCE THERE WAS NO PROVISION TO MAKE ADDITION ON ACCOUNT OF REC EIPTS WHICH ARE AT LESS THAN THE FAIR MARKET VALUE, THEREFORE, SUCH ADDITIONS ARE NOT JUSTIFIED. IN THESE CIRCUMSTANCES, WE FIND NOTHING WRONG WITH THE ORDER OF LEARNED CIT(A) AND WE CONFIRM THE SAME. ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 12 3.7 IN VIEW OF THE ABOVE, PROVISIONS OF SECTION 145(3) HAVE BEEN WRONGLY INVOKED. 3.8 LD. AO, UNDER MISCONCEPTION, HAS APPLIED DOMESTIC T RANSFER PRICING NORMS AS CONTAINED IN CHAPTER X OF INCOME TAX ACT, 1961. IT MAY BE NOTED THAT THESE NORMS FOR DOMESTIC TRANSACTIONS WE RE INTRODUCED BY THE FINANCE ACT, 2012 W.E.F. 01/04/2013 I.E. A.Y . 2013-14. THEREFORE, FOR THE YEAR UNDER CONSIDERATION, I.E. A Y 2010-11, NO SUCH LAW EXISTED WHICH CONFERRED AUTHORITY ON THE LD. AO TO ENHANCE GROSS PROFIT W.R.T SALES TO SISTER CONCERN. 3.9 HONBLE SUPREME COURT IN THE CASE OF GLAXOSMITHKLIN E ASIA (P) LTD. [2010] 195 TAXMAN 35(SC) HAD OBSERVED THAT WITHOUT DOMESTIC TRANSFER PRICING LAW FINDING PLACE IN THE STATUTE B OOK, TAX AUTHORITIES HAVE NO RIGHT TO MAKE ADJUSTMENTS REGARDING DOMESTI C SALES MADE TO SISTER CONCERNS ON THE LINE OF TRANSFER PRICING LAW FOR INTERNATIONAL TRANSACTIONS. THEREAFTER, DOMESTIC TRANSFER PRICIN G LAW WAS INTRODUCED BY THE FINANCE ACT, 2012 W.E.F. 01.04.20 13. 3.10 ATTENTION IS ALSO DRAWN TOWARDS THE FACT THAT EVEN AFTER THE INTRODUCTION OF DOMESTIC TRANSFER PRICING LAW BY TH E FINANCE ACT, 2012 W.E.F. 01.04.2013, THE SALES TO THE ASSOCIATED ENTERPRISES ARE NOT COVERED IN ALL CIRCUMSTANCES. SECTION 92BA DEFI NING THE SPECIFIED DOMESTIC TRANSACTIONS READS AS UNDER:- FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92, 92C, 92D AND 92E, 'SPECIFIED DOMESTIC TRANSACTION' IN CASE OF AN ASSE SSEE MEANS ANY OF THE FOLLOWING TRANSACTIONS, NOT BEING AN INTERNATIO NAL TRANSACTION, NAMELY: ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 13 (I) ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT H AS BEEN MADE OR IS TO BE MADE TO A PERSON REFERRED TO IN CLAUSE (B) OF SUB-SECTION (2) OF SECTION 40A; (II) ANY TRANSACTION REFERRED TO IN SECTION 80A; (III) ANY TRANSFER OF GOODS OR SERVICES REFERRED TO IN SUB-SECTION (8) OF SECTION 80-IA; (IV) ANY BUSINESS TRANSACTED BETWEEN THE ASSESSEE A ND OTHER PERSON AS REFERRED TO IN SUB-SECTION (10) OF SECTION 80-IA ; (V) ANY TRANSACTION, REFERRED TO IN ANY OTHER SECT ION UNDER CHAPTER VI-A OR SECTION 10AA, TO WHICH PROVISIONS OF SUB-SE CTION (8) OR SUB- SECTION (10) OF SECTION 80-IA ARE APPLICABLE; OR (VI) ANY OTHER TRANSACTION AS MAY BE PRESCRIBED, AND WHERE THE AGGREGATE OF SUCH TRANSACTIONS ENTERE D INTO BY THE ASSESSEE IN THE PREVIOUS YEAR EXCEEDS A SUM OF [TWE NTY] CRORE RUPEES. THUS, EVEN AFTER INTRODUCTION OF DOMESTIC TRANSFER PRICING, PRESENT CASE OF SALE TO THE SISTER CONCERN ARE NOT COVERED WITHIN ITS AMBIT. 3.11 ASSESSEE COMPANY HAS ALL THE RIGHT TO SELL ITS GOOD S AT A PRICE, MUTUALLY NEGOTIATED, FOUND PRUDENT AS A BUSINESSMAN PROVIDED THERE IS NO ALLEGATION OF ANY RECEIPT OVER AND ABOVE THE DECLARED CONSIDERATION. HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. [2007] 288 ITR 1 (SC)(CASE LAW PAGE 21) HELD THAT THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSELF IN THE ARM-C HAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRE CTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITU RE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CA N BE COMPELLED TO MAXIMIZE ITS PROFIT. THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 14 BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOO K AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUS INESSMAN. 3.12 ABOVE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. (SUPRA) IS A SETTLED LEGAL PROPOSITION. PRESENTLY, BECAUSE OF SPECIFIC PROVISION OF LAW, TAX AUTHORITI ES ARE PERMITTED ONLY IN THE FOLLOWING TWO SITUATIONS TO REPLACE SA LE PRICE BY FAIR MARKET VALUE:- 3.12.1 SECTION 43CA WHERE FOR SALE OF LAND AND BUILDING IN THE REGULAR COURSE OF BUSINESS CAN BE REPLACED BY STAMP DUTY VALUATION.(INSERTED BY THE FINANCE ACT, 2013, W.E.F . 1.04.2014) 3.12.2 SECTION 92, TRANSACTIONS WITH ASSOCIATED ENTERPRISE S FOR SPECIFIED DOMESTIC TRANSACTIONS AS PER THE SPECIAL PROVISIONS CONTAINED IN CHAPTER X OF INCOME TAX ACT, 1961.(INSERTED BY THE FINANCE ACT, 2012 W.E.F. 01.04.2013) ASSESSEE COMPANYS CASE IS NOT COVERED BY ANY OF TH E ABOVE SITUATIONS. 3.13 IT IS SUBMITTED THAT THE TRANSACTIONS BETWEEN ASSES SEE COMPANY AND ITS SISTER CONCERN IS TAX NEUTRAL AS BOTH THE ENT ITIES ARE TAXABLE AT THE SAME RATE OF 30.9%. THERE IS NO CARRY FORWARD L OSS IN ANY OF THE CONCERNS, NOR THERE IS ANY ISSUE OF SURCHARGE INVOL VED IN ANY OF THE TWO COMPANIES. 3.14 HONBLE SUPREME COURT IN THE CASE OF CIT V. GLAXOSM ITHKLINE ASIA (P) LTD. [2010] 195 TAXMAN 35(SC) HELD THAT IN THE CAS E OF RELATED PARTY DOMESTIC TRANSACTIONS, THE UNDER-INVOICING OF SALES AND OVER-INVOICING OF EXPENSES ORDINARILY WILL BE REVENUE NEUTRAL IN N ATURE, EXCEPT IN TWO CIRCUMSTANCES HAVING TAX ARBITRAGE- ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 15 3.14.1 IF ONE OF THE RELATED COMPANIES IS LOSS MAKING AND THE OTHER IS PROFIT MAKING AND PROFIT IS SHIFTED TO THE LOSS MAK ING CONCERN; AND 3.14.2 IF THERE ARE DIFFERENT RATES FOR TWO RELATED UNITS (ON ACCOUNT OF DIFFERENT STATUS, AREA BASED INCENTIVES, NATURE OF ACTIVITY, ETC.) AND IF PROFIT IS DIVERTED TOWARDS THE UNIT ON THE L OWER SIDE OF TAX ARBITRAGE. FOR EXAMPLE, SALE OF GOODS OR SERVICES F ROM NON-SEZ AREA (TAXABLE DIVISION) TO SEZ UNIT (NON-TAXABLE UN IT) AT A PRICE BELOW THE MARKET PRICE SO THAT TAXABLE DIVISION WIL L HAVE LESS PROFIT TAXABLE AND NON-TAXABLE DIVISION WILL HAVE A HIGHER PROFIT EXEMPTION. THEREFORE, THE PROPOSITION OF TAX NEUTRALITY HOLDS GOOD IN THE CASE OF DOMESTIC TRANSACTIONS BETWEEN THE RELATED PARTIES. LOWER AUTHORITIES HAVE GRAVELY ERRED IN REJECTING THIS PROPOSITION PU T FORTH BEFORE THEM. 3.15 SAME ASSESSING OFFICER, ACTING AS LD. AO, FOR KGK C REATIONS (INDIA) PRIVATE LIMITED(BUYER COMPANY), DURING THE COURSE O F PROCEEDINGS UNDER SECTION 143(3) READ WITH SECTION 153A, ACCEPT ED THE PURCHASE PRICE OF THE GOODS BOUGHT FROM THE ASSESSEE COMPANY . 3.16 WHILE ESTIMATING THE PROFITS, LD. AO AT PAGE 7 OF HIS ORDER HAS PARTIALLY ACCEPTED THE REASON EXPLAINED BEFORE HIM FOR FALL IN GP. ALSO, NO REASON IS GIVEN, FOR ONLY PARTIALLY ACCEPTING TH E EXPLANATION. RELEVANT PARA IS REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENCE:- ..IF SOME MORE CREDIT IS GIVEN TO THE ASSESSEE ON ACCOUNT OF BULK DEAL AND CLOSURE OF BUSINESS, IT WOULD BE APPROPRIA TE TO APPLY A GP RATE OF 15% TO THE DECLARED SALES TURNOVER OF THE A SSESSEE I.E. RS. 11,05,27,652.. ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 16 3.17 ENTIRE JEWELLERY SOLD BY THE ASSESSEE COMPANY TO IT S SISTER CONCERN WAS OLD FASHIONED AND SLOW MOVING. IT IS WELL ESTABLISH ED FROM THE FACT THAT QUANTITATIVE DETAILS OF FINISHED GOODS, AS REPORTED IN THE TAX AUDIT REPORT FOR AY 2006-07 TO AY 2009-10 INDICATE THAT W HATEVER NEW JEWELLERY WAS MANUFACTURED/PURCHASED GOT SOLD AND T HE OLD STYLE GOLD JEWELLERY, REMAINED IN STOCK CONTINUOUSLY OVER YEAR S. FURTHER OUT OF 1330 ITEMS OF GOLD JEWELLERY SOLD, THE SISTER CONCE RN (PURCHASER COMPANY) COULD SUBSEQUENTLY SELL ONLY 665 ITEMS. OU T OF THE REMAINING, 538 ITEMS WERE MELTED AND THE REST WERE LYING IN TH E STOCK. ALLEGATION OF THE LD. CIT(A) THAT MELTING MAY HAVE BEEN MORE P ROFITABLE FOR THE SISTER CONCERN ISSIMPLY BASED ON CONJECTURE AND SUR MISES. 3.18 THE RATE OF 18 CT. GOLD ON THE DATE WHEN THE SALE W AS MADE BY ASSESSEE COMPANY TO ITS SISTER CONCERN WAS RS. 1317 PER GRAM. WHEREAS THE ACTUAL RATE AT WHICH THE GOLD JEWELLERY WAS SOLD WAS RS. 1075 PER GRAM RESULTING INTO DIFFERENCE OF RS. 242 PER GRAM I.E 18.40% APPROX. THE LOWER AUTHORITIES HAVE TOTALLY IGNORED THE FACT THAT, AS PER ESTABLISHED NORMS, VALUE OF GOLD ORNAMENTS SHOULD B E REDUCED BY 14 TO 20 PERCENT OF RULING RATES OF GOLD TO CONSIDER WAST AGE/DAMAGES AND ALSO THAT CERTAIN OTHER METALS LIKE COPPER, SILVER ETC HAVE TO BE USED IN MAKING SUCH ORNAMENTS. 3.19 THUS EVEN ON MERITS, THE ASSESSE COMPANY HAS SOLD J EWELLERY TO ITS SISTER CONCERN AT FAIR MARKET VALUE. 3.20 FOLLOWING CASE LAW RELIED UPON BY THE LD CIT(A) ARE DISTINGUISHABLE: CIT VS. INANI MARBLES (P.) LTD [2009] 316 ITR 125 ( RAJASTHAN) AJAY GOYAL VS. ITO [2006] 99 TTJ 164 (JODHPUR ITA T) ITO VS. JAI CONSTRUCTION CO, ITA NO. 64/JU/2014 (JO DHPUR ITAT) ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 17 BHIKHA RAM DEVRATH VS. ITO, ITA NO. 245/JODH/2013 ( JODHPUR ITAT) 3.21 THE FACTS OF THE PRESENT CASE ARE COMPLETELY D IFFERENT. ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF JEWELLERY SIN CE MANY YEARS AND MAINTAINED ITS BOOKS OF ACCOUNTS IN THE BEST POSSIB LE MANNER, TO AN EXTENT THAT NOT A SINGLE DEFECT COULD BE POINTED OU T BY THE LOWER AUTHORITIES. LD. CIT(A) HAS MISPLACED HIS RELIANCE ON THE CASE LAWS, AS MENTIONED ABOVE AND PICKED UP LINES, FROM THE ORDER S, SUITING HIS REQUIREMENTS. HONBLE SUPREME COURT IN SUN ENGINEER ING WORKS (P.) LTD. [1992] 198 ITR 297 (SC) HELD THAT EACH CASE HA S TO BE READ IN THE FACTUAL BACKGROUND OF THE CASE. 3.23 LD. CIT(A) DID NOT PROVIDE ANY COGENT REASON FOR NO T FOLLOWING THE RATIO LAID DOWN BY THE VARIOUS JUDGMENTS PUT FORTH BEFORE HIM. IN PARTICULAR, LD. CIT(A) HAS NOT DEALT WITH THE DECISION OF HONB LE ITAT BANGALORE BENCH IN THE CASE OF SPHOORTI MACHINE TOOLS (P.) LT D. [2013] 30 TAXMANN.COM 413 (BANGALORE - TRIB.). LD. CIT(A) HAS MISDIRECTED HIMSELF IN DISTINGUISHING THE JUDGMENT OF HONBLE J URISDICTIONAL HIGH COURT IN MALANI RAMJIVAN JAGANNATH [2009] 316 ITR 1 20 (RAJASTHAN). IN THE CASE AT HAND, NO DEFECTS HAVE BEEN FOUND IN THE OPENING STOCK, PURCHASE, SALES AND CLOSING STOCK. MERE DOUBT ON TH E TRANSACTION WITH SISTER CONCERN CANNOT CONSTITUTE A DEFECT IN THE BOOKS. THUS THE JUDGMENT OF MALANI RAMJIVAN JAGANNATH (SUPRA) IS FULLY APPLICABLE IN THE ASSESSEE COMPANYS CASE. IN VIEW OF THE ABOVE, LD. CIT(A) HAS GROSSLY ERRED IN CONFIRMING THE REJECTION OF BOOKS OF ACCOUNT AND ALSO CONFIRMING THE TRADING ADDITIONS OF RS. 1,04,49,607. RELIEF MAY PLEASE BE GIVE, BY ALLOWIN G APPEAL OF THE ASSESSE COMPANY. ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 18 5. THE LD DR HAS VEHEMENTLY ARGUED THE MATTER AND RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFI CER HAS INVOKED THE PROVISIONS OF SECTION 145(3) WHEREBY HE HAS REJECTE D THE BOOKS OF ACCOUNTS AND THEREAFTER, HAS ESTIMATED THE GROSS PROFIT RATE AND MADE AN ADDITION OF RS 1,04,49,607. THE REASONING OF THE ASSESSING OFFI CER, AS EMERGING FROM THE READING OF THE ASSESSMENT ORDER FOR SUCH REJECTION OF BOOKS OF ACCOUNTS, IS THAT CERTAIN TRANSACTION OF SALE TO A SISTER CONCER N IS NOT AT ARMS LENGTH AND AN ADJUSTMENT IS THEREFORE REQUIRED TO BE MADE. TH E ASSESSING OFFICER THEREAFTER CAME TO A CONCLUSION THAT AS THE ACCOUNT S OF THE ASSESSEE DONOT PRESENT A TRUE PICTURE OF THE STATE OF AFFAIRS, THE BOOKS OF ACCOUNTS WERE REJECTED AFTER INVOKING THE PROVISIONS OF SECTION 1 45(3) OF THE ACT. THE QUESTIONS THAT ARISE FOR CONSIDERATION IS WHAT IS T HE BASIS FOR THE ASSESSING OFFICER TO COME TO A CONCLUSION THAT THE TRANSACTIO N OF SALE TO A SISTER CONCERN IS NOT AT ARMS LENGTH. SECONDLY, WHERE IT IS ACC EPTED THAT THE TRANSACTION OF SALE TO A SISTER CONCERN IS NOT AT ARMS LENGTH, AR E THERE ANY PROVISIONS IN THE INCOME TAX ACT WHERE THE ASSESSING OFFICER IS EMPOW ERED BY THE STATUE TO SUBSTITUTE AND REPLACE THE ACTUAL SALE CONSIDERATIO N WITH THE ARMS LENGTH SALE CONSIDERATION SO DETERMINED. THIRDLY, WHERE THERE ARE NO SPECIFIC PROVISIONS WHERE THE ASSESSING OFFICER IS EMPOWERED BY THE STA TUE TO SUBSTITUTE AND REPLACE THE ACTUAL SALE CONSIDERATION WITH THE ARM S LENGTH SALE CONSIDERATION SO DETERMINED, WHETHER THE ASSESSING OFFICER CAN IN VOKE THE PROVISIONS OF SECTION 145(3) TO REJECT THE WHOLE OF THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY AND THEREAFTER, MAKE AN ASSESSMENT IN THE M ANNER PROVIDED IN SECTION 144 OF THE ACT. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS ENTERED INTO AN AGREEMENT DATED 24.11. 2009 WITH M/S KGK ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 19 CREATION (I) PVT. LTD., WHICH IS A SISTER CONCERN O F THE ASSESSEE COMPANY AND IN TERMS OF THE SAID AGREEMENT, THE ASSESSEE HAS AG REED TO TRANSFER TO THE PURCHASER COMPANY, THE ENTIRE STOCK OF RAW MATERIAL AND FINISHED GOODS VALUED AT RS. 6,64,62,716/-. AN ANALYSIS WAS MADE B Y THE AO IN RESPECT OF 18CT GOLD OF FINISHED GOODS WEIGHING 18.10337/- KG WHICH HAS BEEN SOLD FOR RS. 1,95,54,089/-. IT WAS OBSERVED BY THE AO THAT T HE RATE PER GRAM WORKS OUT TO RS. 1074.61 WHEREAS THE RATE OF PURE GOLD ON THE DATE OF SUCH TRANSFER WAS RS. 1756/- PER GRAM AND RATE OF 18CT GOLD WAS A CCORDINGLY WORKED OUT AT RS. 1317 PER GRAM. THE AO THUS DETERMINED LOSS OF R S. 43,99,029/- IN RESPECT OF THE SAID TRANSACTION WHICH HAS BEEN HELD AS NOT DONE AT ARMS LENGTH PRICE. THE BASIS FOR THE ASSESSING OFFICER TO HOLD THAT TH E TRANSACTION OF SALE TO A SISTER CONCERN IS NOT AT ARMS LENGTH IS THUS THE C OMPARISON OF 18CT GOLD RATE AS PER AGREEMENT AND AS PREVAILING IN THE OPEN MARK ET ON THE DATE OF SUCH SALE TRANSACTION. IF WE LOOK AT THE AGREEMENT DATE D 24.11.2009 ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND ITS SISTER CONCERN , M/S KGK CREATIONS (INDIA) PVT LTD, IT STATES THAT THE ASSESSEE COMPAN Y ON ITS CLOSURE OF BUSINESS ON THIS DAY OF 24 TH NOVEMBER IN THE YEAR 2009 TRANSFER TO PURCHASER EN TITY, ITS ENTIRE STOCK IN HAND OF 18 CT GOLD JEWELLERY STUDDE D WITH DIAMONDS & COLOUR STONES VALUED AT RS 5,49,53,487 AND RAW MATERIAL I. E, DIAMONDS & COLOUR STONES VALUED AT RS 1,15,09,229 FOR A TOTAL CONSIDE RATION OF RS 6,64,64,716. THE TRANSACTION UNDER CONSIDERATION IS THEREFORE NO T SALE OF 18CT GOLD SIMPLICITIER BUT 18 CT GOLD JEWELLERY STUDDED WITH DIAMONDS & COLOUR STONES. IN ORDER TO DETERMINE WHETHER THE SAID TRANSACTION OF SALE OF GOLD JEWELLERY IS AT ARMS LENGTH OR NOT, THE COMPARISON SHOULD BE OF SALE OF GOLD JEWELLERY STUDDED WITH DIAMONDS AND COLOUR STONES TO AN UNREL ATED THIRD PARTY. THERE IS NOTHING ON RECORD TO SUGGEST ANY SUCH COMPARATIV E ANALYSIS AND DETERMINATION UNDERTAKEN BY THE ASSESSING OFFICER. THE LD AR HAS STATED AT THE BAR THAT THE LOWER AUTHORITIES HAVE TOTALLY IGN ORED THE FACT THAT, AS PER ESTABLISHED NORMS, VALUE OF GOLD ORNAMENTS SHOULD B E REDUCED BY 14 TO 20 PERCENT OF RULING RATES OF GOLD TO CONSIDER WASTAGE /DAMAGES AND ALSO THAT ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 20 CERTAIN OTHER METALS LIKE COPPER, SILVER ETC HAVE T O BE USED IN MAKING SUCH ORNAMENTS. THERE IS AGAIN NO FINDING OF THE ASSESSI NG OFFICER REGARDING SUCH CONTENTIONS RAISED BY THE LD AR. WITHOUT GETTING I NTO MERIT OF SUCH CONTENTION, THE FACT REMAINS THAT THE TRANSACTION U NDER CONSIDERATION IS SALE OF GOLD JEWELLERY STUDDED WITH DIAMONDS AND COLOUR STO NES AND NOT SALE OF GOLD SIMPLICITIER IN FORM OF GOLD COINS OR GOLD BARS. T HE COMPARISON THEREFORE HAS TO BE IN RESPECT OF SAME OR IDENTICAL TRANSACTION T HOUGH WITH AN UNRELATED THIRD PARTY WHICH HAS NOT BEEN DONE IN THE INSTANT CASE. FURTHER, THERE IS NOTHING ON RECORD WHICH SUGGEST THAT THE ASSESSEE C OMPANY HAS RECEIVED ANY SALE CONSIDERATION OVER AND ABOVE WHAT HAS BEEN AGR EED AND STATED IN THE AFORESAID AGREEMENT DATED 24.09.2009. WE ARE THERE FORE OF THE VIEW THAT THE ASSESSING OFFICER IS NOT CORRECT TO HOLD THAT THE T RANSACTION OF SALE OF 18CT GOLD JEWELLERY STUDDED WITH DIAMONDS AND COLOUR STONES T O ITS SISTER CONCERN IS NOT AT ARMS LENGTH HAVING FAILED TO CARRY OUT SUITABLE COMPARATIVE ANALYSIS OF SIMILAR SALE TRANSACTION WITH UNRELATED THIRD PARTI ES. 8. NOW, COMING TO THE SECOND ISSUE, WHERE FOR SAKE OF ARGUMENTS, IT IS ACCEPTED THAT THE TRANSACTION OF SALE TO A SISTER C ONCERN IS NOT AT ARMS LENGTH, ARE THERE ANY PROVISIONS IN THE INCOME TAX ACT WHER E THE ASSESSING OFFICER IS EMPOWERED BY THE STATUE TO SUBSTITUTE AND REPLACE T HE ACTUAL SALE CONSIDERATION WITH THE ARMS LENGTH SALE CONSIDERAT ION SO DETERMINED. IN THIS REGARD, THE LD AR HAS DRAWN OUR REFERENCE TO THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF GLAXOSMITHKLINE ASIA ( P) LTD. (SUPRA) AND SUBMITTED THAT IN THAT DECISION, THE HONBLE SUPREM E COURT HAS OBSERVED THAT WITHOUT DOMESTIC TRANSFER PRICING LAW FINDING PLACE IN THE STATUTE BOOK, THE TAX AUTHORITIES HAVE NO RIGHT TO MAKE ADJUSTMENTS REGAR DING DOMESTIC SALES MADE TO SISTER CONCERNS ON THE LINE OF TRANSFER PRICING LAW FOR INTERNATIONAL TRANSACTIONS. IT WAS FURTHER SUBMITTED THAT IN CON SONANCE WITH THE SAID DECISION, DOMESTIC TRANSFER PRICING PROVISIONS WERE BROUGHT ON THE STATUE ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 21 BOOKS BY THE FINANCE ACT, 2012 W.E.F. 01.04.2013 AN D EVEN UNDER THESE PROVISIONS, THE SALES TO THE ASSOCIATED ENTERPRISE IN THE PRESENT CASE IS NOT COVERED. FURTHER, DRAWING SUPPORT FROM THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V. GLAXOSMITHKLINE ASIA (P ) LTD (SUPRA), THE LD AR HAS CONTENDED THAT THE HONBLE SUPREME COURT HAS ALSO U PHELD THE PROPOSITION OF TAX NEUTRALITY AND IN THE INSTANT CASE, THE TRANSAC TIONS BETWEEN ASSESSEE COMPANY AND ITS SISTER CONCERN IS TAX NEUTRAL AS BOTH THE ENTITIES ARE TAXABLE AT THE SAME RATE OF 30.9% AND THERE IS NO C ARRY FORWARD LOSS IN ANY OF THE CONCERNS, NOR THERE IS ANY ISSUE OF SURCHARGE I NVOLVED IN ANY OF THE TWO COMPANIES. IT WAS FURTHER SUBMITTED THAT THE SAID T RANSACTION HAS BEEN ACCEPTED IN THE HANDS OF THE SISTER CONCERN BY THE SAME ASSESSING OFFICER WHO EXERCISES JURISDICTION OVER THE ASSESSEE COMPANY. FURTHER, DRAWING SUPPORT FROM THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF S.A. BUILDERS LTD. (SUPRA), THE LD AR HAS CONTENDED THAT THE ASSE SSEE COMPANY HAS ALL THE RIGHT TO SELL ITS GOODS AT A PRICE, MUTUALLY NEGOTI ATED, FOUND PRUDENT AS A BUSINESSMAN AND SUBMITTED THAT IN THE INSTANT CASE, WHERE THERE IS NO ALLEGATION OF ANY RECEIPT OVER AND ABOVE THE DECLAR ED CONSIDERATION, THERE IS NO BASIS WITH THE ASSESSING OFFICER TO SUBSTITUTE A ND REPLACE THE ACTUAL SALE CONSIDERATION WITH THE ARMS LENGTH SALE CONSIDERAT ION SO DETERMINED. WE FIND FORCE IN AFORESAID CONTENTIONS SO RAISED BY THE LD AR. THE TRANSACTION IS A TAX NEUTRAL TRANSACTION AS BOTH THE ENTITIES ARE PROFIT MAKING AND CHARGEABLE AT MAXIMUM MARGINAL RATE OF 30.9%. IN THE INSTANT CASE , EVEN THOUGH THE AO HAS COMPUTED A NOTIONAL LOSS OF RS 43,99,029, NO AD JUSTMENT HAS BEEN MADE TO THE SALE CONSIDERATION IN THE HANDS OF THE ASSES SEE COMPANY. SIMILARLY, THE PURCHASE CONSIDERATION ARISING OUT OF THE SAME TRAN SACTION HAS BEEN ACCEPTED BY THE ASSESSING OFFICER WHO HAPPENS TO EXERCISE JU RISDICTION OVER BOTH THE ENTITIES. FURTHER, WE FIND THAT THERE IS NO SPECIF IC PROVISION WHICH EMPOWERS THE ASSESSING OFFICER TO MAKE SUCH AN ADJUSTMENT TO WARDS THE SALE CONSIDERATION AS HELD BY THE HONBLE SUPREME COURT IN CASE OF CIT VS GLAXO SMITHLINE (SUPRA) WHICH HAS SUBSEQUENTLY BEEN FOLLO WED BY THE HONBLE ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 22 PUNJAB AND HARYANA HIGH COURT IN CASE OF SAIMBHI CY CLES & AUTO INDUSTRIES (SUPRA). PRECISELY FOR THE SAID REASONS, KNOWING V ERY WELL THAT THERE ARE NO SPECIFIC PROVISIONS WHICH EMPOWERS HIM TO MAKE THE ADJUSTMENT EVEN THOUGH HE HAS DETERMINED A NOTIONAL LOSS OF RS 43,99,029, THE ASSESSING OFFICER DID NOT MAKE ANY ADJUSTMENT TOWARDS SUCH NOTIONAL LOSS AND WENT AHEAD AND REJECTED THE WHOLE OF THE BOOKS OF ACCOUNTS INVOKIN G PROVISIONS OF SECTION 145(3) OF THE ACT. 9. NOW, COMING TO THE THIRD ISSUE, GIVEN THAT THERE ARE NO SPECIFIC PROVISIONS WHERE THE ASSESSING OFFICER IS EMPOWERED BY THE STATUE TO SUBSTITUTE AND REPLACE THE ACTUAL SALE CONSIDERATIO N WITH THE ARMS LENGTH SALE CONSIDERATION SO DETERMINED, WHETHER THE ASSESSING OFFICER CAN INVOKE THE PROVISIONS OF SECTION 145(3) TO REJECT THE WHOLE OF THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY AND THEREAFTER, MAKE AN ASSESS MENT IN THE MANNER PROVIDED IN SECTION 144 OF THE ACT. THE LD CIT(A) H AS STATED THAT AS ONE MAIN ITEM OF THE TRADING ACCOUNT I.E. SALES WERE FOUND T O BE MADE NOT ON THE NORMAL PREVAILING RATE THAT TOO TO A SISTER CONCERN, THEN THE AO WAS JUSTIFIED TO INVOKE PROVISION OF SECTION 145(3) OF IT ACT. 10. IN THIS REGARD, WE REFER TO THE PROVISIONS OF S ECTION 145(3) WHICH PROVIDES THAT WHERE THE ASSESSING OFFICER IS NOT SA TISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) HA S NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE, OR INCOME HAS NOT BEEN CO MPUTED IN ACCORDANCE WITH THE STANDARDS NOTIFIED UNDER SUB-SECTION (2), THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTIO N 144. IN THE INSTANT CASE, THE SALE TRANSACTION HAS BEEN DULY RECORDED I N THE BOOKS OF ACCOUNTS, THEREFORE, IT IS NOT A CASE OF INCOMPLETE BOOKS OF ACCOUNTS OF THE ASSESSEE. IT IS ALSO NOT A CASE OF THE REVENUE THAT THERE HAS BE EN A CHANGE IN METHOD OF ACCOUNTING REGULARLY FOLLOWED OR INCOME HAS NOT BEE N COMPUTED IN ACCORDANCE WITH THE NOTIFIED STANDARDS. THE QUESTI ON IS WHERE THE ASSESSING ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 23 OFFICER HAS DETERMINED SALE OF 18CT GOLD AT LOWER T HAN THE NORMAL PREVAILING MARKET RATE, CAN IT BE SAID THAT THE BOOKS OF ACCOU NTS DOESNT REPRESENT CORRECT STATE OF AFFAIRS AND HENCE, THE SAME CAN BE REJECTED. IN THE INSTANT CASE, WE FIND THAT THE ASSESSEE COMPANY HAS REPORTE D A TOTAL TURNOVER OF RS 11,05,27,652 AND OUT OF THAT, SALE CONSIDERATION IN RESPECT OF GOLD WHICH HAS BEEN QUESTIONED BY THE ASSESSING OFFICER COMES TO R S 1,94,54,089 WHICH CONSTITUTE 17.60% OF TOTAL TURNOVER. IN OTHER WORD S, SALE TRANSACTIONS REPRESENTING 82.4% OF THE TURNOVER HAS BEEN ACCEPTE D BY THE ASSESSING OFFICER AND STILL, THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED. FURTHER, IF WE LOOK AT THE AGREEMENT VALUE OF RS 6,64,62,716 UNDER WHIC H SUCH SALE TRANSACTION HAS HAPPENED, IT CONSTITUTE 29.27% OF TOTAL TRANSAC TION VALUE WHICH MEANS THAT THE REMAINING TRANSACTION VALUE WHICH CONSTITU TE 70.73% HAS AGAIN BEEN ACCEPTED BY THE ASSESSING OFFICER. FURTHER, ON PER USAL OF LEDGER ACCOUNT OF SISTER CONCERN IN THE BOOKS OF THE ASSESSE COMPANY AVAILABLE IN APB PAGES 23- 28, IT IS NOTED THAT DURING THE YEAR, BESIDES THE S UBJECT TRANSACTION, THERE ARE OTHER REGULAR SALES AND PURCHASE TRANSACTION RUNNIN G INTO CRORES OF RUPEES WHICH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. FURTHER, THE ASSESSING OFFICER HAS NOT DISPUTED THE OPENING STOCK, PURCHAS ES, SALES AND CLOSING STOCK AS REPORTED BY THE ASSESSEE COMPANY. THERE IS NO E VIDENCE ON RECORD THAT THE ASSESSEE COMPANY HAS RECEIVED ANY SALES CONSIDE RATION OVER AND ABOVE WHAT HAS BEEN STATED IN THE AGREEMENT AND REPORTED IN THE BOOKS OF ACCOUNTS. ASSUMING IT WAS A CASE OF CLOSING STOCK A ND THE ASSESSEE COMPANY HAS FAILED TO VALUE THE STOCK TAKING INTO CONSIDERA TION THE MARKET VALUE OR COST PRICE, WHICHEVER IS LESS, WE COULD HAVE STILL APPRE CIATED THE CONCERN OF THE ASSESSING OFFICER, HOWEVER IN THE INSTANT CASE, IT IS A CASE OF ACTUAL SALE AND WHEN THE SALE TRANSACTION HAS NOT BEEN DISPUTED AND THERE IS NO MATERIAL TO PROVE THAT THE ASSESSEE HAS RECEIVED ANY CONSIDERAT ION OVER AND ABOVE THE AGREED CONSIDERATION AS REPORTED IN THE FINANCIAL S TATEMENTS, THE ACTUAL SALE CONSIDERATION HAS TO BE ACCEPTED. IN THE ABOVE FAC TUAL MATRIX, WE FIND THAT THE ASSESSING OFFICER HAS MERELY PROCEEDED ON A PRE MISE THAT THE SALE OF GOLD ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 24 IS AT A VALUE LOWER THAN WHAT IS PREVAILING IN THE MARKET. AS WE HAVE STATED ABOVE, THE TRANSACTION UNDER CONSIDERATION IS NOT S ALE OF 18CT GOLD SIMPLICITIER BUT 18 CT GOLD JEWELLERY STUDDED WITH DIAMONDS & CO LOUR STONES. IN ORDER TO DETERMINE WHETHER THE SAID TRANSACTION OF SALE OF G OLD JEWELLERY IS AT ARMS LENGTH OR NOT, THE COMPARISON SHOULD BE SALE OF GOL D JEWELLERY STUDDED WITH DIAMONDS AND COLOUR STONES TO AN UNRELATED THIRD PA RTY. THERE IS NOTHING ON RECORD TO SUGGEST ANY SUCH COMPARATIVE ANALYSIS AND DETERMINATION UNDERTAKEN BY THE ASSESSING OFFICER. FURTHER, IT AF FIRMS OUR VIEWS, AS WE HAVE STATED ABOVE, THAT IN ABSENCE OF ANY SPECIFIC PROVI SIONS WHICH EMPOWERS HIM TO MAKE THE ADJUSTMENT TOWARDS THE NOTIONAL LOSS OF RS 43,99,029, THE ASSESSING OFFICER WENT AHEAD AND REJECTED THE BOOK S OF ACCOUNTS INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT. IN OUR VI EW, SUCH AN APPROACH OF THE ASSESSING OFFICER WHICH HAS BEEN CONFIRMED BY THE L D CIT(A) CANNOT BE ACCEPTED. IN LIGHT OF THE SAME, IT CANNOT BE SAID THAT THE BOOKS OF ACCOUNTS DOESNT REPRESENT CORRECT STATE OF AFFAIRS AND HENC E, THE SAME CAN BE REJECTED INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT. O UR DECISION IS FORTIFIED BY THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN CASE OF MALANI RAMJEEVAN JAGGANATH VS. ACIT (SUPRA). FURTHER, A SIMILAR VIEW HAS BEEN TAKEN BY THE COORDINATE BENCH IN CASE OF DCIT VS SPHOORTI MACHIN E TOOLS (SUPRA) WHEREIN IT WAS HELD THAT THE FACT THAT THE ASSESSEE HAS SOL D ITS PRODUCTS TO ITS SISTER- CONCERNS AT A PRICE LESSER THAN THE PRICE AT WHICH THE SAME PRODUCT IS SOLD TO THE THIRD PARTIES CANNOT BE A GROUND FOR REJECTION OF BOOKS OF ACCOUNTS. THE FACTS IN THE INSTANT CASE ARE ON A STRONGER FOOTING AS THERE IS NO INSTANCE OF SALE TO A THIRD PARTY AT A HIGHER PRICE. THE RELEV ANT FINDINGS OF THE COORDINATE BENCH ARE AS UNDER: 11. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. THE PRIMARY CONDITION FOR REJECTING THE BOOK RESULTS AS LAID DOWN UNDER SECTION 145 OF THE INCOME-TAX ACT, 1961 (THE ACT) IS THAT T HE ASSESSING OFFICER SHOULD BE SATISFIED THAT THE BOOKS OF ACCOUNT MAINTAINED B Y THE ASSESSEE ARE NOT ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 25 COMPLETE AND CORRECT. AS CAN BE SEEN FROM THE FINDI NGS GIVEN BY THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT, THE A SSESSING OFFICER HAS MERELY PROCEEDED ON A SURMISE THAT THE PROFITS OF THE ASSE SSEE ARE SOUGHT TO BE REDUCED BY SELLING ITS PRODUCTS TO M/S. PRAGATHI AU TOMATION P. LTD., THE ASSESSEE'S SISTER-CONCERN AT A LESSER PRICE. THERE IS NO INSTANCE OF FALSITY OR INCOMPLETENESS OF THE BOOKS OF ACCOUNT POINTED OUT BY THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT. THE BOOKS OF ACCOUNT RE FLECT THE TRUE STATE OF AFFAIRS OF THE ASSESSEE. THE FACT THAT THE ASSESSEE HAS SOLD ITS PRODUCTS TO ITS SISTER-CONCERNS AT A PRICE LESSER THAN THE PRICE AT WHICH THE SAME PRODUCT IS SOLD TO THE THIRD PARTIES, IN OUR OPINION, WOULD NO T BE A SUFFICIENT GROUND TO COME TO A CONCLUSION THAT THE BOOKS OF ACCOUNT OF T HE ASSESSEE ARE NOT COMPLETE AND CORRECT. THERE IS NO EVIDENCE BROUGHT ON RECORD THAT OVER AND ABOVE THE PRICE SHOWN IN THE BOOKS OF ACCOUNT, THE ASSESSEE RECEIVED SOMETHING MORE FROM M/S. PRAGATHI AUTOMATION P. LTD . AS RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE IT IS FOR THE BUSINESSMAN TO DECIDE THE PRICE AT WHICH HE HAS TO SELL ITS PRODUCTS TO ITS CUSTOMERS. THE LAW IS WELL-SETTLED THAT THE REVENUE CANNOT INSIST ON THE WAY IN WHICH BUSIN ESSMEN SHOULD CONDUCT HIS BUSINESS. THE REVENUE CANNOT COMPEL A BUSINESSM AN TO SELL ITS PRODUCTS AT A PARTICULAR PRICE, SO THAT THE ASSESSEE DERIVES MAXIMUM PROFIT. THE COST CALCULATION, ON WHICH THE ASSESSING OFFICER HAS PLA CED RELIANCE, HAS NOTHING TO DO WITH THE COMPLETENESS AND CORRECTNESS OF THE BOO KS OF ACCOUNT OF THE ASSESSEE. THERE IS ONE ALLEGATION BY THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT (POINT J) THAT THE SALE OF RAW MATERIALS , BLACKENING SALES AND LABOUR CHARGES SALES NOT TALLYING WITH THE BOOKS AN D DETAILS FURNISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS. THIS IS A VERY VAGUE ALLEGATION. THE A SSESSING OFFICER HAS ULTIMATELY CONCLUDED THAT THERE IS NO CLARITY IN FI GURES SUBMITTED BY THE ASSESSEE AND THE BOOKS OF ACCOUNT. THIS ALLEGATION ON WHICH THE LEARNED DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE, IN OUR VIEW, COULD NOT BE SUFFICIENT TO REJECT THE BOOK RESULTS. WE AGREE WIT H THE CONCLUSION OF THE ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 26 COMMISSIONER OF INCOME-TAX (APPEALS) THAT THE ASSES SING OFFICER HAS PROCEEDED ON THE ASSUMPTION THAT SOMETHING IS AMISS , ONLY BECAUSE THE ASSESSEE HAD OFFERED ITS PRODUCTS TO ITS DIFFERENT CUSTOMERS AT DIFFERENT RATES. THE COMMISSIONER OF INCOME-TAX (APPEALS) FOUND THAT M/S. PRAGATHI AUTOMATION P. LTD. WAS NOT CLAIMING ANY TAX EXEMPTI ON WHICH NECESSITATES THE ASSESSEE SHIFTING PROFITS TO M/S. PRAGATHI AUTOMATI ON P. LTD. IN THE CIRCUMSTANCES, WHEN THERE IS NO EVIDENCE REGARDING INCOMPLETENESS AND INCORRECTNESS OF BOOKS OF ACCOUNT OR FACTS SUFFICIE NT TO COME TO A CONCLUSION THAT THE ASSESSEE HAS ATTEMPTED TO DEFRAUD THE REVE NUE, WE ARE OF THE VIEW THAT THE CONCLUSION DRAWN BY THE COMMISSIONER OF IN COME-TAX (APPEALS) ARE CORRECT AND DO NOT CALL FOR ANY INTERFERENCE. CONSE QUENTLY, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 11. IN LIGHT OF ABOVE DISCUSSIONS AND IN THE ENTIR ETY OF FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWIN G THE LEGAL AUTHORITIES NOTED ABOVE, THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNTS UNDER SECTION 145(3) IS SET ASIDE AND THE CONSEQUENT ACTION BY WAY OF ADDITIONS SO MADE BY ESTIMATING GP RATE THAN DEC LARED BY THE ASSESSING COMPANY ARE HEREBY DIRECTED TO BE DELETED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 04/04/2018. SD/- SD/- FOT; IKWY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 04/04/2018 *GANESH KR VKNS'K DH IZFRFYFI VXZSF'KR @ COPY OF THE ORDER FORWARDED TO: ITA NO. 455/JP/2015 M/S KOTHARI JEWELS PRIVATE LTD., MUMBAI VS ACIT, JAIPUR 27 1. VIHYKFKHZ@ THE APPELLANT - M/S KOTHARI JEWELS PVT. LTD., MUMBAI 2. IZR;FKHZ@ THE RESPONDENT - ACIT, JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDRVIHY@ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 455/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR.