M/S CLARITY GOLD P. LTD, JAIPUR, JAIPUR V. ACIT, CENTRAL CIRCLE-1, JAIPUR

ITA 479/JPR/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2082 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 14-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VARINDAR MEHTA
• Assessee Lawyers: S L PODDAR; ISHA KANOONGO
• Keywords: Bogus purchase; Rejection of books of accounts; Business income; Loose papers; Question of law
• Section: 143(3); 153A; 145

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. 479/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2010-11 M/S CLARITY GOLD PVT LTD. 4, GANGA VIHAR, SARDAR PATEL MARG, C-SCHEME, JAIPUR CUKE VS. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACCC3671Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI S.L. PODDAR & MISS. ISHA KANOONGO (ADV.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI VARINDAR MEHTA (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 25/01/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 16/02/2018 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), ALWAR DATED 24.03.2015 FOR ASSESSMENT YEAR 2010-11 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APP EAL:- 1. THAT THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER U/S 143(3)/153(B) IS VOID AB-INITIO DESERVES TO BE QUAS HED. ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 2 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED ASSESSING OFFICER AS WELL AS LEARNED CIT(A) HAS ERR ED IN REJECTING THE BOOKS OF ACCOUNTS U/S 145(3) OF THE INCOME TAX ACT, 1961. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED CIT(A) HAS ERRED IN SUSTAIN THE TRADING ADDITION OF RS. 72,12,185/- OUT OF TOTAL ADDITION OF RS. 1,02,92,95 4/-. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE L EARNED CIT(A) HAS ERRED IN ENHANCING THE ADDITION OF RS. 2 ,25,51,448/- BY APPLYING GP RATE OF 15% ON ALLEGED UNACCOUNTED T URNOVER OF RS. 15,03,42,985/- WHICH ARE ONLY BOOK ENTRIES FOR PURCHASE AND NOT RECONCILED WITH STOCK. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE COMPANY DERIVES INCOME FROM BUSINESS OF MANUFACTURING OF JEWELLERY AND TRA DING OF GEM STONES. A SEARCH & SEIZURE OPERATION UNDER SECTION 132(1) O F THE I.T. ACT, 1961 WAS CARRIED OUT ON 20.5.2009 AT THE BUSINESS AND RE SIDENCE PREMISES OF THE ASSESSEE GROUP. THE BACKGROUND OF SEARCH ACTION ON THE CLARITY GROUP WAS SURVEY U/S 133(A) CONDUCTED IN FY 2007-08 BY BCTT WING OF INVESTIGATION DIRECTORATE AT JAIPUR WHICH REVEALED THAT THE ASSESSEE COMPANY AND ITS SISTER CONCERN HAD OBTAINED BOGUS P URCHASE BILLS FROM VARIOUS ENTRY PROVIDERS WHO PROVIDED BOGUS SALES BI LLS WITHOUT SUPPLYING THE GOODS MENTIONED IN THE BILLS. 3. DURING THE COURSE OF SEARCH, STATEMENT OF SH. KH USHI KUMAR AMERIYA, ONE OF THE DIRECTORS OF THE ASSESSEE COMPA NY WAS RECORDED U/S 132(4) OF THE ACT. FURTHER, THE STATEMENT OF SH . RAGHU DUTT TIWARI, THE ACCOUNTANT WHO WAS RESPONSIBLE FOR MAINTAINING AND SUPERVISING THE ACCOUNTS OF THE ASSESSEE WERE ALSO RECORDED. VA RIOUS DOCUMENTS ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 3 LOOSE PAPERS AND PEN DRIVE WERE FOUND RELATING TO U NACCOUNTED SALES, PURCHASE AND EXPENSES OF THE ASSESSEE COMPANY AND A LL THESE DOCUMENTS WERE CONFRONTED TO THESE PERSONS AND THE STATEMENT OF SH. KHUSHI KUMAR AMERIYA, THE DIRECTOR AND SH. RAGHU DU TT TIWARI, THE ACCOUNTANT WERE RECORDED. 4. THE CASE OF THE ASSESSEE COMPANY WAS THEREAFTER CENTRALIZED WITH ACIT, CENTRAL CIRCLE-1, JAIPUR WHO ISSUED NOTI CE U/S 153A AND THEREAFTER, ASSESSMENT FOR AY 2005-06, 2006-07, 200 7-08, 2008-09 AND 2009-10 WERE COMPLETED U/S 143(3) READ WITH SECTION 153A WHEREIN THE BOOKS OF ACCOUNTS WERE REJECTED AND THE TRADING ADD ITION WERE MADE BY THE ESTIMATING THE GROSS PROFIT RATE FOR EACH OF TH ESE YEARS. THE MATTER HAS SINCE REACHED THE HONBLE RAJASTHAN HIGH COURT AND THE ASSESSMENT SO MADE BY THE ASSESSING OFFICER HAS BEE N CONFIRMED EXCEPT TO THE FACT THAT AS AGAINST THE GP RATE ESTI MATED BY THE ASSESSING OFFICER, THE HONBLE HIGH COURT, TAKING I NTO ACCOUNT THE AVERAGE GP RATE, HAD DIRECTED TO APPLY GP RATE OF 1 2% FOR THE SAID YEARS. 5. FOR THE YEAR UNDER CONSIDERATION, THE RETURN OF INCOME HAS BEEN FILED BY THE ASSESSEE COMPANY, SUBSEQUENT TO THE SE ARCH OPERATION, ON 15.10.2010 WHEREIN IT HAS DECLARED TURNOVER OF RS. 15,40,38,479/- AND GROSS PROFIT OF RS 1,58,93,587 @ GP RATE OF 10.31%. THE ASSESSING OFFICER, FOLLOWING THE EARLIER YEARS, FOR THE FACT THAT THERE IS UNRECONCILED STOCK AT THE TIME OF SEARCH WHICH HAPP ENED DURING THE YEAR UNDER CONSIDERATION AND ALSO FOR OTHER DETAILE D REASONS GIVEN IN THE ASSESSMENT ORDER, STATED THAT THE ACCOUNTS OF T HE ASSESSEE COMPANY ARE NOT CORRECT AND COMPLETE WITHIN THE MEA NING OF SECTION 145(3) OF THE ACT AND HE ACCORDINGLY REJECTED THE T RADING RESULTS OF THE ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 4 ASSESSEE COMPANY AND ESTIMATED THE GP RATE OF 17% A S ESTIMATED IN THE EARLIER YEARS AS AGAINST GP RATE DECLARED BY TH E ASSESSEE COMPANY @ 10.31%. EVEN THOUGH THERE WAS UNRECONCILIED STOCK AT THE TIME OF SEARCH WHICH HAPPENED AT THE BEGINNING OF THE YEAR UNDER CONSIDERATION AND THE ASSESSEE FAILED TO RECONCILE AND PROVIDE ANY EXPLANATION, THE AO ACCEPTED THE DECLARED TURNOVER AND APPLIED THE GP RATE OF 17% ON THE DECLARED TURNOVER OF RS. 15,40,3 8,479/- AND TRADING ADDITION OF RS. 1,02,92,954/- WAS MADE IN THE HANDS OF THE ASSESSEE COMPANY. 6. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD CIT(A) WHO SUSTAINED THE REJECTION OF BOOKS OF ACCOUNTS U/S 145(3). HOWEVER, GP RATE WAS DIRECTED TO BE BROUGHT DOWN TO 15% AS AGAINST 17% APPLIED BY THE ASSESSING OFFICER. FURTH ER, LD. CIT(A) TAKING INTO ACCOUNT THE PAST HISTORY OF UNACCOUNTED SALES AND UNRECONCILIED STOCK AT THE TIME OF SEARCH DETERMINED UNACCOUNTED SALES OF RS. 15,03,42,985 OVER AND ABOVE DECLARED TURNOVER OF RS . 15,40,38,479/-. APPLYING THE GP RATE OF 15% ON DECLARED TURNOVER, T HE ADDITION OF RS. 1,02,92,954/- MADE BY THE AO WAS BROUGHT DOWN TO RS . 72,12,185/- AND AT THE SAME TIME, THE INCOME OF THE ASSESSEE WA S ENHANCED BY RS. 2,25,51,448 APPLYING GP RATE OF 15% ON UNACCOUNTED SALES OF RS. 15,03,42,985. AGAINST THE SAID FINDINGS OF THE LD. CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 7. DURING THE COURSE OF HEARING, LD. AR SUBMITTED T HAT ISSUE IS FAIRLY COVERED BY THE DECISION OF HONBLE RAJASTHAN HIGH C OURT IN ASSESSEES OWN CASE IN DB APPEAL NO. 125/2014 AND OTHERS DATED 19.09.2017 WHEREIN THE HONBLE HIGH COURT HAS CONFIRMED THE AD DITION IN THE HANDS OF THE ASSESSEE COMPANY FOR ALL THESE YEARS BY APPL YING GP RATE OF 12% ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 5 AS AGAINST GP RATE OF 17% APPLIED BY THE AO. HE ACC ORDINGLY SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATION, GP RATE OF 1 2% MAY BE DIRECTED TO BE APPLIED ON THE DECLARED TURNOVER AS AGAINST T HE GP RATE OF 15% AS DIRECTED TO BE APPLIED BY THE LD. CIT(A). FURTHER, REGARDING THE ENHANCEMENT OF INCOME AS DONE BY THE LD. CIT(A), HE SUBMITTED THAT THE SAME IS MERELY BASED ON THE DIFFERENCE BETWEEN THE VALUE OF STOCK FOUND AT THE TIME OF SEARCH AND VALUE OF THE STOCK STATEMENT AS SUBMITTED BY THE ASSESSEE COMPANY WITH THE STATE BA NK OF INDORE. IT WAS SUBMITTED THAT THE SAME CANNOT BE TAKEN AS A BA SIS FOR ENHANCEMENT OF INCOME IN THE HANDS OF THE ASSESSEE COMPANY AS IN THE STATEMENT SO SUBMITTED TO THE BANK, THE TURNOVER WA S INFLATED TO SHOW IMPROVE BOOK RESULTS TO AVAIL HIGHER BANKING CREDIT . IT WAS FURTHER SUBMITTED THAT THE SAID DIFFERENCE IN THE STOCK HAS ALREADY BEEN CONSIDERED BY THE ASSESSING OFFICER WHILE REJECTING THE BOOK RESULTS OF THE ASSESSEE COMPANY AND THERE CANNOT BE ANY SEPARA TE ADDITION ON THAT ACCOUNT. 8. PER CONTRA, THE LD. DR FAIRLY SUBMITTED THAT REG ARDING REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF GP RATE, THE MA TTER STANDS COVERED BY THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN ASSESSEES OWN CASE. REGARDING ENHANCEMENT OF INCOME AS DONE BY THE LD. CIT(A), HE TOOK US THROUGH THE FINDINGS OF THE ASSESSING OFFICER AS WELL AS OF THE LD. CIT(A) AND SUBMITTED THAT EVEN THOUGH THE ASSESSING OFFICER HAS GIVEN A DETAIL FINDING REGARDING THE UNRECONCILED AND UNA CCOUNTED STOCK FOUND AT TIME OF SEARCH AND AS PER THE STOCK STATEM ENT FURNISHED WITH THE STATE BANK OF INDORE, HOWEVER, THE AO FAILED TO CONSIDER THE SAME WHILE APPLYING THE GP RATE. IT WAS SUBMITTED THAT L D. CIT(A) HAS RIGHTLY APPRECIATED THE SAID FACT OF UNRECONCILED STOCK WHI CH HAS RESULTED IN UNACCOUNTED SALE BY THE ASSESSEE COMPANY AND THE SA ME HAS BEEN ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 6 RIGHTLY BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE COMPANY BY APPLYING THE GP RATE OF 15% WHICH MAY NOW BE REDUCED TO 12% AS DECIDED BY THE HONBLE RAJASTHAN HIGH COURT. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 10. FIRSTLY, GROUND NO. 1 CHALLENGING THE ORDER PA SSED BY THE LEARNED ASSESSING OFFICER U/S 143(3)/153B(B) AS VOID AB-INI TIO WAS NOT PRESSED DURING THE COURSE OF HEARING. HENCE, THE SAME IS D ISMISSED AS NOT PRESSED. 11. IN GROUND NO. 2 AND 3 REGARDING THE REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND ESTIMATING OF GP RATE, WE FIND THAT THE MATTER IS COVERED BY THE DECISION OF HONBLE RA JASTHAN HIGH COURT IN DB APPEAL NO. 125/2014 DATED 19.09.2017. 12. THE QUESTIONS OF LAW FRAMED FOR ITS CONSIDERATI ON BY THE HONBLE HIGH COURT WHILE ADMITTING THE APPEALS ARE AS UNDER :- 3. THIS COURT WHILE ADMITTING THE APPEALS FRAMED THE FOLLOWING QUESTION OF LAW:- 1. D.B. INCOME TAX APPEAL NO. 125/2014 WHETHER THE ITAT ORDER IS PERVERSE IN DELETING THE ENTIRE TRADING ADDITION OF RS. 7,15,57,073/- IGNORING ADMITTED FAC TS IN THE STATEMENT OF SHRI KHUSHI KUMAR AMERIYA (DIRECTOR) U /S 132(4) OF THE IT ACT AS WELL AS THE EVIDENCES GATHERED DURING SEARCH CONFIRMING BOGUS PURCHASE BILLS OBTAINED? ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 7 2. D.B. INCOME TAX APPEAL NO. 126/2014 WHETHER THE ITAT ORDER IS PERVERSE IN DELETING THE ENTIRE TRADING ADDITION OF RS. 60,94,433/- IGNORING ADMITTED FACTS IN THE STATEMENT OF SHRI KHUSHI KUMAR AMERIYA (DIRECTOR) U /S 132(4) OF THE IT ACT AS WELL AS THE EVIDENCES GATHERED DURING SEARCH CONFIRMING BOGUS PURCHASE BILLS OBTAINED? 3. D.B. INCOME TAX APPEAL NO. 127/2014 WHETHER THE ITAT ORDER IS PERVERSE IN DELETING THE ENTIRE TRADING ADDITION OF RS. 5,12,77,217/- IGNORING ADMITTED FAC TS IN THE STATEMENT OF SHRI KHUSHI KUMAR AMERIYA (DIRECTOR) U /S 132(4) OF THE IT ACT AS WELL AS THE EVIDENCES GATHERED DURING SEARCH CONFIRMING BOGUS PURCHASE BILLS OBTAINED? 4. D.B. INCOME TAX APPEAL NO. 128/2014 WHETHER THE ITAT ORDER IS PERVERSE IN DELETING THE ENTIRE TRADING ADDITION OF RS. 4,21,16,555/- IGNORING ADMITTED FAC TS IN THE STATEMENT OF SHRI KHUSHI KUMAR AMERIYA (DIRECTOR) U /S 132(4) OF THE ACT AS WELL AS THE EVIDENCES GATHERED DURING SE ARCH CONFIRMING BOGUS PURCHASE BILLS OBTAINED? 13. THE DECISION OF THE HONBLE HIGH COURT WHILE DI SPOSING OFF THE ABOVE QUESTIONS IS AS UNDER: 6. TAKING INTO CONSIDERATION THE EVIDENCE ON RECOR D, THE TRIBUNAL WHILE CONSIDERING THE MATTER HAS TOTALLY DELETED TH E AMOUNT OF ADDITION. IN OUR CONSIDERED OPINION, TAKING INTO AC COUNT THE INDUSTRY WHICH IS RUNNING THE BUSINESS, THE ADDITION WHICH H AS BEEN MADE ON ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 8 THE BASES OF GP WHICH HAS BEEN SHOWN OF THE IDENTIC AL INDUSTRY WHOSE CASE IS ALSO HEARD TOGETHER. THE GP RATE OF P REVIOUS YEARS READS AS UNDER:- A.Y 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2009-10 UNAUDITE 2010-11 SALES 19849007 142690358 546642847 68749794 977758 373 1030628721 1072033904 154038479 STOCK DIF. 1446572 51478681 0 71450573 67692676 839 51400 83334242 57500950 TOTAL 21295579 194169039 546642847 75894851 1045451 049 1114580121 1155368146 211539429 PURCHASES 18102351 169887836 496228344 686702353 93 7668274 965843795 991030519 187482439 DIRECT COST 0 6118276 9962436 14097721 13120925 860 7118 10319346 8163403 TOTAL 18102351 176006112 506190780 700800074 950789 199 974450913 1001349865 195645842 GROW 3193228 18162927 40452067 58148440 94661850 1 40129208 154018281 15893587 G.P.RATE 16.08% 12.72% 7.40% 8.45% 9.68% 13.59% 14. 36% 10.31 7. TAKING INTO ACCOUNT THE AVERAGE GP RATE WHICH WI LL BE APPLIED IN THE PRESENT CASE WILL BE 12 PER CENT. IT IS MADE CLEAR THAT WHERE EVER THE PROFIT IS MORE THAN 12 PER CENT , THE SAME WILL NOT BE REFUNDED TO THE ASSESSEE BUT WHERE IT IS LES S THAN 12 PER CENT, THE INCOME WILL BE ASSESSED ON THE BASIS OF 1 2 PER CENT GP. 8. IN VIEW OF ABOVE, ALL THE APPEALS STAND ALLOWED TO THE AFORESAID EXTENT. 13. ADMITTEDLY, THERE ARE NO CHANGES IN THE FACTS A ND CIRCUMSTANCES OF THE CASE EXCEPT THE MATTER RELATING TO UNRECONCI LED STOCK WHICH WE SHALL BE DISCUSSING SUBSEQUENTLY WHILE ADJUDICATING GROUND NO. 4 OF THE ASSESSEES APPEAL. RESPECTIVELY FOLLOWING THE DECIS ION OF THE HONBLE RAJASTHAN HIGH COURT IN ASSESSEES OWN CASE FOR THE EARLIER YEARS, WE UPHELD THE REJECTION OF BOOKS OF ACCOUNTS U/S 145(3 ) OF THE ACT AND THE AO IS DIRECTED TO APPLY G.P. RATE OF 12% AS AGAINST 10.31% DISCLOSED BY THE ASSESSEE ON THE DECLARED TURNOVER OF RS. 15,40, 38,479/-. ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 9 14. NOW, WE REFER TO GROUND NO. 4 OF THE ASSESSEES APPEAL WHEREIN THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LD CI T(A) IN ENHANCING THE INCOME BY AN AMOUNT OF RS. 2,25,51,448/- BY APP LYING GP RATE OF 15% ON ALLEGED UNACCOUNTED TURNOVER OF RS. 15,03,42 ,985/-. 15. FIRSTLY, WE REFER TO THE FINDINGS OF THE LD CI T(A) WHICH ARE REPRODUCED AS UNDER:- 5.7 I HAVE GONE THROUGH THE ASSESSMENT ORDER AS W ELL AS SUBMISSIONS MADE BY THE APPELLANT AND FIND THAT AN ADDITION OF RS. 1,02,92,954 HAS BEEN MADE BY THE AO AFTER APPLYING A GP RATE OF 17% ON THE DECLARED TURNOVER OF RS. 15,40,38,479/-. AO HAS REJECTED THE BOOKS OF ACCOUNTS AS DURING THE COURSE OF A SEARCH ACTION UNDERTAKEN BY THE BCTT WING OF INVESTIGATION DIRECTORATE, THE APPELLANT COMPANY WA S FOUND TO BE THE MAJOR BENEFICIARY OF HAVING OBTAINED THE LARGEST NU MBER OF BOGUS PURCHASE BILLS ALONGWITH ITS SISTER CONCERNS. THE D IRECTORS OF THE COMPANY WERE CONFRONTED WITH THE ENQUIRIES CONDUCTE D BY THE INVESTIGATION DIRECTORATE AND DETAILS OF THE SAME H AVE ALREADY DISCUSSED BY THE AO IN THE ASSESSMENT ORDER REPRODU CED ABOVE. 5.8 DURING THE COURSE OF SEARCH CONDUCTED AT THE PR EMISES OF THE APPELLANT A NUMBER OF INCRIMINATING DOCUMENTS IN TH E FORM OF PAPERS, PEN DRIVE AND OTHER DOCUMENTS WERE FOUND PERTAINING TO THE UNACCOUNTED SALES, PURCHASES AND EXPENSES OF THE BU SINESS. THE APPELLANT HAS ADMITTED (PARA 21.1, PAGE 31 OF THE O RDER) IN THE COURSE OF STATEMENT RECORDED THAT TOTAL SALES OF ALL THE U NITS DURING FY 2008-09 WAS AROUND RS. 107 CRORES AND THE DECLARED TURNOVER WAS ONLY AROUND RS. 10.36 CRORES. FURTHER, IT WAS FOUND THAT THE AP PELLANT HAS ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 10 SUPPRESSED THE TURNOVER OF THE BUSINESS SUBSTANTIAL LY AS MAY BE SEEN FROM PARA 22 (PAGE 32) OF THE ASSESSMENT ORDER. 5.9 AO HAS ACCORDINGLY REJECTED THE BOOK RESULTS DE CLARED BY THE APPELLANT AND RELIED UPON A NUMBER OF OTHER COMPARA BLE CASES APPLYING A GP RATE OF 17% ON THE DECLARED TURNOVER. IT WAS N OTED FROM THE ORDER OF THE AO THAT BOOKS OF ACCOUNT WERE FOUND TO BE NO T COMPLETE ON THE DATE OF SEARCH AND AS PER THE STOCK STATEMENT AS ON 30.04.2009 FILED BY THE APPELLANT COMPANY WITH THE STATE BANK OF INDORE , THE VALUE OF STOCK AS ON 30.04.2009 WAS RS. 29,55,67,819 AND AS AGAINS T THIS THE ACTUAL STOCK FOUND AT THE TIME OF SEARCH WAS RS. 14,52,24, 834/- 5.10 THE APPELLANT WAS ASKED TO SHOW CAUSE AS TO WH Y NOT THE GP RATE OF 15% AS HELD BY THE HONBLE ITAT JAIPUR BENCH IN THE CASE OF ANUJ KUMAR VARSHNEY AND OTHERS, BE APPLIED ON THIS ACCOU NT OF UNDISCLOSED TURNOVER OF RS. 15,03,42,985 (RS. 29,55,67,819-14,5 2,24,834). 5.11 THE APPELLANT HAS REITERATED THE SUBMISSIONS F ILED BEFORE THE AO AND HAS JUSTIFIED THE GP RATE DECLARED. IT IS SUBMI TTED THAT BOOKS OF ACCOUNTS HAVE BEEN REGULARLY MAINTAINED AND ARE DUL Y AUDITED. IT IS FURTHER STATED THAT NO ADDITION HAS BEEN SUSTAINED BY THE HONBLE ITAT IN THE CASE OF THE APPELLANT ON ACCOUNT OF GP RATE IN THE EARLIER YEARS. A COPY OF THE ORDER PASSED BY THE HONBLE ITAT JAIPUR DATED 05.03.2014 HAS BEEN FILED ON RECORD. IT IS FURTHER STATED THAT DIFFERENCE IN THE STOCK VALUATION IS ON ACCOUNT OF HIGHER VALUATION TAKEN B Y THE SEARCH PARTY. IT IS ALSO STATED THAT NO ADDITION BE MADE ON ACCOUNT OF UNDISCLOSED TURNOVER. ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 11 5.12 HAVING CAREFULLY PERUSED THE MATERIAL AVAILABL E ON RECORD, I FIND THAT AN OPPORTUNITY HAD BEEN DULY GIVEN TO THE APPE LLANT AT THE STAGE OF ASSESSMENT TO RECONCILE THE DIFFERENCES IN THE VALU E OF STOCK FOUND AT THE TIME OF SEARCH AND THE VALUE OF STOCK AS PER TH E BOOKS, A COPY OF WHICH HAD BEEN FILED IN THE BANK. THE APPELLANT HAS CLEARLY FAILED TO JUSTIFY THE DIFFERENCES IN THE VALUE OF STOCK EVEN IN THE COURSE OF APPELLATE PROCEEDINGS AND HAS MERELY REITERATED THE SUBMISSIONS FILED EARLIER AND JUSTIFIED THE RESULTS DECLARED IN THE R ETURN OF INCOME. 5.13 I FIND THAT IN THE ABSENCE OF ANY CREDIBLE EVI DENCE BEING FILED BY THE APPELLANT, THE ONLY LOGICAL AND RATIONAL COURSE OF ACTION AVAILABLE WOULD BE TO TREAT THE DIFFERENCE IN THE VALUE OF ST OCK OF RS. 15,03,42,985 AS THE TURNOVER, WHICH HAS NOT BEEN AC COUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. THIS EXPLANATION IS ALSO IN SYNC WITH THE STATEMENT GIVEN BY THE APPELLANT AT THE TIME OF SEA RCH AND WITH THE DOCUMENTS (IN THE FORM OF UNAUDITED FINANCIAL STATE MENTS FOUND ALONG WITH THE AUDITED FINANCIAL STATEMENT OF THE COMPANY ) FOUND AT THE TIME OF SEARCH RELATING TO CONCEALMENT OF TURNOVER, PURC HASES, EXPENSES, ETC. 5.14 IN CASE, THE EXPLANATION OF THE APPELLANT IS A CCEPTED THAT THE STOCK FOUND AT THE TIME OF SEARCH WAS CORRECT AND W AS IN ACCORDANCE WITH THE BOOKS OF ACCOUNTS, THAN IT MEANS THAT THE STATEMENT OF STOCK FILED WITH THE BANK WAS NOT CORRECT. IT ALSO LEADS TO THE BELIEF THAT THE VALUE OF STOCK SHOWN IN THE STATEMENT WAS INFLATED AND APPELLANT THAN BECOMES LIABLE FOR PERPETRATING A FINANCIAL FRAUD O N THE BANK. THEREFORE, THE ONLY CONCLUSION WHICH EMERGES OUT OF THE ABOVE DISCUSSION IS THAT UNACCOUNTED TURNOVER OF RS. 15,03,42,985 HAS BEEN M ADE BY THE APPELLANT DURING THE PERIOD UNDER CONSIDERATION. ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 12 5.15 THUS, THE NEXT COURSE OF ACTION WOULD BE TO ES TIMATE THE PROFIT EARNED ON THE UNACCOUNTED TURNOVER OF RS. 15,03,42, 985. FURTHER, I FIND THAT AO HAS APPLIED A GP RATE OF 17% ON THE DECLARE D TURNOVER OF RS. 15,40,38,479/-, ON WHICH THE APPELLANT HAS DECLARED A GP RATE OF 10.32%. THE APPELLANT HAS JUSTIFIED THE RATE DECLAR ED ON THE GROUND THAT SIMILAR ADDITIONS MADE BY THE AO IN THE PRECED ING YEARS HAVE BEEN DELETED BY THE ITAT. 5.16 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE AND FIND THAT HONBLE ITAT JAIPUR BENCH HAS CONSISTENTLY HELD THA T THE FACT OF UNVERIFIABLE PURCHASE SALES IS A SUFFICIENT GROUND FOR INVOKING THE PROVISIONS OF SECTION 145 (3) OF THE IT ACT TO REJE CT THE BOOKS OF ACCOUNTS OF THE APPELLANT. IN THIS CASE DEPARTMENT HAD SPECIFICALLY GATHERED INFORMATION AND DURING THE COURSE OF SEARC H INCRIMINATING DOCUMENTS, COMPUTER, PEN DRIVES, ETC. WERE FOUND AN D IT WAS ADMITTED THAT SALES/PURCHASES HAVE BEEN UNDERSTAND IN THE RE TURN OF INCOME FILED. 5.17 THIS ISSUE HAS BEEN RECENTLY CONSIDERED BY THE HONBLE ITAT, JAIPUR IN A COMPREHENSIVE AND COMBINED ORDER DATED 22-10-2014, IN THE CASE OF SH. ANUJ KUMAR VARSHNEY, M/S BHANSALI T RADING CORPORATION, DEEPAK DALELA, G.B. IMPEX, M/S JEWEL E MPORIUM, SH. HEMANT SHRIVASTAVA, M/S H.K. IMPEX, M/S KINU BABA J EWELLERY PVT. LTD., M/S LAKHI GEMS, KUMUD CHAND JAIN HUF, SH. RAVI SANC HETI, SH. RAJENDRA KUMAR AGARWAL, SMT. SHARMILA JAIN, M/S SIL VER IMAGES, WHEREIN IT HAS UPHELD THE REJECTION OF BOOKS OF ACC OUNTS AND INVOKING THE PROVISIONS OF SECTION 145(3) IN CASES OF BOGUS PURCHASES AND SALES. ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 13 5.18 . 5.19 IN VIEW OF THE ABOVE, I HOLD THAT AO WAS JUSTI FIED IN INVOKING THE PROVISIONS OF SECTION 145 OF THE IT ACT. FURTHER, I HOLD THAT GP RATE OF 15% MAY ALSO BE APPLIED ON THE TURNOVER DECLARED BY THE APPELLANT AS AGAINST THE GP RATE OF 17% APPLIED BY THE AO. AS A RESULT OF THIS, THE TOTAL GROSS PROFIT WOULD BE RS. 2,31,05,772 AS AGAI NST THE GROSS PROFIT OF RS. 1,58,93,587 DECLARED BY THE APPELLANT. THEREFOR E, AN ADDITION OF RS. 72,12,185 STANDS CONFIRMED OUT OF THE TOTAL ADDITIO N OF RS. 1,02,92,954 MADE BY THE AO UNDER THIS HEAD. 5.20 BESIDES, I HOLD THAT RATE OF PROFIT OF 15% SHO ULD ALSO BE APPLIED ON UNACCOUNTED SALES OF RS. 15,03,42,985/- AS COMPU TED ABOVE. THUS, THE INCOME AS STATED ABOVE WOULD STAND ENHANCED BY RS. 2,25,51,448 (15% OF RS. 15,03,42,985) ON ACCOUNT OF UNACCOUNTED PROFIT ON SALES WHICH HAS NOT BEEN RECORDED IN THE BOOKS OF ACCOUNT S. 16. WE NOW REFER TO FINDINGS OF THE AO WHICH ARE CO NTAINED AT PARA 24 AND 25 OF THE ASSESSMENT ORDER WHICH ARE REPRODUCED AS UNDER:- 24. ANOTHER SPECIFIC ISSUE RESULTING TO CONCLUSIO N OF INCOMPLETE AND INCORRECT ACCOUNTS IS THE VALUE OF STOCK FOUND DURI NG THE COURSE OF SEARCH. AT THE TIME OF SEARCH NO STOCK DETAILS AS P ER BOOKS, WERE MADE AVAILABLE AND THEREFORE THE STOCK PHYSICALLY FOUND COULD NOT BE VERIFIED IN CORRECT MANNER. ASSESSEE IS NOT MAINTAINING ANY QUANTITATIVE STOCK REGISTER AS IS OBSERVED BY THE AUDITORS WHO HAVE CO MMENTED THAT AT THE TIME OF AUDIT ASSESSEE DID NOT PRODUCE STOCK REGIST ER. NON MAINTENANCE OF QUANTITATIVE STOCK DETAILS DEFINITELY LEADS TO C ONCLUSION OF APPLICATION OF SECTION 145(3) OF THE I.T ACT. IT MAY FURTHER BE SEEN THAT IN JEWELLERY ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 14 UNIT, NIZAMI UNIT AND PARTLY IN SILVER STAR UNIT, T HE ASSESSEE IS MANUFACTURING GOLD AND SILVER JEWELLERY BUT NO REGU LAR MANUFACTURING RECORDS OR CONSUMPTION RECORDS ARE MAINTAINED SO AS TO VERIFY THE CONSUMPTION OF RAW MATERIAL VIS A VIS PRODUCTION OF FINISHED GOODS. THE ASESSEE USES SUBSTANTIAL QUANTITY OF OTHER ALLOYS S UCH AS COPPER, ZINC, CADMIUM ETC FOR MANUFACTURING OF JEWELLERY BUT THER E ARE NO RECORDS TO VERIFY THE PROPORTIONATE PART OF ALLOYS AND HOW THE SAME WAS CONSIDERED IN VALUATION OF THE FINISHED GOODS. AS S UCH NOT ONLY THE TRADING ACTIVITIES OF GEM UNIT ARE UNVERIFIABLE BUT THE TRADING AND MANUFACTURING ACTIVITIES OF OTHER UNITS ARE ALSO NO T SUBJECT TO PROPER VERIFICATION. DURING THE COURSE OF SEARCH PHYSICAL STOCK FOUND WAS COUNTED, QUANTIFIED AND VALUED IN THE PRESENCE OF T HE MANAGERS AND OTHER PERSONS OF THE ASSESSEE. SINCE THE ITEMS OF D IFFERENT QUALITY AND SPECIFICATION WERE FOUND EXPERT VALUATION WAS GOT D ONE. FROM ALL THE PREMISES TOTAL STOCK FOUND WAS OF RS. 145224834 AS DETAILED BELOW:- S. NO. PREMISES TOTAL STOCK ACTUALLY FOUND & INVENTORISED 1 GEMS UNIT OF M/S CLARITY GOLD PVT. LTD. AT 4, SARDAR PATEL MARG, C-SCHEME 2886120 2 SILVER STAR UNIT OF M/S CLARITY GOLD PVT. LTD., A T 3 RD FLOOR, NAWAB SAHIB KI HAVELI, TRIPOLIYA BAZAR, JAIPUR 12360470 3 JEWELLERY DIVISION OF M/S CLARITY GOLD PVT. LTD A T G-1-33, GEMS & JEWELLERY ZONE, EPIP, SITAPURA INDUSTRIAL AREA, JAIPUR 70791196 ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 15 4 NIZAMI DIVISION OF M/S CLARITY GOLD PVT. LTD., AT 3 RD & 4 TH FLOOR, STAR MANSION, C-82, SHYAM MARG, JAIPUR 37866444 5 MUMBAI OFFICE OF M/S CLARITY GOLD PVT. LTD. AT 2 ND FLOOR, METRO HOUSE, METRO CINEMA BUILDING, M.G. ROAD, MUMBAI 18634757 6 STOCK FOUND AT OFFICE OF CLARITY GOLD PVT. LTD., AT FIRST FLOOR, DILLI WALON KI BUILDING, GOPALJI KA RASTA, JAIPUR 2685847 TOTAL 145224834 25. SINCE BOOKS OF ACCOUNTS WERE NOT COMPLETE ON TH E DATE OF SEARCH EXACT STOCK AS PER BOOKS ON THE DATE OF SEARCH COUL D NOT BE WORKED OUT NEITHER IN TERMS OF VALUE NOR QUANTITATIVELY. HOWEV ER, IT WAS SEEN THAT ASSESSEE FURNISHED DETAILS OF STOCK STATEMENT AS ON 30.4.2009 TO STATE BANK INDORE. THIS STOCK STATEMENT WAS OBTAINED AND IT WAS FOUND THAT ON 30.4.2009 THE COMPANY WAS HAVING STOCK OF RS. 29 5567819. THUS AS ON 30.04.2009 THE BOOK STOCK WAS OF RS. 29.55 CRORE S. TAKING THIS STOCK IN TO CONSIDERATION THERE WAS A DEFICIENCY OF STOCK OF MORE THAN RS. 15.03 CRORES AS ON THE DATE OF SEARCH. THE DIFFEREN CE IN STOCK HAS NOT BEEN EXPLAINED BY THE ASSESSEE. IN POST SEARCH PROC EEDINGS THE ASSESSEE WAS SPECIFICALLY ASKED VIDE LETTER DATED 1 6.7.2009 TO RECONCILE THE DIFFERENCE IN STOCK FOUND AND SUBMITTED TO BANK ERS BUT IT HAS TOTALLY FAILED TO RECONCILE THE SAME. EVEN IN THE PRESENT A SSTT PROCEEDINGS IT HAS NOT BEEN SATISFACTORILY EXPLAINED. A VERY GENER AL AND VAGUE REPLY HAS BEEN FILED BY THE AR VIDE LETTER DATED 5.8.2011 . CONTENTIONS RAISED IN PARA 2 OF LETTER DATED 5.8.2011 REPRODUCED ABOVE ARE NOT TENABLE AS THE VALUATION WAS DONE BY THE EXPERTS, IN THE PRESE NCE OF ASSESSEES ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 16 EMPLOYEES DEALING/MANAGING THE AFFAIRS ON THE DATE OF SEARCH/SEIZURE, NO OBJECTION OF ANY NATURE WERE RAISED BY THE EMPLO YEES AT THE TIME OF SEARCH OR JUST AFTER THE SEARCH. NOW CHALLENGING TH E VALUATION ON FRIVOLOUS GROUNDS IS ONLY AN AFTERTHOUGHT AND JUST TOO DEVOID THE INVESTIGATION. EVEN THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE CORRECT QUANTIFICATION AND VALUATION AFTER SEARCH, IF IT WA S OF THE VIEW THAT VALUATION MADE BY THE SEARCH PARTY WAS FAULTY OR IN CORRECT. IT MAY FURTHER BE SEEN THAT ASSESSEE ITSELF ADMITS THAT TH ERE IS VAST DIFFERENCE IN RATE OF ITEMS OF ONE CATEGORY AND UNDER SUCH CIR CUMSTANCES IF ASSESSEE ITSELF WAS NOT POSSIBLE TO QUANTIFY AND VA LUE THE GOODS, THE FIGURES OF STOCK AND SALE/PURCHASES IN TRADING ACCO UNTS ARE ADMITTEDLY NOT SUBJECT TO PROPER VERIFICATION. DEFICIENT STOCK FOUND CLEARLY PROVES THAT EITHER FAKE PURCHASE BILLS ARE INTRODUCED SO A S TO INCREASE THE STOCK OR THE SALES ARE REDUCED. THE SUBMISSION OF SHRI K. K. AMERIYA AGAIN COMES IN TO THE PICTURE THE STOCK OR THE SALES ARE REDUCED. THE SUBMISSION OF SHRI K.K. AMERIYA AGAIN COMES IN TO T HE PICTURE THAT STOCK STATEMENTS ARE INFLATED BY WAY OF SHOWING BOGUS PUR CHASES, DEBTORS AND TURNOVER. THIS FACT IS A CONCLUSIVE PROOF OF IN CORRECTNESS OF BOOKS OF ACCOUNTS AND TRADING RESULTS OF THE COMPANY. 17. THE LD. AR SUBMITTED THAT THE LD. CIT(A) HAS E NHANCED THE ADDITION OF RS. 2,25,51,448/- ON THE BASIS OF DECIS ION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ANUJ KUMAR VAR SHNEY AND OTHERS ON 22.10.2014. IT WAS SUBMITTED THAT THE RATIO OF T HE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE. IT WAS SUB MITTED THAT IN THE AFORESAID DECISION, THE HONBLE ITAT HAS MADE DISAL LOWANCE @ 15% OF THE BOGUS PURCHASES. IN THE CASE OF THE ASSESSEE, T HE ISSUE INVOLVED IS NOT ONLY OF BOGUS PURCHASES BUT ALSO OF BOGUS SALES . IN THE STATEMENT ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 17 OF SHRI K.K. AMERIYA THIS FACT WAS OBVIOUS. THE LEA RNED ASSESSING OFFICER HAS MENTIONED THIS FACT IN PARA 7 OF THE AS SESSMENT ORDER WHICH IS QUOTED BELOW:- IN HIS STATEMENT RECORDED DURING SEARCH SH. KHUSHI KUMAR AMERIYA ADMITTED THAT MOST OF THE TURNOVER APPEARING IN THE BOOKS OF VARIOUS CONCERNS OF THIS GROUND WERE BOGUS AND WERE ARRANGE D THROUGH BROKERS BY PAYING COMMISSION TO INFLATE THE STOCK IN TRADIN G AND TURNOVER OF THE COMPANY TO OBTAIN HIGHER CREDIT LIMITS FROM THE BAN KS. THUS IT IS CLEAR THAT IT IS NOT AS SIMPLE A CASE AS IS TAKEN. IN THIS CASE IT IS NOT ONLY THE PURCHASES WHICH ARE BOGUS BUT THE S ALES TOO. THE TURNOVER WAS INFLATED BY ARRANGING BOGUS VOUCHERS O F PURCHASES AND ISSUING BOGUS VOUCHERS OF SALES. THE PURPOSE OF INF LATING THE TURNOVER WAS TO BETTER AND IMPROVE THE BOOK RECORDS BEFORE T HE BANKING AUTHORITIES TO AVAIL HIGHER CREDITS. THESE FACTS WE RE ALSO SUBMITTED IN DETAIL IN OUR SUBMISSION MADE BEFORE THE LEARNED CI T(A) ON 09.10.2014. THE SAME IS REPRODUCED FOR THE SAKE OF CONVENIENCE:- 3. IN TURNOVER OF BOGUS PURCHASE AND SALES THE MAR GIN IS NIL- IN THE ENTIRE ASSESSMENT ORDER THE MAIN THRUST OF T HE LEARNED ASSESSING OFFICER IS ON THE ISSUE OF BOGUS VOUCHER OF PURCHASE AND SALE. IN THIS REGARD STATEMENTS OF SHRI K.K.AMERIA, HAS B EEN QUOTED AT LENGTH. THE ASSESSEE HAS ALREADY CHALLENGED THE VER ACITY OF THESE STATEMENTS IN AS MUCH AS THESE WERE RECORDED UNDER THAT BILLS OF PURCHASES (BOGUS) WERE OBTAINED AFTER MAKING PAYMEN T OF COMMISSION). SIMILARLY THE ASSESSEE ALSO GOT A SIMI LAR COMMISSION ON ISSUING SUCH BOGUS SALE BILL. IN OTHER WORDS THE AS SESSEE WAS NOT EARNING ANYTHING IN THE PROCESS OF OBTAINING BOGUS PURCHASE VOUCHERS ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 18 AND ISSUING SALE VOUCHERS. THE ONLY BENEFIT WHICH T HE ASSESSEE DERIVED WAS BANKING CREDIT FACILITY ON THE BASIS OF INCREAS E TURNOVER. THIS FINDS SUPPORT FROM THE STATEMENT OF SHRI K.K. AMERIYA REL IED UPON BY THE LEARNED ASSESSING OFFICER. THE ASSESSEE COULD INCRE ASE HIS TURNOVER IN THE PROCESS OF ALLEGED BOGUS PURCHASE VOUCHERS AND BOGUS SALE VOUCHERS. THEREFORE THE ENTIRE EXERCISE OF THE LEAR NED ASSESSING OFFICER IS OF NO AVAIL. THERE IS NO IOTA OF EVIDENCE OR ANY MATERIAL BROUGHT ON RECORD BY THE AFORESAID PROCESS OF BOGUS VOUCHERS. THE LEARNED ASSESSING OFFICER HAS NOT CONDUCTED ANY POST SEARCH INQUIRIES WHICH MAY ALSO SUPPORT THE FINDING OF THE LEARNED ASSESSI NG OFFICER OF EARNING HIGHER PROFITS BY THE ASSESSEE BY WAY OF OBTAINING BOGUS PURCHASE VOUCHERS AND ISSUING BOGUS SALE VOUCHERS. THUS THER E WAS NO JUSTIFICATION OF THE LEARNED ASSESSING OFFICER FOR TAKING ACTION U/S 153 IN THE CASE AND SUBSEQUENTLY COMPLETING THE ASSESSMENT BY MAKING ADDITION. IT IS FURTHER SUBMITTED THAT WE ARE ENCLOSING HEREW ITH COPY OF THE STATEMENT OF SHRI K.K. AMERIYA IN SUPPORT OF OUR AF ORESAID FACTS. NOW THESE FACTS SETTLE THAT THE FACTS OF THE CASE ARE D IFFERENT FROM THOSE CASE WHERE THE ISSUE WAS ONLY OF BOGUS PURCHASES WH ICH FROM PART OF THE ORDER OF THE HONBLE ITAT DATED 22.10.2014. THE HONBLE CIT(A) WAS NOT JUSTIFIED IN APPLYING THE RATIO OF THE DECI SION DATED 22.10.2014 OF THE HONBLE ITAT BY RULE OF THUMB WHEN THE FACTS ARE AT VARIANCE. EVEN OTHERWISE THE GP RATE APPLIED BY THE LEARNED C IT(A) AT THE RATE OF 15% COVERS THE ISSUE AS ON TOTAL PURCHASE PLUS PROF IT, THE LEARNED ASSESSING OFFICER HAS APPLIED 15% GP RATE WHICH IS MORE THAN 15% OF ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 19 UNVERIFIABLE PURCHASES BECAUSE UNVERIFIABLE PURCHAS ES ARE PART OF TOTAL PURCHASES. 18. THE LD DR HAS VEHEMENTLY ARGUED THE MATTER AND RELIED UPON THE ORDER OF THE LOWER AUTHORITIES. THE LD DR SUBMITTE D THAT EVEN THOUGH THE AO HAS GIVEN A DETAIL FINDING REGARDING THE UNR ECONCILED AND UNACCOUNTED STOCK FOUND AT TIME OF SEARCH AND AS PE R THE STOCK STATEMENT FURNISHED WITH THE STATE BANK OF INDORE, HOWEVER, THE AO FAILED TO CONSIDER THE SAME WHILE APPLYING THE GP R ATE WHERE HE HAS ESTIMATED GROSS PROFITS ON DECLARED TURNOVER ONLY I NSTEAD OF DECLARED AS WELL AS UNACCOUNTED TURNOVER. IT WAS SUBMITTED THAT LD. CIT(A) HAS RIGHTLY APPRECIATED THE SAID FACT OF UNRECONCILED S TOCK WHICH HAS RESULTED IN UNACCOUNTED SALE BY THE ASSESSEE COMPAN Y AND THE SAME HAS BEEN RIGHTLY BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE COMPANY WHEREIN HE HAS ESTIMATED GROSS PROFIT ON DECLARED A S WELL AS UNACCOUNTED TURNOVER. AS FAR AS GP RATE IS CONCERNE D, THE LD DR FAIRLY SUBMITTED THAT THE GP RATE OF 12% AS DECIDED BY THE HONBLE RAJASTHAN HIGH COURT MAY BE CONSIDERED. 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. CIT(A) NOTED THAT DURI NG THE COURSE OF SEARCH CONDUCTED AT THE PREMISES OF THE ASSESSEE CO MPANY, A NUMBER OF INCRIMINATING DOCUMENTS WERE FOUND PERTAINING TO UNACCOUNTED SALES, PURCHASES AND EXPENSES OF THE BUSINESS. IT WAS FURT HER NOTED BY THE LD. CIT(A) THAT THE ASSESSEE HAS ADMITTED IN THE COURSE OF STATEMENT RECORDED DURING THE COURSE OF SEARCH THAT TOTAL SAL ES OF ALL THE UNITS DURING FY 2008-09 WAS AROUND RS. 107 CRORES AND THE DECLARED TURNOVER WAS ONLY AROUND RS. 10.36 CRORES. FURTHER, LD. CIT(A) REFERS TO THE ORDER OF THE AO AND STATED THAT THE APPELLANT H AS SUPPRESSED THE ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 20 TURNOVER OF THE BUSINESS SUBSTANTIALLY AS MAY BE SE EN FROM PARA 22 OF THE ASSESSMENT ORDER. IT WAS FURTHER NOTED BY THE LD. CIT(A) THAT AO HAS ACCORDINGLY REJECTED THE BOOK RESULTS DECLARED BY THE APPELLANT. IT WAS FURTHER NOTED FROM THE ORDER OF THE AO THAT BOO KS OF ACCOUNTS WERE FOUND TO BE NOT COMPLETE ON THE DATE OF SEARCH AND AS PER THE STOCK STATEMENT AS ON 30.04.2009 FILED BY THE APPELLANT W ITH THE STATE BANK OF INDORE, THE VALUE OF STOCK AS ON 30.04.2009 WAS RS. 29,55,67,819/- AND AS AGAINST THIS, THE ACTUAL STOCK FOUND AT THE TIME OF SEARCH ON 20.05.2009 WAS RS. 14,52,24,834/-. A SPECIFIC SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY THE GP RATE OF 15% AS HELD BY THE TRIBUNAL IN CASE OF ANUJ KUMAR VARSHNEY AND OTHERS SHOULD NOT BE APPLIED ON THE ABOVE UNDISCLOSED TURNOVER OF RS. 15 ,03,42,985/-. IT WAS HELD BY THE LD. CIT(A) THAT INSPITE OF APPROPRIATE OPPORTUNITY GIVEN TO THE ASSESSEE AT THE STAGE OF ASSESSMENT AND EVEN DU RING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE HAS FAILED TO R ECONCILE THE DIFFERENCES IN THE VALUE OF STOCK FOUND AT THE TIME OF SEARCH AND THE STOCK AS PER BOOKS A COPY OF WHICH HAD BEEN FILED W ITH THE BANK. IT WAS FURTHER HELD BY THE LD. CIT(A) IN THE ABSENCE OF AN Y TANGIBLE EVIDENCE BEING FILED BY THE ASSESSEE, THE ONLY LOGICAL AND R ATIONAL COURSE OF ACTION AVAILABLE WOULD BE TO TREAT THE DIFFERENCES IN THE VALUE OF STOCK OF RS. 15,03,42,985/- AS TURNOVER WHICH HAS NOT BEE N ACCOUNTED FOR IN THE REGULAR BOOKS OF ACCOUNTS. IT WAS HELD BY THE L D. CIT(A) THAT THE SAID POSITION WOULD BE CONSISTENT WITH THE STATEMEN T GIVEN BY THE APPELLANT AT THE TIME OF SEARCH AND ALSO WITH THE D OCUMENTS FOUND AT THE TIME OF SEARCH RELATING TO CONCEALMENT OF TURNO VER, PURCHASES ETC. IT WAS FURTHER HELD BY THE LD. CIT(A) THAT WHERE THE E XPLANATION OF THE ASSESSEE IS ACCEPTED THAT THE STOCK FOUND AT THE TI ME OF SEARCH WAS CORRECT AND WAS IN ACCORDANCE WITH THE BOOKS OF ACC OUNTS, THEN IT ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 21 MEANS THAT THE STATEMENT OF STOCK FILED WITH THE BA NK WAS NOT CORRECT. IT ALSO LEADS TO BELIEVE THE VALUE OF STOCK SHOWN I N THE STATEMENT WAS INFLATED AND THE APPELLANT BECOME LIABLE FOR PERPET RATING A FINANCIAL FRAUD ON THE BANK. ACCORDINGLY, IT WAS HELD BY THE LD CIT(A) THAT THE ONLY CONCLUSION WHICH EMERGES OUT OF THE ABOVE DISC USSION IS THAT THE UNACCOUNTED TURNOVER OF RS. 15,03,42,985/- HAS BEEN MADE BY THE ASSESSEE DURING THE PERIOD UNDER CONSIDERATION. THE LD. CIT(A) THEREAFTER APPLIED GP RATE OF 15% ON SUCH UNACCOUNT ED TURNOVER FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN CASE OF ANUJ KUMAR VARSHNEY AND OTHERS. 20. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS FOUND INVOLVED IN ACCOUNTING FOR BOTH BOGUS PURCHASES AND BOGUS SALES AS WELL AS THERE ARE UNACCOUNTED PURCHASES AND UNACCOUNTED SALES AS PER THE DOCUMENTS FOUND AND SEIZED DURING THE COURSE OF SEA RCH. IN THE STATEMENT RECORDED DURING THE COURSE OF SEARCH, THE DIRECTOR OF THE ASSESSEE COMPANY HAS ADMITTED THAT DURING THE FY 20 08-09, TOTAL SALES ARE OF RS. 107/- CRORES AS AGAINST RECORDED SALES O F RS. 10.36 CRORES IN ITS BOOKS OF ACCOUNTS AND THE FACT THAT THE SAID AM OUNT OF RS. 107/- CRORES HAS BEEN BROUGHT TO TAX DURING THE FY 2008-0 9 RELEVANT TO ASSESSMENT YEAR 2009-10. FOR THE YEAR UNDER CONSIDE RATION, THE QUANTIFICATION OF UNDISCLOSED TURNOVER HAS BEEN DET ERMINED BY COMPARING THE VALUE OF THE PHYSICAL STOCK AS ON THE DATE OF SEARCH I.E, 20.05.2009 AND AS PER THE STOCK STATEMENT SUBMITTED BY THE ASSESSEE WITH THE STATE BANK OF INDORE ON 30.04.2009. GIVEN THAT THE BOOKS OF ACCOUNTS WERE NOT COMPLETE AS ON THE DATE OF SEARCH , EXACT STOCK AS PER BOOKS ON THE DATE OF SEARCH COULD NOT BE WORKED OUT NEITHER IN TERMS OF VALUE NOR QUANTITATIVE TALLY. IN POST SEAR CH PROCEEDINGS AND ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 22 DURING THE ASSESSMENT AND APPELLATE PROCEEDINGS AS WELL, THE ASSESSEE HAS FAILED TO RECONCILE THE SAME AND OFFER ANY SATI SFACTORY EXPLANATION. REGARDING VALUATION OF SUCH STOCK AT THE TIME OF SE ARCH, THE AO HAS HELD THAT THE VALUATION WAS DONE BY THE EXPERTS, I N THE PRESENCE OF ASSESSEES EMPLOYEES DEALING/MANAGING THE AFFAIRS O N THE DATE OF SEARCH/SEIZURE AND NO OBJECTION OF ANY NATURE WERE RAISED BY THE EMPLOYEES AT THE TIME OF SEARCH OR JUST AFTER THE S EARCH. NOW CHALLENGING THE VALUATION ON FRIVOLOUS GROUNDS IS O NLY AN AFTERTHOUGHT AND JUST TOO DEVOID THE INVESTIGATION. EVEN THE ASS ESSEE HAS NOT BEEN ABLE TO PRODUCE CORRECT QUANTIFICATION AND VALUATIO N AFTER SEARCH, IF IT WAS OF THE VIEW THAT VALUATION MADE BY THE SEARCH P ARTY WAS FAULTY OR INCORRECT. THE SAID FINDINGS OF THE AO REMAIN UNCO NTROVERTED BEFORE US AND WE DONOT SEE ANY JUSTIFIABLE REASON TO INTERFER E WITH THE SAME. HENCE, IT WAS HELD BY THE AO THAT THERE WAS DEFICIE NCY OF STOCK OF RS. 15.03 CRORES. AS PER ASSESSING OFFICER, DEFICIENCY OF STOCK SO FOUND CLEARLY PROVED THAT EITHER FAKE PURCHASE BILLS ARE INTRODUCED SO AS TO INCREASE STOCK OR THE SALES ARE REDUCED. THE AO ALS O REFERRED TO THE STATEMENT OF SHRI K. K. AMERIYA WHEREIN HE HAS STAT ED THAT STOCK STATEMENTS ARE INFLATED BY WAY OF SHOWING BOGUS PUR CHASES, DEBTORS AND TURNOVER. AS PER THE ASSESSING OFFICER, IT IS C ONCLUSIVE PROOF OF INCORRECTNESS OF BOOKS OF ACCOUNTS AND TRADING RESU LTS OF COMPANY. HENCE THE BOOKS OF ACCOUNTS AND TRADING RESULTS WER E REJECTED BY THE AO. THE AO THEREAFTER APPLIED G.P RATE OF 17% ON D ECLARED TURNOVER OF RS 15,40,38,479. IT IS HERE THAT THE LD CIT(A) HAS STEPPED IN AND IN OUR VIEW, RIGHTLY SO, WHERE HE FIGURED OUT A SEEMINGLY APPARENT MISTAKE IN THE FINAL DETERMINATION OF QUANTUM OF TURNOVER BY T HE AO FOR THE PURPOSES OF ESTIMATING THE GROSS PROFITS. AS PER L D. CIT(A), IN ABSENCE OF NECESSARY RECONCILIATION AND ANY CREDIBLE EVIDEN CE FILED BY THE ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 23 ASSESSEE, THE ONLY LOGICAL AND RATIONAL COURSE OF A CTION WOULD BE TREAT THE DIFFERENCE IN THE VALUE OF STOCK AS UNACCOUNTED TURNOVER WHICH HAS NOT BEEN ACCOUNTED IN THE REGULAR BOOKS OF ACCOUNTS . BASED ON MATERIAL AVAILABLE ON RECORD, WE AGREE WITH THE FINDINGS OF THE LD CIT(A) THAT THERE IS AN UNACCOUNTED TURNOVER WHICH HAS NOT BEEN DISCLOSED BY THE ASSESSEE. HOWEVER, WE FIND THAT THE LD CIT(A) HAS DETERMINED THE UNACCOUNTED TURNOVER BY COMPARING THE STOCK STATEME NT AS ON 30.04.2009 FILED BY THE APPELLANT COMPANY WITH THE STATE BANK OF INDORE WHICH DISCLOSES THE VALUE OF RS. 29,55,67,81 9 AND THE ACTUAL STOCK OF RS. 14,52,24,834/- FOUND AT THE TIME OF SE ARCH ON 20.05.2009. FOR THE PERIOD APRIL 2009 TO MARCH 2010 WHICH INCLU DES THE PERIOD STARTING 30.04.2009 AND ENDING 20.5.2009, THE ASSES SEE HAS DISCLOSED A TURNOVER OF RS 15,40,38,479. ACCORDINGLY, THE ASSES SEE SHALL BE ELIGIBLE FOR CREDIT OF DISCLOSED TURNOVER FOR THE PERIOD STA RTING 30.04.2009 AND ENDING 20.5.2009 WHICH COMES TO RS 88,62,487 BY EVE NLY DISTRIBUTING THE DECLARED TURNOVER OVER A PERIOD OF 12 MONTHS. ACCORDINGLY, THE UNDISCLOSED TURNOVER IN THE HANDS OF THE ASSESSEE C OMPANY COMES TO RS 14,14,80,498 (RS 15,03,42,985 LESS 88,62,487). 22. REGARDING THE ESTIMATION OF GP RATE, THE MATTER STAND COVERED BY THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN ASS ESSEES OWN CASE IN EARLIER YEARS WHEREIN GP RATE OF 12% HAS BEEN UPHEL D BY THE HONBLE HIGH COURT. HENCE, THE SAME WILL APPLY WITH THE EQU AL FORCE IN THE PRESENT CASE. 23. REGARDING THE CONTENTION OF THE LD AR THAT THE DIFFERENCE IN THE STOCK HAS ALREADY BEEN CONSIDERED BY THE ASSESSING OFFICER WHILE REJECTING THE BOOK RESULTS OF THE ASSESSEE COMPANY AND THERE CANNOT BE ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 24 ANY SEPARATE ADDITION ON THAT ACCOUNT. IT WAS SUBMI TTED THAT G.P RATE SO DETERMINED SHOULD BE APPLIED ONLY THE DECLARED T URNOVER ONLY AND NOT ON UNACCOUNTED TURNOVER AS SO DETERMINED. IN OU R VIEW, ONCE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED BY GIVING COGE NT REASONS, THE AO HAS TO MAKE BEST JUDGEMENT ASSESSMENT. IT IS WELL- SETTLED THAT IN A BEST JUDGMENT ASSESSMENT, THERE IS ALWAYS A CERTAIN DEGREE OF GUESS WORK. NO DOUBT THE AUTHORITIES CONCERNED SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN A BEST JUDG MENT ASSESSMENT, AND SHOULD NOT ACT TOTALLY ARBITRARILY, BUT THERE I S NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED IN A BEST JUDGMENT AS SESSMENT, AND SUCH GUESS WORK SHOULD HAVE LINK WITH TANGIBLE EVID ENCE WHICH IN THE PRESENT CASE IS THE STOCK STATEMENTS WHICH IS PREPA RED AND SUBMITTED BY THE ASSESSEE ITSELF TO ITS BANKERS. IF THE STOCK STATEMENT SHOWS CERTAIN VALUE OF STOCK WHICH IS AT VARIANCE TO PHYS ICAL STOCK, IT IS CLEARLY A TANGIBLE PIECE OF EVIDENCE WHICH BELONGS TO THE A SSESSEE AND FOUND FROM THE POSSESSION OF THE ASSESSEE DURING THE COUR SE OF SEARCH. UNLESS THE ASSESSEE COME FORWARD AND EXPLAIN WHY TH E SAID STOCK STATEMENT IS NOT CORRECT AND SHOULD NOT BE RELIED U PON, THE REVENUE CANNOT BE PRECLUDED IN TAKING THE SAME INTO CONSIDE RATION OR EXPECTED TO SHUT ITS EYES IGNORING THE SAME. IT IS THE ASSE SSEE ITSELF WHO IS TO BLAME AS HE DID NOT SUBMIT PROPER ACCOUNTS AND THER E ARE UNACCOUNTED TURNOVER WHICH IS SO DETERMINED AND WHICH SHOULD BE TAKING INTO CONSIDERATION WHILE ESTIMATING THE PROFITS IN THE H ANDS OF THE ASSESSEE COMPANY. IN OUR VIEW, THERE WAS NO ARBITRARINESS IN THE PRESENT CASE WHERE THE AO HAS DETERMINED THE UNACCOUNTED TURNOVE R OF RS 15,03,42,985/-, BUT FAILED TO TAKE THE SAME INTO CO NSIDERATION WHILE ESTIMATING THE PROFITS IN THE HANDS OF THE ASSESSEE COMPANY AND WHICH THE LD CIT(A) HAS RIGHTLY APPRECIATED AND CONSIDERE D THE SAME ALONG ITA NO. 479/JP/2015 M/S CLARITY GOLD PVT LTD., JAIPUR VS. ACIT, JAIPUR 25 WITH THE DECLARED TURNOVER. WE ACCORDINGLY UPHELD T HE ACTION OF THE LD CIT(A) OF DETERMINING THE UNACCOUNTED TURNOVER WHIC H WE HAVE REDUCED TO RS 14,14,80,498 AND THE PROFIT ON SUCH UNACCOUNTED TURNOVER OF RS 14,14,80,498 SHOULD BE DETERMINED BY APPLYING G.P RATE OF 12% AS AGAINST 15% APPLIED BY THE LD CIT(A). TH E GROUND NO. 4 OF THE ASSESSEES APPEAL IS THUS PARTLY ALLOWED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/02/2018. 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 TK;IQJ@ JAIPUR FNUKAD@ DATED:- 16/02/2018. * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S CLARITY GOLD PVT LTD., JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CENTRAL CIRCLE-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. 479/JP/2015} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR