Income Tax Officer Ward-1 Beawar, Ward-1 Beawar V. M/s. Manirtanam Gems Pvt. Ltd, Chhajer Sadan, Near Chiman Singh Lodha School, Out side Nehru Gate, Beawar, Beawar

ITA 539/JPR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3809 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 29-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 16-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Keywords: Bogus purchase; Rejection of books of accounts; Business income; Accommodation entries
• Section: 69C; 133(6)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,B JAIPUR JH FOT; IKY 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. 539/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2012-13 THE ITO, WARD-1, BEAWAR. CUKE VS. M/S MANIRATNAM GEMS PVT. LTD. CHHAJER SADAN, NEAR CHIMAN SINGH LODHA SCHOOL, OUTSIDE NEHRU GATE, BEAWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAFCM 7852 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT CO NO. 29/JP/2017 (ARISING OUT OF ITA NO. 539/JP/2017) FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2012-13 M/S MANIRATNAM GEMS PVT. LTD. CHHAJER SADAN, NEAR CHIMAN SINGH LODHA SCHOOL, OUTSIDE NEHRU GATE, BEAWAR. CUKE VS. THE ITO, WARD-1, BEAWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAFCM 7852 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS @ REVENUE BY : SHRI B.K. GUPTA (CIT) FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI RAJIV KHANDELWAL (C.A.) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 01/01/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 18/03/2019 ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 2 VKNS'K@ ORDER PER: SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), BEAWAR DATED 26.04.2017 AND THE CROSS OBJEC TION FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2012-13 WHEREIN TH E RESPECTIVE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO.539/JP/2017 (REVENUES APPEAL) WHETHER LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS JUSTIFIED IN RESTRICTING THE TRADING ADDITION OF RS. 6,18,39,745/- TO RS. 6,05,878/- BY APPLYING THE G.P. @ 2% ONLY ON THE UNVERIFIED PURCHASES OF RS. 4,32,77,012 /- FROM M/S ANANT EXPORTS, SURAT INSTEAD OF THE TURNOVER DECLAR ED BY THE ASSESSEE; WITHOUT CONSIDERING THE FACT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE REJECTED U/S 145(3) OF THE ACT, N OT ONLY ON THE ABOVE ISSUE BUT ALSO ON THE BASIS OF OTHER DEFECTS NOTICED BY THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OW ING TO WHICH THE G.P. SHOWN BY THE ASSESSEE WAS NOT ACCEPTED. CO NO. 29/JP/2017 (ASSESSEES APPEAL) 1. THE COMMISSIONER OF INCOME-TAX (APPEALS), AJMER (HEREINAFTER REFERRED TO AS THE CIT(A) ERRED IN UPH OLDING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BO OKS OF ACCOUNT OF THE APPELLANTS BY INVOKING THE PROVISIONS OF SEC TION 145(3) OF THE ACT. THE APPELLANT CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT NOT TO HAV E UPHELD THE ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 3 ACTION OF THE ASSESSING OFFICER IN REJECTING THE BO OKS OF ACCOUNT OF THE APPELLANTS. 2. THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN MAKING GROSS PROFIT ADDITION OF RS. 6,05 ,878/-, BEING 1.4% (2%-0.6%) OF RS. 4,32,77,018 IN RELATION TO PU RCHASE FROM M/S ANANT EXPORTS. THE APPELLANTS CONTEND THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) OUGHT NOT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE AFORE SAID ADDITION OF GROSS PROFIT. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF GEMS AND JEWELLERY AS WE LL AS DIAMONDS AND CARRY OUT ITS ACTIVITIES THROUGH ITS BRANCHES S ITUATED AT SURAT AND MUMBAI. DURING THE YEAR UNDER CONSIDERATION, THE AS SESSEE HAS REPORTED TOTAL TURNOVER OF RS. 446 CRORES AND HAS R EPORTED GROSS PROFIT RATE OF 0.61% AS AGAINST THE G.P RATE OF 0.15% ON T URNOVER OF RS 434 CRORES SHOWN IN THE IMMEDIATE PRECEDING YEAR. IN OR DER TO VERIFY THE RESULTS DECLARED BY THE ASSESSEE COMPANY, THE LATTE R WAS ASKED TO FURNISH DETAILS OF PURCHASES AND SALES EXCEEDING RS . 50 LACS. FURTHER IN ORDER TO VERIFY THE GENUINENESS OF THE TRANSACTIONS , INFORMATION U/S 133(6) OF THE ACT WERE ALSO SOUGHT FROM 19 PARTIES HOWEVER, IN RESPECT OF 11 PARTIES, THE NOTICES SENT TO THEM WERE RECEIV ED BACK UNDELIVERED AND IN MOST OF THE CASES, THE NOTICES WERE RETURNED WITH THE REMARKS LEFT BY THE POSTAL AUTHORITIES. HOWEVER, DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FURNISHED COPY OF THE CONFIRMATIONS IN RESPECT OF THESE PARTIES HOWEVER, THE SAME WERE NOT ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 4 FOUND RELIABLE AND WERE NOT FOUND ACCEPTABLE TO THE ASSESSING OFFICER HOLDING THAT WHEN THE NOTICES WERE RECEIVED BACK UN SERVED, HOW THESE PARTIES ARE RESPONDING TO THE SAID NOTICES THROUGH THE ASSESSEE AND THEREFORE, THE INFORMATION SUBMITTED THAT THE ASSES SEE WERE NOT FOUND ACCEPTABLE. FURTHER, THE ASSESSING OFFICER RECEIVED INFORMATION FROM DDIT MUMBAI STATING THAT THE ASSESSEE HAS TAKEN ACC OMMODATION ENTRY OF BOGUS PURCHASES OF RS. 50 LACS FROM M/S TAJ IMPE X WHICH IS ENTITY OPERATING FROM SHRI PRAVEEN KUMAR JAIN. ACCORDINGLY , INFORMATION FROM M/S TAJ IMPEX WERE ALSO SOUGHT U/S 133(6) OF THE AC T. BASED ON THESE PRELIMINARY ENQUIRIES, THE AO ISSUED SHOW CAUSE NOT ICE TO THE ASSESSEE WHEREIN THE AO STATED THAT IN SPITE OF SENDING NOTI CES TO THE VARIOUS PARTIES, NO VERIFICATION OF PURCHASE COULD BE MADE, THEREFORE, HE INTEND TO REJECT THE BOOKS OF ACCOUNT AND APPLY SUITABLE G .P. RATE IN RESPECT OF PURCHASE SHOWN TO HAVE BEEN MADE FROM THE SAID PART IES. FURTHER, IN THE SHOW CAUSE NOTICE, THE AO ALSO STATED THAT HE I NTEND TO ADD BACK THE ENTIRE AMOUNT OF RS. 50 LACS IN RESPECT OF PURC HASE SHOWN TO HAVE MADE FROM M/S TAJ IMPEX WHICH IS NOTHING BUT ACCOMM ODATION ENTRY OBTAINED FROM SHRI UTTAM HINGER WHO IS ASSOCIATE OF SHRI PRAVEEN KUMAR JAIN AND INDULGE IN THE BUSINESS OF PROVIDING ACCOMMODATION ENTRIES OF BOGUS PURCHASES AND THE SAID ADDITION WA S PROPOSED TO BE MADE U/S 69C OF THE ACT. 3. IN RESPONSE, THE ASSESSEE FILED ITS SUBMISSIONS HOWEVER, THE SAME WERE NOT FOUND ACCEPTABLE TO THE AO. AS PER T HE ASSESSING OFFICER, NOTICE ISSUED U/S 133(6) OF THE ACT WERE S ENT ON THE ADDRESSES GIVEN BY THE ASSESSEE AND THESE PARTIES ARE NOT A S MALL TIME SHOP KEEPERS BUT DIAMOND DEALERS, SOME OF WHICH ARE RUNN ING BUSINESS IN ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 5 THE STATUS OF PRIVATE LIMITED COMPANIES AND AS SUCH ADDRESSES AS FURNISHED BY THE ASSESSEE SHOULD HAVE BEEN CORRECT. NO VERIFICATION OF PURCHASES/SALES COULD BE MADE AS LETTERS WERE RECEI VED BACK UNSERVED AND IT IS SURPRISED TO NOTE THAT HOW THE ABOVE PART IES HAVE COMPLIED WITH AND SEND REPLY WHEN THEY HAVE NOT GOT NOTICES U/S 133(6) OF THE ACT AND LETTERS WERE RECEIVED BACK UNDELIVERED. THE INFORMATION SO SUPPLIED BY THE ASSESSEE IS NOT ON THE LETTER PAD O F THE SAID CONCERNS AND THE SAME CANNOT BE TAKEN COGNIZANCE AND IT IS N OT ASCERTAINED AS TO WHETHER THESE WERE SUPPLIED BY THE CONCERNED PAR TIES. MERE PAYMENTS MADE THROUGH ACCOUNT PAYEE CHEQUE DO NOT P ROVE GENUINENESS OF THE TRANSACTIONS. THE LD. ARS CONTE NTION THAT UNIQUE DIAMOND INTERNATIONAL IS FOREIGN COMPANY FROM WHOM IMPORT WAS MADE RATHER THAN PURCHASING FROM SURAT, THE AO STATED TH AT THE ASSESSEE HAS FURNISHED HIS SURAT ADDRESS UNIQUE DIAMOND INTERNA TIONAL, MILLENIUM DIA, COMPLEX, VARACHHA ROAD, SURAT AND NOTICE WAS I SSUED U/S 133(6) ACCORDINGLY ON THE SURAT ADDRESS. THE ASSESSING OFF ICER FURTHER STATED THAT THE FACT OF ACCOMMODATION ENTRY BEING PROVIDED IS ADMITTED BY PRAVEEN KUMAR JAIN WHOSE STATEMENT WERE RECORDED U/ S 132(4) OF THE IT ACT ON 01.10.2013. FURTHER, THE ASSESSING OFFICE R REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE STATING THAT THE ASSESS EE HAS NOT KEPT QUALITATIVE DETAILS OF CLOSING STOCK AND DIAMONDS A RE PRECIOUS STONE AS SUCH IN THE ABSENCE OF QUALITATIVE DETAILS, THEIR R EAL VALUATION OF CLOSING STOCK IS NOT ASCERTAINABLE. FURTHER, ON PERUSAL OF THE PURCHASE REGISTER, NO BILL NUMBERS WERE FOUND MENTIONED IN RESPECT OF PURCHASES MADE FROM 7 PARTIES. FURTHER, THE ASSESSEE HAS MADE BOGU S PURCHASE OF RS. 50 LACS TO REDUCE THE INCIDENCE OF TAX FROM M/S TAJ IMPEX, SURAT WHICH IS FOUND TO BE BOGUS PURCHASE IN VIEW OF THE ADMITT ED STATEMENT OF SHRI ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 6 PRAVEEN KUMAR JAIN. THE AO ALSO REFERRED TO THE STA TEMENT OF SHRI PRAVEEN KUMAR JAIN RECORDED U/S 132(4) OF THE I.T. ACT AS WELL AS STATEMENT OF SHRI UTTAM CHAND HINGER, PROPRIETOR OF M.S TAJ IMPEX WHOSE STATEMENT WERE ALSO RECORDED U/S 132(4) OF TH E ACT WHEREIN HE ADMITTED THAT HE IS ONLY DIRECTOR ON PAPER AND NONE OF THESE CONCERNS RUN BY SHRI PRAVEEN KUMAR JAIN IS GENUINE AND ALL T HESE CONCERNS ARE USED FOR PROVIDING ENTRIES FOR PURCHASE UNSECURED L OANS AND SHARES APPLICATION MONEY. THE AO ACCORDINGLY HELD THAT IN VIEW OF THE ADMITTED STATEMENT OF SHRI UTTAM CHAND HINGER, PURCHASE OF R S. 50 LACS BY THE ASSESSEE FROM M/S MANIRATNAM GEMS PVT. BEING A BOGU S PURCHASE ENTRY WHICH IS OBTAINED JUST TO REDUCE TAX INCIDENCE AND PAYMENT BY ACCOUNT PAYEE CHEQUE IS NOT SUFFICIENT TO ESTABLISH THE GEN UINENESS OF PURCHASES. IN VIEW OF THE ABOVE REASONING SO ELABOR ATELY DISCUSSED IN THE ASSESSMENT ORDER, THE BOOK RESULTS WERE REJECTE D. 4. THEREAFTER, THE AO OBSERVED THAT THE ASSESSEE ON ITS CONSOLIDATED SALES OF RS. 446 CRORES HAS REPORTED G.P. RATE OF 0 .61% WHICH IS QUITE LOW AND THEREAFTER, REFERRING TO THE DECISION OF HO NBLE GUJARAT HIGH COURT IN CASE OF MAYANK DIAMONDS PVT. LTD. VS. ITO DATED 07.11.2014, APPLIED G.P @ 2% ON THE CONSOLIDATED SALES AND GIVE N THE DECLARED G.P. OF RS.2,73,87,008/-, TRADING ADDITION OF RS. 6 ,18,39,745/-WAS MADE TO THE DECLARED TOTAL INCOME OF THE ASSESSEE. 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). DURING THE COURSE OF APPELLATE PROC EEDINGS, THE LD. CIT(A) REQUESTED THE AO TO EXAMINE 11 PARTIES FROM WHOM THE ASSESSEE HAS MADE THE PURCHASES DURING THE YEAR AND WHICH WAS NOT ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 7 VERIFIED DURING THE COURSE OF ASSESSMENT PROCEEDING S. IN RESPECT OF M/S SURANA CORPORATION LTD, CHENNAI, THE LD. CIT(A) HAS STATED THAT THE PARTY APPEARED BEFORE THE DDIT, CHENNAI AND CONFIRM ED THE SALE OF GOODS TO THE ASSESSEE COMPANY. FOUR PARTIES NAMELY HELIOS JEWELLERY PRIVATE LIMITED, VITHOBA NARAYAN KALAMBE, VITHOBA K ALAMBE (HUF) AND SUPERSTAR MULTITRADE PVT. LTD, APPEARED BEFORE THE DDIT, MUMBAI AND CONFIRMED THE SALE OF GOODS TO THE ASSESSEE. REGARD ING 4 PARTIES NAMELY, M/S INTERNATIONAL, SURAT, YASH OVERSEAS, SU RAT, SATYARTH EXPORT AND ADESHWAR GEMS PVT. LTD, THE LD. CIT(A) STATED T HAT THOUGH THESE PARTIES WERE NOT FOUND BY THE DDIT, SURAT AT THE AD DRESS GIVEN BY THE ASSESSEE BUT THE ASSESSEE PRODUCED ALL THESE FOUR P ARTIES BEFORE THE AO AND ALL THESE FOUR PARTIES HAVE CONFIRMED BEFORE TH E AO THAT THEY HAVE SOLD THE GOODS TO THE APPELLANT. REGARDING UNIQUE D IAMOND INTERNATIONAL, THE LD. CIT(A) STATED THAT THE PARTY IS BASED OUT OF USA AND THE AO DID NOT ISSUE ANY NOTICE U/S 133(6) AT I TS USA ADDRESS. REGARDING ANANT EXPORT, SURAT, THE LD. CIT(A) STATE D THAT THE PARTY COULD NOT BE FOUND BY THE DDIT, SURAT AT THE ADDRES S GIVEN BY THE APPELLANT AND THE ASSESSEE HAS ALSO EXPRESSED ITS I NABILITY TO PRODUCE THE PARTY AS THE ASSESSEE WAS NOT IN CONTACT WITH T HE PARTY. BASED ON ABOVE EXAMINATION AND VERIFICATION OF THE VARIOUS P ARTIES, THE LD. CIT(A) STATED OUT OF THE 11 PARTIES WHOSE PURCHASES WERE S OUGHT TO BE VERIFIED BY THE AO, EXCEPT M/S ANANT EXPORT, SURAT, ALL OTH ER PARTIES HAVE CONFIRMED THAT THEY HAVE SOLD GOODS TO THE APPELLAN T. THE LD CIT(A) ALSO ACKNOWLEDGED THE FACT THAT THOUGH THE AO HAS E XPRESSED HIS DOUBT IN RESPECT OF THE GENUINENESS OF THE PURCHASES FROM THESE PARTIES ON THE BASIS OF THE STATEMENT OF THESE PARTIES OR FOR OTHER REASONS HOWEVER, HE WAS OF THE VIEW THAT PURCHASES MADE BY THE APPELLANT ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 8 CANNOT BE HELD TO BE BOGUS, JUST ON THE BASIS OF SU SPICION OR DOUBT WHEN THESE PARTIES HAVE IN UNAMBIGUOUS MANNER, CONF IRMED THAT THEY HAVE SOLD THE GOODS TO THE ASSESSEE AND THE ASSESS EE HAS PRODUCED ALL THE NECESSARY DOCUMENTARY EVIDENCES INCLUDING PURCH ASES BILLS AND BANK STATEMENTS OF THE ASSESSEE IN WHICH THE PAYMEN T TO THESE PARTIES ARE REFLECTED. IT WAS FURTHER HELD BY THE LD CIT(A) THAT THE ASSESSING OFFICER OR DDIT HAS NOT BROUGHT ON RECORD ANY EVIDE NCE TO SHOW THAT PAYMENTS MADE TO THESE PARTIES THROUGH BANKING CHAN NEL WERE RECEIVED BACK BY THE ASSESSEE IN CASH. THE ASSESSEE IS ALSO MAINTAINING STOCK REGISTER WHEREIN QUANTITY OF GOODS PURCHASED AND SO LD ARE RECORDED, THE AO HAS NOT FOUND ANY DISCREPANCY IN THE QUANTIT Y OF GOODS PURCHASES OR SOLD RECORDED IN THE STOCK REGISTER. REGARDING M/S ANANT EXPORT, SURAT THOUGH THE PARTY IS NOT AVAILABLE AT THE GIVEN ADDRESS HOWEVER, THE ASSESSEE HAS FILED COPY OF THE PURCHAS E BILLS OF THIS PARTY AND IN THE BANK STATEMENT OF THE ASSESSEE, THE PAYM ENT MADE TO THE THIS PARTY ARE DULY REFLECTED AND THE QUANTITY OF G OODS PURCHASED FROM THIS PARTY IS ALSO RECORDED IN THE STOCK REGISTER. REGARDING PURCHASES OF RS. 50 LACS MADE FROM M/S TAJ IMPEX, THE LD. CITT(A ) HAS HELD THAT AO HAS TREATED THE SAID PURCHASE AS UNVERIFIABLE ONLY ON THE BASIS OF STATEMENT OF SHRI PRAVEEN KUMAR JAIN WHICH WAS SUBS EQUENTLY RETRACTED BY HIM. IT WAS FURTHER HELD BY THE LD. CIT(A) THAT THE ASSESSEE HAS FURNISHED COMPLETE DOCUMENTARY EVIDENCE TO PROVE TH E GENUINENESS OF THE PURCHASE RECORDED AND THE GOODS RECEIVED FROM M /S TAJ IMPEX HAS ALSO ENTERED IN THE STOCK REGISTER. THE AO HAS NOT FOUND ANY DISCREPANCY IN THE QUANTITY OF GOODS PURCHASED AND SOLD RECORDED IN THE STOCK REGISTER. REGARDING ISSUANCE OF NOTICE ISSUED U/S 133(6) OF THE ACT TO M/S TAJ IMPEX, THE AO HAS NOT MENTIONED THAT NOT ICE WAS RETURNED ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 9 BACK UNSERVED OR M/S TAJ IMPEX HAD DENIED HAVING MA DE SALE TO THE ASSESSEE. FURTHER, THE AO HAS ALSO NOT BROUGHT ON R ECORD ANY EVIDENCE TO SHOW THAT PAYMENT MADE TO M/S TAJ IMPEX BY THE A SSESSEE THROUGH BANKING CHANNEL WAS RECEIVED BACK IN CASH. THUS, TH ERE IS NO EVIDENCE WITH THE AO TO TREAT THE PURCHASES FROM M/S TAJ IMP EX AS UNVERIFIED PURCHASES EXCEPT THE STATEMENT OF SHRI PRAVEEN KUMA R JAIN WHICH HE HAD ALREADY RETRACTED. REGARDING THE AOS OBSERVAT ION THAT THE ASSESSEE IS NOT MAINTAINING QUALITATIVE DETAILS OF CLOSING STOCK, THE LD CIT(A) HELD THAT THE ASSESSEE IS MAINTAINING THE ST OCK REGISTER CONSISTENTLY IN QUANTITATIVE TERMS AND IN SUPPORT, REFERENCE WAS DRAWN TO ASSESSMENT YEAR 2013-14 WHEREIN THE AO HAS REJEC TED THE BOOK RESULTS OF THE ASSESSEE U/S 145(3) OF THE ACT MAINL Y ON THIS GROUND HOWEVER HAS MADE AN ADDITION OF RS. 3 LAC ONLY. THE LD. CIT(A) FINALLY STATED THAT AT THE MOST, PURCHASE OF RS. 4,32,77,01 2/- MADE BY THE ASSESSEE FROM M/S ANANT EXPORT, SURAT CAN BE HELD T O BE UNVERIFIABLE BECAUSE THE PARTIES IS NOT AVAILABLE AT THE ADDRESS GIVEN BY THE ASSESSEE. BUT THE ASSESSEE HAS FURNISHED ALL THE DO CUMENTARY EVIDENCES TO PROVE THE PURCHASES FROM THESE PARTIES INCLUDING THE PURCHASE BILLS AND BANK STATEMENT IN WHICH THE PAYMENT MADE TO M/S ANANT EXPORT ARE REFLECTED. THE GOODS RECEIVED FROM M/S ANANT EX PORT ARE ALSO RECORDED IN THE STOCK REGISTER OF THE ASSESSEE. THE ASSEESSEE COULD NOT HAVE SOLD THE GOODS UNLESS HE HAD PURCHASED THE GOO DS AND THE QUANTITY OF GOODS PURCHASED AND SOLD ARE RECORDED I N THE STOCK REGISTER WHICH HAVE BEEN ACCEPTED BY THE AO. THEREAFTER, THE LD. CIT(A) FINALLY HELD THAT HE IS OF THE CONSIDERED VIEW THAT IT WOUL D BE FAIR AND REASONABLE TO UPHELD THE REJECTION OF BOOK RESULTS MADE BY THE AO U/S 145(3) OF THE ACT BUT HE RESTRICTED THE ADDITION I N RESPECT OF THE ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 10 DIFFERENCE BETWEEN THE GP RATE DECLARED BY THE ASSE SSEE @ 0.61% AND THE GP RATE ESTIMATED ON THIS UNVERIFIED PURCHASES OF RS. 4,32,77,012/-. GIVEN THAT THE AO HIMSELF HAS ESTIMATED GP RATE OF 2%, THE LD. CIT(A) HAS HELD THAT IT WOULD BE FAIR AND REASONABLE TO RE STRICT THE ADDITION TO RS. 6,05,878/- (2% LESS 0.61% ON RS 4,32,77,018) AN D THE BALANCE ADDITION OF RS 6,12,33,867 WAS DIRECTED TO BE DELET ED. 6. AGAINST THE SAID FINDINGS OF THE LD. CIT(A), THE REVENUE IN APPEAL STATING THAT THE LD. CIT(A) HAS ERRED IN RESTRICTIN G THE TRADING ADDITION BY APPLYING G.P. @ 2% ON THE UNVERIFIABLE PURCHASE INSTEAD OF TOTAL TURNOVER DECLARED BY THE ASSESSEE WITHOUT CONSIDERI NG THE FACT THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE REJECTED U/S 145(3) OF THE ACT NOT ONLY ON THE ABOVE ISSUE BUT ALSO ON THE BASIS O F OTHER DEFECTIVE NOTICE ISSUED BY THE AO. IN ITS CROSS OBJECTION, TH E ASSESSEE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN UPHOLDIN G THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE AC T AND FURTHER, IN MAKING THE ADDITION OF RS. 6,05,878/- IN RELATION T O PURCHASES FROM M/S ANANT EXPORTS. 7. DURING THE COURSE OF HEARING, THE LD. DR HAS SUB MITTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING INC LUDING IMPORT OF PRECIOUS STONES, MAINLY DIAMOND ROUGH AND CUT AND P OLISHED DIAMONDS AND HAVING OFFICES AT MUMBAI AND SURAT. IT HAS FILE D ITS ROI FOR THE YEAR DECLARING TOTAL INCOME AT RS. 19,88,730/-. IT HAS D ISCLOSED TOTAL TURNOVER OF RS. 446 CRORE, ON WHICH IT HAS DECLARED GP OF RS . 2.74 CRORE GIVING GP RATE OF 0.61%. HOWEVER, AS PER THE SEPARATE TRAD ING ACCOUNTS FOR ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 11 MUMBAI AND SURAT, IT HAS DECLARED SALES OF RS. 364 CRORE AND RS. 81.50 CRORE IN RESPECT OF ITS SURAT AND MUMBAI OFFICES RE SPECTIVELY AND HAS DECLARED GP RATES OF 0.08% AND 0.50% ACCORDINGLY GI VING OVERALL GP RATE OF 0.15% AGAINST 0.61%. 7.1 IT WAS FURTHER SUBMITTED THAT UNDISPUTED FACT T HAT THE ASSESSEE HAS NOT MAINTAINED ANY QUALITATIVE STOCK REGISTER A ND IT HAS CLAIMED TO MAINTAIN ITS STOCK REGISTER OF FIFO BASIS. THE AO H AS MADE ENQUIRIES FROM 19 ENTITIES WITH WHICH THE ASSESSEE HAS TRANSA CTIONS OF SALE/PURCHASE DURING THE YEAR UNDER CONSIDERATION A ND HAS ISSUED NOTICES U/S 133(6) ACCORDINGLY. IT IS NOTED BY THE AO THAT 11 OF ABOVE NOTICES WERE RECEIVED BACK UNSERVED WITH THE POSTAL REMARKS 'LEFT/UNDELIVERED. THE AO HAS CONFRONTED THE SAME TO THE ASSESSEE BUT A VERY VAGUE REPLY WAS SUBMITTED BY THE ASSESSEE AS APPEARING ON PAGE 10/11 OF THE ASSESSMENT ORDER. NO EFFORT WAS M ADE BY THE ASSESSEE TO PRODUCE THESE ENTITIES BEFORE THE AO. F URTHER, IT HAS ALSO BEEN GATHERED BY THE AO THAT THE ASSESSEE HAS OBTAI NED ACCOMMODATION ENTRY AMOUNTING TO RS. 50 LAC FOR PUR CHASE OF GOODS FROM M/S TEJ LMPEX, AN ENTITY CONTROLLED AND MANAGE D BY SHRI PRAVIN KUMAR JAIN, A KNOWN ENTRY OPERATOR. IN VIEW OF THE ABOVE FACTS, AFTER GIVING A SHOW CAUSE NOTICE TO THE ASSESSEE AND AFTE R CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO HAS REJECTED TH E BOOKS OF ACCOUNTS OF THE ASSESSEE AND HAS GIVEN THE DETAILED REASONS FROM PAGE 11 TO 17 OF THE ASSESSMENT ORDER AND AFTER PLACING RELIANCE ON THE JUDGMENT OF HON'BLE HIGH COURT OF GUJARAT, THE AO HAS APPLIED G P RATE OF 2% ON TOTAL SALES OF RS. 446 CRORE DECLARED BY THE ASSESS EE IN ITS PROFIT AND ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 12 LOSS ACCOUNT AND HAS MADE TRADING ADDITION OF RS. 6 .18 CRORE TO THE INCOME OF THE ASSESSEE. 7.2 IT WAS FURTHER SUBMITTED THAT DURING THE APPELL ATE PROCEEDINGS BEFORE THE LD. CIT(A), IT WAS STATED BY THE ASSESSE E THAT ITS ACTUAL SALE AND PURCHASE WERE TO THE TUNE OF RS. 411 CRORE AND RS. 413 CRORE RESPECTIVELY AND THE AO HAS ALSO TAKEN INTER BRANCH TRANSFERS AND SALES RETURNS INTO TOTAL TURNOVER, HOWEVER, WITHOUT THE S UPPORTING EVIDENCES AND EXPLAINING WHY THE TOTAL TURNOVER WAS SHOWN AT HIGHER FIGURE IN THE AUDITED PROFIT AND LOSS ACCOUNT. DURING THE APPELLA TE PROCEEDINGS, THE ASSESSEE FURNISHED NEW ADDRESS(ES) OF THESE 11 ENTI TIES AND THE LD. CIT(A) HAS DIRECTED THE AO TO MAKE ENQUIRIES FROM T HESE ENTITIES. IN ITS 1ST REMAND REPORT, IT HAS BEEN STATED BY THE AO THA T THE ENQUIRIES AT THE NEW ADDRESSES PROVIDED BY THE ASSESSEE WERE MAD E BY THE ADI(INV), SURAT AND IT HAS BEEN REPORTED BY THE ADI (INV) THAT 5 OF SUCH PARTIES WERE NOT AVAILABLE AT THESE NEW ADDRESSES P ROVIDED BEFORE THE LD. CIT(A) AND THEREFORE, THE PURCHASES FROM THEM W ERE BOGUS. 7.3 IT WAS ACCORDINGLY SUBMITTED THAT IN ITS REJOIN DER, OF CIT(A) ORDER, REGARDING THESE 5 ENTITIES, THE ASSESSEE HAS NOW, A GAIN FURNISHED NEW ADDRESSES OF M/S ADESHWAR GEMS P. LTD AND M/S SATYA RTH EXPORTS AND AFFIDAVITS FROM M/S M S INTERNATIONAL AND M/S YASH OVERSEAS STATING THAT DUE TO RENOVATION OF THEIR OFFICES, THE OFFICE S WERE CLOSED AT THE TIME OF MAKING ENQUIRIES BY ADIT(INV.). IT WAS STAT ED THAT THE 5TH ENTITY M/S ANANT EXPORTS COULD NOT BE CONTACTED. IT IS PERTINENT TO MENTION HERE THAT THE AFFIDAVITS WERE NOTHING BUT A DDITIONAL EVIDENCES BUT THE APPELLATE ORDER IS TOTALLY SILENT ON THEIR ADMISSION AS ADDITIONAL ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 13 EVIDENCE. THE REJOINDER WAS AGAIN FORWARDED TO THE AO FOR ITS COMMENTS. IN ITS 2ND REMAND REPORT, IT WAS STATED, INTER ALIA OTHERS, BY THE AO THAT THE AFFIDAVITS WERE AFTER THOUGHT AND T HESE 4 ENTITIES WERE NOT FOUND AT THE TIME OF MAKING ENQUIRIES BY THE AD I(INV) AND THE GENUINENESS OF PURCHASES COULD NOT BE VERIFIED. 7.4 IT WAS FURTHER SUBMITTED THAT ON THE BASIS OF R EJOINDERS OF THE ASSESSEE TO THE 2ND REMAND REPORT OF THE AO, THE LD . CIT(A) HAS NOW DIRECTED THE AO TO PROVIDE OPPORTUNITY TO THE ASSES SEE TO PRODUCE THE ABOVE 4 ENTITIES. THESE ENTITIES WERE PRODUCED BY T HE ASSESSEE BEFORE THE AO, HOWEVER, IN ITS 3RD REMAND REPORT , THE AO HAS MADE VARIOUS OBSERVATION WITH RESPECT TO TRANSACTIONS WITH THESE ENTITIES AND HAS AGAIN SUBMITTED THAT THE TRANSACTIONS WITH THESE EN TITIES WERE NOT GENUINE. THE ASSESEE HAS ALSO FILED ITS 3RD REJOIND ER. THE FINDINGS OF LD. CIT(A) ARE APPEARING FROM PAGES 34 TO 38 OF THE APP ELLATE ORDER. IN PARA 4.7 ON PAGE 38, THE LD. CIT(A) HAS SUSTAINED T HE REJECTION OF BOOKS OF ACCOUNTS BY THE AO U/S 145(3) BUT HAS REST RICTED THE TRADING ADDITION OF RS. 6.18 CRORE MADE BY THE AO TO RS. 6, 05,878/- BY ESTIMATING GP OF 2% ON UNVERIFIED PURCHASE OF RS. 4 ,32,77,012/- FROM M/S ANANT EXPORTS. 7.5 IT WAS FURTHER SUBMITTED THAT EARLIER, THE JAIP UR TRIBUNAL HAS BEEN CONSISTENTLY FOLLOWING ITS OWN DECISION RENDERED IN THE CASE OF ANUJ VARSHNEY, WHEREIN DISALLOWANCE OF 15% OF BOGUS/UNVE RIFIABLE PURCHASES WERE UPHELD. SUBSEQUENTLY, THE ADDITIONS THEREOF WERE SUSTAINED ON BASIS OF PAST TRADING RESULTS OF THE A SSESSEE. HOWEVER, IN THE IMPUGNED APPELLATE ORDER, THE LD. CIT(A) HAS FO LLOWED NONE OF ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 14 THESE DECISIONS AND DEVISED ITS OWN METHOD OF RESTR ICTING TRADING ADDITION, BEING 2% OF THE UNVERIFIABLE PURCHASES, W HICH IS NOT CORRECT. 7.6 IT WAS FURTHER SUBMITTED THAT AS EVIDENT FROM T HE ABOVE DETAILS THAT THE LD CIT(A) HAS PROVIDED A NUMBER OF UNWARRA NTED OPPORTUNITIES TO THE ASSESSEE TO ALLOW THE ASSESSEE TO PROVE THE IMPUGNED TRANSACTIONS WITHOUT EXAMINING WHY THE APPELLANT HA S NOT STATED THE CORRECT ADDRESSES IN THE FIRST INSTANCE BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS TOTALLY IGNORED THE SPOT VERIFICATION RE PORT OF ADIT (INV), SURAT AND HAS AGAIN DIRECTED THE AO TO PROVIDE AN O PPORTUNITY TO THE ASSESSEE TO PRODUCE 4 ENTITIES BEFORE THE AO AND TH E AO WAS NOT DIRECTED TO MAKE ANY SPOT VERIFICATION. FURTHER, TH E AO HAS RAISED SERIOUS ISSUES IN ITS 3RD REMAND REPORT (PG 31), WH ICH HAS NOT BEEN CONTROVERTED BY THE LD. CIT(A) IN ITS APPELLATE ORD ER. THE LD. CIT(A) HAS ACCEPTED ALL THE CONTENTIONS OF THE ASSESSEE WITHOU T CRITICALLY EXAMINING THE MATERIAL PLACED ON RECORD, WHICH ARE BEING DISC USSED AS UNDER: M/S YASH OVERSEAS (I) AS PER PB-26, THERE ARE THREE ADDRESSES OF M/S YASH OVERSEAS. FURTHER, AS PER INVOICES ISSUED BY M/S YASH OVERSEA S, THE RATES OF DIAMOND ROUGH VARIED FROM RS. 24 PER CARAT (PB-42) TO RS. 19,850/- AND THERE WAS NO DETAILS OF QUALITY, SIZE ETC. SIMI LARLY, THE RATES OF CUT AND POLISHED DIAMONDS VARIED FROM RS. 2,935/- PER C ARAT TO RS. 1,13,000/-. IN THE ABSENCE OF QUALITATIVE DETAILS A ND LOOKING TO THE FACT THAT STOCK WAS MAINTAINED ON FIFO, IT IS IMPOSSIBLE TO VERIFY THE TRADING RESULTS. ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 15 (II) AS PER AFFIDAVIT OF M/S YASH OVERSEAS, IT HAS SOLD ROUGH, CUT AND POLISHED DIAMONDS ETC. TO THE ASSESSEE TO THE TUNE OF RS. 2634 CRORE ONLY. AS PER DETAILS FILED BY THE ASSESSEE DURING A SSESSMENT PROCEEDINGS OF ITS 'SALES', THE ASSESSEE HAS ALSO M ADE SALES OF RS. 3,89,55,000/- TO M/S YASH OVERSEAS BUT HAS SHOWN M/ S YASH OVERSEAS AS A SUNDRY DEBTOR AT RS. 138.94 CRORE I.E. IT HAS TO RECEIVE RS. 138.94 CRORE FROM M/S YASH EXPORTS. INTERESTINGLY, THE AFF IDAVIT OF M/S YASH OVERSEAS IS SILENT ON THE PURCHASES MADE BY IT FROM THE ASSESSEE COMPANY AND WHY THE AMOUNT OF RS. 138.94 CRORE WAS SHOWN TO BE OWED BY M/S YASH OVERSEAS TO THE ASSESSEE. FURTHER, IT APPEARS THAT THE COPY OF RELEVANT BANK STATEMENT OF M/S YASH OVE RSEAS WAS NOT FILED DURING THE REMAND PROCEEDINGS. HOW, THE TRANSACTION S COULD BE VERIFIED? M/S M S INTERNATIONAL (I) AS PER PB -55, THERE ARE THREE ADDRESSES OF M/S M S INTERNATIONAL AND ARE SAME AS IN THE CASE OF M/S YASH OVERSEAS. T HE CONFIRMED COPY OF ACCOUNT OF M S INTERNATIONAL AS APPEARING IN THE BOOKS OF ASSESSEE WAS FILED AND NOT AS PER BOOKS OF ACCOUNTS OF M/S M S INTERNATIONAL I.E. NO INDEPENDENT CONFIRMATION AS PER BOOKS OF M S INT ERNATIONAL WAS FILED DURING REMAND PROCEEDINGS BY M/S M S INTERNATIONAL. FURTHER, IT APPEARS THAT THE COPY OF RELEVANT BANK STATEMENT OF M/S M S INTERNATIONAL WAS NOT FILED DURING THE REMAND PROCEEDINGS. HOW, THE T RANSACTIONS COULD BE VERIFIED? ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 16 (II) AS PER AFFIDAVIT OF M/S M S INTERNATIONAL, IT HAS SOLD ROUGH, CUT AND POLISHED DIAMONDS ETC. TO THE ASSESSEE TO THE T UNE OF RS. 17.13 CRORE ONLY. AS PER DETAILS FILED BY THE ASSESSEE DU RING ASSESSMENT PROCEEDINGS OF ITS 'SALES', THE ASSESSEE HAS CLAIME D TO HAVE MADE SALES OF RS. 6,21,33,506/- TO M/S M S INTERNATIONAL BUT, SURPRISINGLY, HAS SHOWN M/S M S INTERNATIONAL AS A SUNDRY DEBTOR AT R S. 15.02 CRORE I.E. IT HAS TO RECEIVE RS. 15.02 CRORE FROM M/S M S INTE RNATIONAL. INTERESTINGLY, THE AFFIDAVIT OF M/S M S INTERNATION AL WAS SILENT ON THIS AMOUNT OF RS. 15.02 CRORE OWED BY M/S M S INTERNATI ONAL TO THE ASSESSEE AND ITS PURCHASES OF RS. 6,21,33,506/- FRO M THE ASSESSEE COMPANY. 7.7 IT APPEARS THAT THE LD. CIT(A) HAS NOT EXAMINED THE ABOVE FACTS, WHICH CLEARLY INDICATE THAT THE SO CALLED TRANSACTI ON WITH M/S YASH OVERSEAS AND M/S M S INTERNATIONAL WERE NOTHING BUT MANIPULATED ONE AND THEY HAVE JUST PROVIDED ENTRIES TO THE ASSESSEE COMPANY, ESPECIALLY LOOKING TO THE FACT THAT THE COPIES OF THE RELEVANT BANK STATEMENTS OF M/S YASH OVERSEAS AND M/S M S INTERNATIONAL WERE NO T PROVIDED, AT LEAST BEFORE THE HONBLE TRIBUNAL AND IN THE ABSENC E OF WHICH, HOW THE VERIFICATION OF THE TRANSACTIONS COULD BE MADE. SATYARTH EXPORTS 7.8 AS PER PB-313,314, THE ASSESSEE HAS MADE ADVANC E PAYMENT OF RS. 10,54,74,380/- TO M/S SATYARTH EXPORTS IN THE E ARLIER YEARS AS OPENING BALANCE OF THE SAME AMOUNT IS APPEARING ON 01.04.2011. HOWEVER, M/S SATYARTH EXPORTS ISSUED A NUMBER OF IN VOICES TO SET OFF ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 17 THE ABOVE AMOUNT FROM 03.09.2011 TO 28.11.2011 FURT HER, THE COPIES OF INVOICES WERE NOT FILED. EVEN THE BANK ACCOUNT OF M /S SATYARTH EXPORTS WAS NOT FILED FOR VERIFICATION OF THE TRANSACTIONS. IT WAS MENTIONED THAT BEFORE THE LD. CIT(A), AS APPEARING ON PAGE 10 OF I MPUGNED APPELLATE ORDER, ONE OLD ADDRESS AND ONE NEW ADDRESS OF M/S S ATYARTH EXPORTS WAS SUBMITTED. HOWEVER, IN THE AFFIDAVIT (PB.312) O F SATYARTH EXPORTS, A THIRD ADDRESS WAS GIVEN AND THERE WAS NO MENTION OF 'NEW ADDRESS' AS STATED BEFORE ID. CIT(A). 7.9 IT WAS FURTHER SUBMITTED THAT IN THE IMPUGNED O RDER, THE LD. CIT(A) HAS REFERRED TO SUBSEQUENT ASSESSMENT ORDER FOR AY 2013-14 AND HAS RECORDED THAT THE AO HAS MADE ONLY A TRADIN G ADDITION OF RS. 3 LAC THEREOF AFTER INVOKING THE PROVISIONS OF SECTIO N 145(3) WITHOUT APPRECIATING THE FACT THAT NO SUCH ENQUIRIES WERE M ADE BY THE AO IN THE SAID YEAR. IT MAY BE MENTIONED THAT THE ASSESSEE HA S NOT MENTIONED WHETHER THE SAID REJECTION OF BOOKS OF ACCOUNTS AS WELL AS TRADING ADDITION OF RS 3 LAC WAS ACCEPTED BY IT OR NOT AND IF CONTESTED IN APPEAL, THE FATE OF SUCH APPEAL. IF THE ASSESSEE HAS ACCEPT ED THE ASSESSMENT ORDER FOR AY 2013-14, THEN THE CO OF THE ASSESEE DE SERVES TO BE REJECTED. 7.10 IT WAS FURTHER SUBMITTED THAT THE AO HAS APPLI ED GP RATE OF 2% ON THE TOTAL SALES DECLARED BY THE ASSESSEE COMPANY BY RELYING UPON THE JUDGMENT OF HON'BLE HIGH COURT OF GUJARAT, WHIC H HAS NOT BEEN DISCUSSED AT ALL BY THE LD. CIT(A). FURTHER, AS PER NOTIFICATION NO. 2/2008 ISSUED BY CBDT, THE GP RATE OF 6% WAS STATED TO BE REASONABLE. THERE IS NOTHING ON RECORD THAT THE EAR LIER ASSESSMENTS OF ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 18 THE ASSESSEE WERE COMPLETED UNDER SCRUTINY ASSESSME NT AND THUS, THE PAST TRADING RESULTS OF EARLIER TWO YEARS ARE NOT R ELEVANT AT ALL. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTI FIED IN RESTRICTING TRADING ADDITION OF RS, 6,18,39,745/- MADE BY THE A O TO RS. 6,05,878/- IGNORING THE VARIOUS DECISIONS OF JURISDICTIONAL TR IBUNAL AND HON'BLE HIGH COURT OF RAJASTHAN AND IGNORING THE FACTS AND CIRCU MSTANCES OF THE CASE, AS DISCUSSED BY THE AO IN THE ASSESSMENT ORDE R AS WELL AS IN THREE REMAND REPORTS OF THE AO. IT WAS SUBMITTED TH AT THE TRADING ADDITION MADE BY THE AO AND DELETED BY LD. CIT(A) M AY KINDLY BE RESTORED. 8. PER CONTRA, THE LD. AR OF THE ASSESSEE HAS SUBMI TTED THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE REJECTION OF BOO KS OF ACCOUNTS. THE LD. AR SUBMITTED THAT OUT OF TOTAL PURCHASES OF RS 448.28 CRORES, PURCHASES FROM ONLY FEW PARTIES AMOUNTING TO RS. 68 .96 CRORES WERE UNVERIFIED. HOWEVER, DURING THE COURSE OF APPELLATE PROCEEDINGS, BASED ON EXAMINATION BY THE DDIT AS WELL AS BY THE AO HIM SELF, THIS PURCHASES HAVE BEEN VERIFIED AND THE PARTIES HAVE B EEN PRODUCED AND THERE IS NO BASIS FOR LD. CIT(A) TO CONFIRM THE REJ ECTION OF BOOKS OF ACCOUNT. REGARDING PURCHASE FROM M/S TAJ IMPEX, THE LD. AR HAS SUBMITTED THAT THE ASSESSEE FURNISHED THE NECESSARY DOCUMENTATION IN SUPPORT OF ITS PURCHASE AND THE LD. CIT(A) HAS DULY CONFIRMED THE SAME BUT HAS WRONGLY REJECTED THE BOOKS OF ACCOUNTS. IT WAS FURTHER SUBMITTED THAT THE BOOKS OF ACCOUNTS ARE DULY AUDIT ED AND NO ADVERSE COMMENTS HAVE BEEN MADE BY THE AUDITORS AND THEREFO RE, THERE IS NO BASIS FOR REJECTION OF BOOKS OF ACCOUNTS. REGARDING ESTIMATION OF GP RATE, LD. AR SUBMITTED THAT THE ASSESSEE HAD DISCLO SED A BETTER GP RATE ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 19 AS COMPARED TO THE PREVIOUS YEARS AND IT WAS SUBMIT TED THAT THE ASSESSEE HAS SHOWN GP RATE OF 0.61% AS AGAINST 0.15 % FOR THE A.YS. 2011-12 AND 0.2% FOR A.Y. 2010-11. IT WAS FURTHER S UBMITTED THAT EVEN IN AY 2013-14, THE ASSESSEE HAS DECLARED A G.P RATE OF 0.19% WHICH WAS ACCEPTED EXCEPT FOR AN ADDITION OF RS 3 LACS BY THE AO. IT WAS ACCORDINGLY SUBMITTED THAT EVEN WHERE THE BOOKS OF ACCOUNTS ARE REJECTED, THERE IS NO BASIS FOR MAKING THE ADDITION AND IT IS SETTLED LEGAL PROPOSITION THAT MERE REJECTION OF BOOKS OF ACCOUNT DOES NOT IPSO FACTO RESULT IN ADDITION IN THE HANDS OF THE ASSESSEE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER HAS REJE CTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145( 3) AND THE SAME HAS BEEN SUSTAINED BY THE LD CIT(A). ONCE THE BOOKS OF ACCOUNTS ARE REJECTED, ONLY COURSE OF ACTION LEFT WITH THE AO IS TO ASSESS THE INCOME OF THE ASSESSEE ON THE BASIS OF BEST JUDGEMENT. WH ERE THE ASSESSEE HAS A SETTLED PAST HISTORY, IN SUCH CASES, ACCEPTED G.P RATE FOR THE PAST YEARS IN ASSESSEES OWN CASE HAS BEEN HELD BY THE R AJASTHAN HIGH COURT AS PROPER AND REASONABLE BASIS FOR ESTIMATION OF G.P RATE FOR THE CURRENT YEAR. IN THE INSTANT CASE, THE AO HAS ESTI MATED THE G.P RATE OF 2% ON THE DECLARED TURNOVER OF THE ASSESSEE WITHOUT CONSIDERING THE ASSESSEES OWN PAST HISTORY. THE LD CIT(A) HAS ACC EPTED THE ASSESSEES DECLARED G.P AND AT THE SAME TIME, AS UPHELD G.P RA TE OF 2% ON UNVERIFIED PURCHASES FROM M/S ANANT EXPORTS. THIS ACT OF THE LD CIT(A) CONTRADICTS HIS OWN ACT OF CONFIRMING THE REJECTION OF BOOKS OF ACCOUNTS AND THE RESULTS SO DECLARED BY THE ASSESSEE. ONCE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED DUE TO NON-VERIFIABILIT Y OF PURCHASES MADE ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 20 BY THE ASSESSEE COMPANY AND NON-MAINETANCE OF QUALI TATIVE RECORDS AND PROVISIONS OF SECTION 145(3) HAVE BEEN INVOKED, THE AUTHORITIES CANNOT RESORT TO MAKE ADDITION AS A PERCENTAGE OF T HE UNVERIFIED PURCHASES OR BY ESTIMATING GROSS PROFIT RATE ON SUC H UNVERIFIED PURCHASES. ONLY COURSE LEFT WITH THE AUTHORITIES I S TO ESTIMATE THE GROSS PROFIT RATE BASED ON BEST JUDGEMENT AND THE PAST RE SULTS OF THE ASSESSEE PROVIDES A REASONABLE BASIS FOR SUCH ESTIM ATION. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DECLARED G.P RATE OF 0.61% AS AGAINST 0.15% IN AY 2011-12 AND 0.20% IN AY 2010-11 AND HAS THUS DECLARED A BETTER G.P RATE FOR THE YEAR UNDER CONSI DERATION AS COMPARED TO AVERAGE G.P RATE FOR THE PAST TWO YEARS. EVEN W HERE THE BOOKS OF ACCOUNTS ARE REJECTED, THERE IS THUS NO BASIS FOR M AKING THE ADDITION IN THE HANDS OF THE ASSESSEE COMPANY. IT IS A SETTLED LEGAL PROPOSITION THAT MERE REJECTION OF BOOKS OF ACCOUNTS ARE NOT SUFFICI ENT TO HOLD THAT THE TRADING ADDITIONS HAVE TO BE NECESSARILY MADE IN TH E HANDS OF THE ASSESSEE COMPANY. WHERE THE ASSESSEE COMPANY HAS D ECLARED A BETTER TRADING RESULTS AS COMPARED TO PREVIOUS YEARS, SUCH RESULTS PROVIDE A REASONABLE BASIS TO HOLD THAT THERE SHOULD NOT BE A NY ADDITION IN THE HANDS OF THE ASSESSEE COMPANY. IN LIGHT OF ABOVE D ISCUSSIONS AND IN THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE S, THE TRADING ADDITION SO MADE BY THE AO AND SO CONFIRMED BY THE LD CIT(A) ARE HEREBY DIRECTED TO BE DELETED AND THE TRADING RESUL TS SO DECLARED BY THE ASSESSEE ARE DIRECTED TO BE ACCEPTED. 10. THE ISSUE REGARDING REJECTION OF BOOKS OF ACCOU NTS SO RAISED BY THE ASSESSEE IN ITS CROSS-OBJECTION THUS BECOMES AC ADEMIC AND WE ITA NO. 539/JP/2017 & CO NO. 29/JP/2017 ITO VS. M/S MANIRATNAM GEMS PVT. LTD. 21 DONOT DEEM IT APPROPRIATE TO ADJUDICATE THE SAME ON MERITS AND THE SAME IS DISMISSED AS INFRUCTIOUS. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED AND CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/03/2019. SD/- SD/- FOT; IKY 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:- 18/03/2019. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- ITO, WARD-1, BEAWAR. 2. IZR;FKHZ@ THE RESPONDENT- M/S MANIRATNAM GEMS PVT. LTD., BEAWAR. 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. ITA NO. 539/JP/2017 & CO NO. 29/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR