DESIGN CORE, Jaipur V. ITO, Jaipur

ITA 617/JPR/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2149 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 05-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POONAM RAI DCIT DHK
• Keywords: Bogus purchase; Gross profit estimation; Principle of natural justice; Additional evidence; Right to appeal; Revised return; Bonafide mistake
• Section: 40A(3); 143(3); 131

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPAN] YS[KK LNL; ] DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 617/JP/2014 FU/KZKJ.K O'KZ@ ASSESSMENT YEAR : 2007-08 M/S DESIGN CORE, 225, LAKSHMI COMPLEX, M.I. ROAD, JAIPUR. CUKE VS. INCOME TAX OFFICER, WARD 2(2), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAEFD 2504 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MAHENDRA GARGIEYA (ADV) JKTLO DH VKSJ LS@ REVENUE BY : SMT. POONAM RAI (DCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 19/01/2018 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 08/02/2018 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATES F ROM THE ORDER OF THE LD. CIT(A)-I, JAIPUR DATED 27/06/2014 FOR THE A.Y. 2007-08. 2. THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF CIVIL CONTRACTORSHIP AND ALSO IN INTERIOR DECORATION, DES IGNING, DRAWING ETC. ON TURNKEY BASIS AND ALSO THROUGH CONSULTATION. DURING THE YEAR, THE CONTRACT RECEIPTS WERE RS. 4,75,29,475/- OUT OF WHICH RS. 4.20 CRORES WERE FROM M/S IDEA TELE COMMUNICATION LIMITED (A TATA GROUP CO.) AND THE BALANCE BEING FROM SHREE CEMENT LIMITED. THE ASSESSING ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 2 OFFICER DOUBTED THE PURCHASES FROM SHANKAR TRADING C O. AND SK ENTERPRISES, ON THE BASIS OF ENQUIRY CARRIED OUT BY ISSUING SUMMONS U/S 131 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRE D AS THE ACT), WHICH WAS NOT SERVED ON THESE FIRMS CONCERNS AND ADDI TION WAS MADE AT RS. 39,04,150/- TOWARDS UNVERIFIABLE PURCHASES. THE LD. CIT(A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 3. NOW THE ASSESSEE IS IN APPEAL BEFORE THE ITAT BY T AKING FOLLOWING GROUNDS OF APPEAL: 1. THE IMPUGNED ADDITIONS AND DISALLOWANCES MADE I N THE ORDER U/S 143(3) OF THE ACT DATED 31.12.2009 ARE BAD IN L AW AND ON FACTS OF THE CASE, FOR WANT OF JURISDICTION AND VAR IOUS OTHER REASONS AND HENCE, THE SAME KINDLY BE DELETED. 2.1 RS.39,04,150/-: THE ID. CIT(A) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN HOLDING THAT THE CLAIMED PURCHASES R EMAINED TOTALLY UN-PROVED OR HAVE NOT BEEN ESTABLISHED AT A LL. THE FINDING SO RECORDED IS COMPLETELY CONTRARY TO THE FACTS, SU BMISSIONS AND OTHER EVIDENCES AVAILABLE ON RECORD. THE DISALLOWAN CES SO MADE BY THE AO AND BEING CONFIRMED BY THE ID. CIT(A), IS BEING TOTALLY CONTRARY TO THE PROVISIONS OF LAW AND FACTS OF THE CASE, THE SAME KINDLY BE DELETED IN FULL. 2.2 THE ID. CIT(A) FURTHER ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN RECORDING AN INCORRECT FINDING OF FACT THAT THE APPELLANT SURRENDERED RS.40,00,000/- ON ACCOUNT OF UNVERIFIAB LE PURCHASES AS PERSONAL EXPENDITURES WRONGLY BOOKED IN ACCOUNT. SUCH FINDING BEING A MISREADING AND INCORRECT, KINDLY BE QUASHED AND IGNORED. 2.3 THE ID. CIT(A) FURTHER ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN HOLDING THAT THE CONFIRMATION DATED 21.06.2 014 GIVEN BY ONE OF THE BUYERS NAMELY M/S S.K. ENTERPRISES, WAS AN ADDITIONAL ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 3 EVIDENCE AND NONE OF THE CONDITIONS SPECIFIED U/R 4 6A WERE FULFILLED AND CONSEQUENTLY, NOT ADMITTING THE SAME. SUCH A FINDING RUN COMPLETELY CONTRARY TO THE ADMITTED FAC T THAT IN THE REMAND PROCEEDINGS, THE AO MADE ENQUIRES COMPLETELY BACK OF THE ASSESSEE WITHOUT GIVING ANY OPPORTUNITY AT ALL TO THE ASSESSEE HENCE, THE ID. CIT(A) SERIOUSLY ERRED IN N OT ADMITTING THE ADDITIONAL EVIDENCE AS ALSO IN CONSIDERING THE REMAND REPORT WHICH SUFFERS FROM THE GROSS VIOLATION OF PRINCIPAL NATURAL JUSTICE. HENCE, THE REMAND REPORT MAY KINDLY BE IGNORED AND THE SUBJECTED EVIDENCES KINDLY BE ADMITTED, CONSIDERED AND OBLIGED. 3. RS.25,260/-: THE ID. CIT(A) ALSO ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE U/ S 40A(3) OF THE ACT OF RS.25,260/- BEING 20% OF TOTAL PURCHASES OF RS.1,26,294/- BEING THE PAYMENT MADE IN CASH TO M/S UNITED IRON T RADERS, UDAIPUR. THE DISALLOWANCES SO MADE BY THE AO AND BE ING CONFIRMED BY THE ID. CIT(A), IS BEING TOTALLY CONTR ARY TO THE PROVISIONS OF LAW AND FACTS OF THE CASE, THE SAME K INDLY BE DELETED IN FULL. 4. RS.75,000/-: THE ID. CIT(A) ALSO ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE DISALLOWANCE U/ S 40(A)(IA) OF RS.75,000/- ON ACCOUNT OF THE ALLEGED CONTRAVENTION OF SEC.194C. THE DISALLOWANCES SO MADE BY THE AO AND BEING CONFI RMED BY THE ID. CIT(A), IS BEING TOTALLY CONTRARY TO THE PR OVISIONS OF LAW AND FACTS OF THE CASE, THE SAME KINDLY BE DELETED I N FULL. 5. THE ID. AO ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CHARGING INTEREST U/S 234B, 234D(1) AND IN WITHDRAW ING INTEREST U/S 244A(3). THE APPELLANT TOTALLY DENIES IT LIABIL ITY OF CHARGING OF ANY SUCH INTEREST. THE INTEREST, SO CHARGED AND THE WITHDRAWAL OF INTEREST BEING CONTRARY TO THE PROVIS IONS OF LAW AND FACTS, KINDLY BE DELETED IN FULL. 6. THE APPELLANT PRAYS YOUR HONOUR INDULGENCES TO A DD, AMEND OR ALTER OF OR ANY OF THE GROUNDS OF THE APPEAL ON OR BEFORE THE DATE OF HEARING. ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 4 4. GROUNDS NO. 1 AND 6 OF THE APPEAL ARE GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 5. GROUND NO. 4 OF THE APPEAL WAS NOT PRESSED DURING THE COURSE OF HEARING, THEREFORE, THE SAME STANDS DISMISSED AS NO T PRESSED. 6. GROUND NO. 5 OF THE APPEAL IS REGARDING CHARGING INTEREST WHICH IS CONSEQUENTIAL AND MANDATORY IN NATURE, THEREFORE, T HE SAME IS ALSO NOT REQUIRED TO BE ADJUDICATED. 7. IN THE GROUNDS NO. 2.1, 2.2 AND 2.3 OF THE APPEA L, THE ISSUE INVOLVED IS REGARDING DISALLOWANCE OF RS. 39,04,150 /- TOWARDS THE UNPROVED PURCHASES. ON THIS ISSUE, THE LD AR, WHILE PLEADING ON BEHALF OF THE ASSESSEE, HAS SUBMITTED AS UNDER: 1. BEFORE PROCEEDINGS TO MAKE SUBMISSIONS ON MERIT S OF THE GROUNDS TAKEN, IT IS VERY ESSENTIAL TO SUBMIT THAT WHY THE ASSESSEE HAS AGITATED THE DISALLOWANCE OF RS.39,04,150/- EVEN THOUGH IT H AD ALREADY OFFERED SOME INCOME ON 17.12.2009 (PB 29). IN FACT, SUCH AN OFFER WAS MADE UNDER THE FACTUAL BACKGROUND THAT THE LD. AO COMMEN CED THE ASSESSMENT PROCEEDINGS IN THE MONTH OF JAN., 2009 T HROUGH LETTER DATED 5 TH JAN., 2009 AND CONTINUED THEREAFTER, TIME TO TIME. A DETAILED QUERY LETTER WAS ISSUED ON 07.08.2009 WHEREIN VIDE PARA 6, THE LD. AO REQUIRED THE ASSESSEE TO FURNISH THE DETAILS OF THE PARTIES FROM WHOM PURCHASES OF MORE THAN RS.1 LAC WERE MADE. WHILE MA KING PREPARATION, IT CAME TO NOTICE THAT SOME MISTAKES M IGHT HAVE BEEN COMMITTED IN AS MUCH AS SOME OF THE PURCHASES OF CO NSTRUCTION ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 5 MATERIAL MIGHT HAVE BEEN CHARGED TO THE WORKS ACCOU NT AS AGAINST THE PERSONAL CAPITAL EXPENSES OF THE PARTNERS OF THE PR ESENT ASSESSEE FIRM. SINCE THE CONSTRUCTION OF THEIR OFFICE BUILDING WAS ALSO GOING ON IN THE SAME VERY FINANCIAL YEAR AND THE WORK AT THE SITE O F THE CLIENT M/S IDEA WAS ALSO GOING ON SIMULTANEOUSLY, IT COULD POSSIBLY HAPPEN THAT A PART OF SOME COST OF THE OFFICE CONSTRUCTION MIGHT HAVE BEEN CHARGED TO THE REVENUE OF ASSESSEE FIRM BY A BONAFIDE MISTAKE AND CLERICAL ERROR ON THE PART OF THE ACCOUNTS DEPARTMENT. HENCE AS A MATTER OF PRECAUTION, A NOTE (PB-28) WAS APPENDED BELOW THE S TATEMENT OF PURCHASES FURNISHED TO THE LD. AO, READING AS UNDER : SOME PURCHASES PERHAPS FROM THESE PARTIES (*) STOO D WRONGLY CHARGED TO THE EXPENSES, THOUGH PERTAINED TO PERSONAL CAPIT AL EXPENDITURE OF PARTNERS. HENCE SUCH PURCHASES OF RS.40 LACS APPROX , IS ADDED TO OUR DECLARED RETURN INCOME. DETAILED LETTER FOLLOWS. RE VISED TAX COMES TO RS.1438053/- AFTER ADJUSTMENT OF CREDITS, BALANCE O F RS.3,01,670/- IS BEING PAID WITH REVISED RETURN. THE SAME WAS SUBMITTED TO THE LD. AO LETTER DATED 1 7.12.2009 (PB 29). IN THE MEANWHILE, THE JURISDICTION STOOD TRANSFERRE D TO A DIFFERENT OFFICER. THE PRESENT AO FURTHER COMMENCED THE PROCE EDINGS. MERELY ALLEGING THAT SOME DISCREPANCIES WERE NOTICED, HE I MPOUNDED THE COMPLETE BOOKS OF ACCOUNT AND OTHER RECORDS ON 26 TH AUG., 2009 AND SINCE THEN IT CONTINUES IN HIS POSSESSION. HOWEVER, IT WAS SUFFICIENT TO CREATE AND INTENSIFY TENSION IN THE MIND OF THE PAR TNERS OF THE ASSESSEE FIRM. LIMITATION BEING NEAR, THE LD. AO WA S OTHERWISE PRESSING HARD FOR COMPLIANCE OF VARIOUS REQUIREMENTS AND IN PARTICULAR TO PRODUCE THE TWO SUPPLIERS. THEREFORE, THE LD. AO HI MSELF WAS IN A HASTE. ON THE OTHER HAND, THE PARTNERS WERE ALREADY OUT OF STATION DUE TO THEIR PROFESSIONAL WORK AND THEREFORE, IT WAS NO T POSSIBLE TO TRACE THE SELLERS FOR THE TRANSACTIONS WHICH HAVE ALREADY TAKEN PLACE ALMOST THREE YEARS BACK. OTHERWISE ALSO, THESE PARTIES HAV ING COMPLETED THE ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 6 TRANSACTIONS, IT WAS NOT BINDING UPON THEM AND THE ASSESSEE WAS ALWAYS AT THE MERCY OF THIRD PARTY. THERE WAS NO TI ME TO LOOK INTO THE VARIOUS RECORDS. THE ACCOUNTANT EMPLOYED WAS SEMI-Q UALIFIED AND NON-PROFESSIONAL AND THERE WERE POSSIBILITIES OF SO ME MISTAKES ETC. DUE TO CONTINUED IMPOUNDING, NEITHER THE ASSESSEE W AS ABLE TO RECONCILE THE MISTAKES, IF ANY NOR THE LD. AO WAS I N POSITION TO PERMIT OPPORTUNITIES DUE TO PRESSURE OF TIME BARRING ASSES SMENT. THEREFORE, LOOKING TO THE TIME CONSTRAINT, THE TEN SION AND PRESSURE DEVELOPED, ON THE BASIS OF WHATEVER MATERIAL AVAILA BLE WITH THE ASSESSEE, IT WAS THOUGH FIT AND IN A LARGER INTERES T, TO AVOID PANEL AND OTHER SEVERE CONSEQUENCES, TO MAKE AN OFFER OF ADDI TIONAL INCOME OF AN ESTIMATED/ADHOC AMOUNT OF RS.40,00,000/- (APPROX .) FOR TAXATION. SUCH AN OFFER WAS MADE WITH A VIEW TO BUY PEACE AND TO AVOID POSSIBLE LITIGATION WITH THE DEPARTMENT AND WAS SUBJECTED TO THE CONDITION THAT NO PENALTY AND PROSECUTION PROCEEDINGS WOULD BE INI TIATED AGAINST THE ASSESSEE. HOWEVER, WHEN AFTER THE COMPLETION OF THE ASSESSME NT THE ASSESSEE COULD LOOK INTO THE ACCOUNTS AND OTHER RECORD WITH A PATIENCE AND TRIED TO REMOVE DEFICIENCIES, IF ANY AND BASED ON T HE INFORMATION GATHERED FROM THE INSPECTIONS CARRIED OUR DURING TH E HEARING, IT REACHED TO A FIRM CONCLUSION THAT THE OFFER OF ADDI TIONAL INCOME MADE AT A HUGE AMOUNT OF RS.40 LACS WITH A HUGE TAX, WAS WRONGLY MADE AS WAS NOT AT ALL REQUIRED. THE DECISION TO MAKE SUCH OFFER AT THE RELEVANT POINT OF TIME WAS THE NEED OF THE HOUR. HOWEVER, FO R THE ABOVE REASON AND ALSO WHEN THE ASSESSEE FOUND FROM THE ASSESSMEN T ORDER THAT THE LD. AO HAS NOWHERE ACCEPTED THE OFFER WHICH WAS MAD E NOR HE HONOURED THE CONDITIONS AND RATHER ALLEGED THE SAME TO BE AN ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 7 AFTERTHOUGHT AND EVEN INITIATED PENALTY PROCEEDINGS ALSO. HENCE, THE ASSESSEE HAD TO TAKE HIS STEPS BACK. ONCE AN OFFER MADE WAS NOT ACCEPTED, THE ASSESSEE IS ALSO NOT BOUND BY THE OFFER SO MADE AND HENCE, FREES TO AGITATE TH E ADDITION/DISALLOWANCE. OTHERWISE ALSO THE MERITS OF THE ASSESSEES CASE WERE NOT WEAK AND IT WAS ONLY TIME CONSTRAINT AND OTHER CIRCUMSTANCES IT OFFERED. THE LAW IS SETTLED THAT ADMISSION IS AN EXTREMELY IMPORTANT PIECE OF EVIDENCE BUT IT CANNOT BE SAID THAT IT IS CONCLUSIV E. MOREOVER, IT IS OPEN TO THE ASSESSEE WHO MADE THE ADMISSION TO SHOW THAT IT IS INCORRECT AND THE ASSESSEE SHOULD BE GIVEN A PROPER OPPORTUNI TY TO SHOW THAT THE BOOKS OF ACCOUNTS DO NOT DISCLOSE THE CORRECT S TATE OF FACTS AS WAS HELD IN PULLANGODE RUBBER PRODUCE CO. LTD. V/S STAT E OF KERALA & OTHERS (1973) 91 ITR 18 (SC). MOREOVER, THERE CANNOT BE ANY ESTOPPEL AGAINST THE STATUTE. THEREFORE, EVEN IF THE ASSESSEE HAS MADE SOME COMMITMENT, IT C ANNOT WORK AS AN ESTOPPEL AND IF THE ASSESSEE STILL FEELS AGGRIEVED OF THE ADDITION MADE BY THE AO, HE CAN AGITATE IN THE APPEAL. KINDLY REFER SANJAY TANDON (INDIVIDUAL) V/S ACIT (2008) 119 TTJ 277 (LUCKNOW). ALSO REFER RAGHAVA HEALTH CARE LTD. V/S CIT (2008) 14 DTR 341 (VISAKA) . THE CASE OF CIT V/S M. PYNGROPE (1993) 200 ITR 106 (GUJ.) APPROVED OF THE RIGHT OF THE ASSESSEE TO PREFER AN APPEAL THOUG H ASSESSMENT WAS MADE ON THE BASIS OF RETURN FILED BY THE ASSESSEE, HOLDING THAT SEC. 246(1) OF THE ACT IS VERY WIDE. IN NIRMALA L. MEHTA S CASE (2004) 269 ITR 1 (BOM) OBSERVED THERE CANNOT BE ANY ESTOPPELS AGAINST THE STATUTE, ARTICLE 265 OF THE CONSTITUTION OF INDIA I N UNMISTAKABLE TERMS PROVIDES THAT NO TAX SHALL BE LEVIED OR COLLECTED E XCEPT BY AUTHORITY OF ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 8 LAW. ACQUIESCENCE CANNOT TAKE AWAY FROM A PARTY THE RELIEF THAT HE IS ENTITLED TO WHERE THE TAX IS LEVIED OR COLLECTED WI THOUT AUTHORITY OF LAW. IN CWT V/S APAR LIMITED (2002) 175 CTR 312(BOM) MAI NTAINED THE RIGHT OF APPEAL WHEN RETURN WAS FILED UNDER PRO TEST, WITHOUT PREJUDICE TO ITS LEGAL RIGHTS AS ACCORDING TO THE A SSESSEE THE DISPUTED ASSET WAS NOT CHARGEABLE TO TAX. IN MAYANK PODDAR ( HUF) V/S WTO (2003) 181 CTR 362 (CAL) PERMITTED AN APPEAL WHEN T HE ASSESSEE HAD INCLUDED CERTAIN ASSET IN HIS RETURN UNDER MISTAKE, ADMISSION OR MISUNDERSTANDING OF THE ASSESSEE, WOULD NOT JUSTIFY TAXABILITY. THE LD. CIT(A) HOWEVER HAS NOT AT ALL CONSIDERED T HE ABOVE FACTS AND THE CASE LAWS AND WRONGLY ALLEGED THAT SINCE THE AP PELLANT COULD NOT PROVE THE PURCHASES HENCE OFFERED THE SAME TO TAX, WHICH IS COMPLETELY CONTRARY TO THE FACTS. THE ASSESSEE OFFE RED THE INCOME COMPLETELY ON A DIFFERENT GROUNDS AS EVIDENT FROM L ETTER DATED 7.12.2009 (PB-29). ON MERITS: 2.1 ACCOUNTS NOT REJECTED: IT IS NOT DISPUTED THAT THE ASSESSEE HAS MAINTAINED COMPLETE BOOKS OF ACCOUNTS CONSISTING OF CASH BOOK, JOURNAL, LEDGER, BANK BOOKS, BILLS AND VOUCHERS FOR EXPENSES WHICH WERE PRODUCED. THE PURCHASE AND WORK CONTRACT RECEI PT WERE ALSO PRODUCED. THE ACCOUNTS ARE AUDITED U/S 44AB OF THE ACT. THERE WAS NO ADVERSE REMARK BY THE LD. AUDITOR (PB 1-20). NOTABL Y THE LD. AO, FEELING SATISFIED WITH THE SAME, HAS NOT INVOKED SEC.145. T HIS CONTENTION, WHEN SEEN IN THE LIGHT OF THE OTHER FACTUAL AND LEG AL SUBMISSIONS, IT WILL BE FOUND THAT THE LD. AO BY HIS OWN ADMISSION (I.E. BY NOT REJECTING ACCOUNTS) WAS NOT JUSTIFIED YET TO SUSPECT AND DISA LLOW THE CLAIMED PURCHASES. ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 9 2.2 ALLEGATIONS/OBJECTIONS OF THE CIT APPEALS: THE OBJECTION OF THE LD. CIT(A) THAT WHERE THE PURCHASES ARE TOTALLY UNPROVE D, THERE IS NO QUESTION OF ESTIMATING THE GP/NP RATE, IS NOT TENAB LE AND IS AGAINST THE VARIOUS JUDICIAL PRONOUNCEMENT. IN FACT, THE HONBL E ITAT JAIPUR HAS BEEN TAKING A CONSISTENT VIEW IN THE CASE OF THE JE WELERS WHERE ALLEGATIONS OF BOGUS PURCHASES WERE MADE THAT THE B EST WAY OF ASCERTAINING THE INCOME WAS TO REJECT THE ACCOUNT A ND TO ASCERTAIN THE ESTIMATE THE FAIR GP/NP RATES. IN THE CASE OF KACHW ALA GEMS VS. JCIT (2007) 288 ITR 0010 (SC) 'ACCOUNTSREJECTIONESTIMATION OF GP RATEBOOKS OF ACCOUNT OF THE ASSESSEE REJECTED BY THE AO POINTING OUT SEVERAL DE FECTS INCLUDING DOUBT REGARDING GENUINENESS OF CERTAIN PURCHASES AND LOW GP RATEIT AUTHORITIES HAVE GIVEN COGENT REASONS FOR REJECTION OF BOOKS OF ACCOUNTTHERE IS NO REASON TO TAKE A DIFFERENT VIEW IN A BEST JUDGMENT ASSESSMENT THERE IS ALWAYS A CERTAIN DEGRE E OF GUESSWORK AO HAVING ESTIMATED THE GP OF THE ASSESSEE ON THE B ASIS OF A COMPARABLE CASE, AND THE CIT(A) AND THE TRIBUNAL HA VING SUCCESSIVELY REDUCED THE SAME, THERE IS NO ARBITRARINESS ON THE PART OF IT AUTHORITIES' IN THE ABOVE CASE THE HONBLE APEX COURT, NOTICING THE DEFECT OF NOT PROVING THE PURCHASES HELD APPLICATION OF S.145 JUS TIFIED. HENCE, WHERE ACCOUNTS ARE NOT FOUND CORRECT COMPLETE, S.145(3) R EQUIRES THE REJECTION OF THE ACCOUNT. FURTHER THE LAW IS WELL S ETTLED THAT ONCE THE ACCOUNTS ARE REJECTED THE ONLY COURSE IS TO MAKE A FAIR ESTIMATION OF INCOME BY APPLYING SUITABLE GP/NP RATES. 3. SELLERS IDENTIFIED AND EXISTED: THE AOS MAIN A LLEGATION WAS THAT THE CLAIMED PURCHASES OF RS.39,04,150/- MADE FROM TWO S ELLERS (SHANKAR TRADING CO. AND SK ENTERPRISES) WERE NOT VERIFIABLE , IS FACTUALLY INCORRECT, AS EVIDENT FROM FURTHER SUBMISSIONS. 3.1.1 THE MATERIAL ON RECORD CLEARLY SHOWS THAT BO TH THE SELLERS WERE EXISTING AND FULLY IDENTIFIABLE PARTIES AS THE CLAI MED PURCHASES ARE DULY ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 10 SUPPORTED BY PURCHASE BILLS WHICH BEAR COMPLETE NAM E AND ADDRESS. THE SELLERS ARE DULY REGISTERED FIRMS WITH THE SALE S TAX AUTHORITIES AND HAVING TIN NO. HOWEVER, SINCE ACCOUNTS ARE IMPOUNDE D, THE SAME ARE WITHIN THE POSSESSION OF THE LD. AO. IN ABSENCE OF THE REPORT OF THE LD. INSPECTOR IT IS DIFFICULT TO JUDGE ITS VERACITY. AF TER A LAPSE OF 3 YEARS A PARTY MAY NOT CONTINUE AT THE SAME ADDRESS. IN ABSE NCE OF CONTRARY MATERIAL, WITH TIN NO. THEIR IDENTITY CANT BE DENI ED SIMPLY BECAUSE THEY WERE NOT FOUND, NO ATTEMPT WAS MADE WHEN ASSES SEE REQUESTED. 3.1.2 ON THIS ASPECT, IT WAS SUBMITTED BEFORE THE LD. CIT(A) AS UNDER: ' 4. ASSESSEE DISCHARGED ONUS: THE LD. AO ALLEGED THA T THE SUMMONS ISSUED U/S 131 CAME BACK UN-SERVED. THE ENQUIRY MAD E THROUGH THE INSPECTOR WHO REPORTED THAT THERE WAS NO TRACE OF T HE SUBJECTED SUPPLIERS AT THE GIVEN ADDRESS. FURTHER, THE ASSESSEE WAS ASK ED TO PRODUCE THESE PARTIES BUT FAILED. IT IS SUBMITTED THAT THE TIME G IVEN WAS VERY SHORT. THE AOS LETTER WAS RECEIVED ONLY ON 19.12.2009 FOR COM PLIANCE ON 21.12.2009 (PB 30), PRACTICALLY LEAVING NO TIME. TH OSE SELLERS WERE NOT AVAILABLE AT THAT TIME. AS REGARDS THEIR PRODUCTION IT WAS SPECIFICALLY REQUESTED VIDE LETTER DATED 21.12.2009 REPRODUCED A T PAGE 3 PARA 7 OF THE ORDER THAT THE ASSESSEE HAD ALREADY MADE ALL TH E POSSIBLE EFFORTS TO CONVEY AND ENSURE THE PRESENCE OF THE SELLERS HOWEV ER, HAVING NO POWER OF LAW, THE LD. AO WAS ALSO REQUESTED TO SUMMON THE M U/S 131 OF THE ACT. THE LD. AO DID NOT APPRECIATE THAT THE ASSESSEE DI D HIS BEST AS WAS PRACTICALLY POSSIBLE WITHIN HIS CONTROL. IT IS QUIT E NATURAL THAT AFTER A LAPSE OF SUBSTANTIAL TIME (3 YEARS), IT IS NOT NECESSARY THAT THE SUPPLIERS STILL REMAIN UNDER THE DICTATING TERMS OF THE BUYER. THE POWERS OF THE CIVIL COURT HAVE BEEN PURPORTEDLY CONFERRED BY THE LEGISL ATURE UPON THE LD. AO U/S 131 OF THE ACT, WHICH MUST HAVE BEEN USED EFFEC TIVELY,WHERE THE CIRCUMSTANCES SO WARRANT IN THE INTEREST OF NATURAL JUSTICE. ONE CAN UNDERSTAND THAT THESE PARTIES ONCE HAVING COMPLETED THE TRANSACTIONS WERE NOT UNDER ANY OBLIGATION TO CO-OPERATE WITH TH E ASSESSEE AND THE ASSESSEE ON THE OTHER HAND COULD NOT HAVE USED HIS MUSCLE POWERS TO PRODUCE THEM BEFORE THE LD. AO. THE LD. AO THOUGH I SSUED SUMMONS AND SOME ENQUIRES IS STATED TO BE DONE. BUT NOSERIOUS S TEPS APPEARS TO HAVE BEEN TAKEN IN AS MUCH AS HE COULD HAVE EVEN IMPOSED PENALTY OF RS.10,000/- FOR EACH FAILURE OF THE WITNESS TO COMP LY WITH THE SUMMON. THE REPORT OF THE INSPECTOR OF THE NON-AVAILABILITY OF THE SELLERS, TAKEN ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 11 HELP BY THE LD. AO, WAS ALSO NOT CONFRONTED TO THE ASSESSEE. THE LD. AO WAS OTHERWISE PRESSING BECAUSE THE CASES WERE GETTI NG TIME BARRED. THEREFORE, HE WAS HIMSELF IN HASTE. ON THE OTHER HA ND, THE PARTNERS WERE OUT OF STATION DUE TO THEIR PROFESSIONAL WORK AND T HEREFORE, IT WAS NOT POSSIBLE TO TRACE THE SUPPLIERS FOR THE TRANSACTION S WHICH HAVE ALREADY TAKEN PLACE ALMOST THREE YEARS BACK. OTHERWISE ALSO , THE PARTIES HAVING COMPLETED THE TRANSACTION, IT WAS NOT BINDING UPON THE THIRD AND OUTER PARTY TO ALWAYS BE AT THE DISPOSAL OF THE ASSESSEE TO PRESENT AS AND WHEN CALLED. THEREFORE, THE LD. AO COULD NOT HAVE EXPECT ED THE ASSESSEE TO PRESENT THE SUPPLIERS AT ANY MOMENT OF TIME THE LD. AO WANTED. THE LD. AO APPEARS TO HAVE EFFECTIVELY TAKEN UP TH E SCRUTINY ASSESSMENT ONLY AT THE FAG END OF THE YEAR. THE BOOKS WERE IMP OUNDED IN AUGUST, 2009, HOWEVER, IT WAS ONLY IN DEC., 2009 THAT TOO A FTER PASSING OF HALF OF THE MONTH, THE ASSESSEE WAS ASKED TO MAKE COMPLIANC ES. IT APPEARS THAT THE LD. AO WAS HAVING A PRECONCEIVED NOTION OR WAS PREDETERMINED TO MAKE IS ALLOWANCES. THIS IS EVIDENT FROM THE FACT T HAT DESPITE MAKING A REQUEST TO ISSUE SUMMONS, NO ACTION WAS TAKEN BY HI M. HENCE ONUS LAID UPON THE ASSESSEE STOOD DISCHARGED AND THE CLAIMED PURCHASES THEREFORE, MUST HAVE BEEN TREATED AS GENUINE. KINDLY REFER JHA VER BHAI BIHARI LAL & CO. V/S CIT (1985) 154 ITR 591 (PAT). IT WAS HELD T HAT CASH CREDIT REFUSAL BY ITO TO ISSUE SUMMON U/S 131 REVENUES ONUS WHE THER DISCHARGED CERTIFICATE CREDITOR PRODUCED LAW ENJOINS THE ISS UANCE OF SUMMONS IN CASE CERTIFICATE PURPORTED TO HAVE BEEN GRANTED BY SUCH CREDITORS ARE PRODUCED BEFORE AO. ALSO KINDLY REFER VIJETA CEMENT PVT. LTD. V/S JCIT (2000) 24 TW 223 (JP).' 3.1.3 THE AO, IN THE REMAND REPORT STATED THAT THE LETTERS WERE ISSUED IN THE NAME OF THE TWO SUPPLIERS AS ALSO THEIR RESP ECTIVE LANDLORDS HOWEVER; NONE OF THESE PERSONS WERE FOUND AT THE GI VEN ADDRESS THEREFORE, HE CONCLUDED THE GENUINENESS OF THE SUBJ ECTED TRANSACTIONS OF PURCHASES REMAINED DOUBTFUL. IN THIS CONNECTION IT WAS SUBMITTED BEFORE THE LD. CIT(A) AS UNDER: ' 1.1 AT THE OUTSET, IT IS SUBMITTED THAT THE ENQUI RY SO MADE AND THE CONCLUSION DRAWN HAS NO SANCTITY IN AS MUCH AS THE FACT OF SENDING LETTERS AND THE FACT OF REMAINING THE SAME UN-SERV ED, WAS NEVER CONFRONTED TO /MADE KNOWN TO THE ASSESSEE. OTHERWIS E ALSO ON THE FACE, IT APPEARS ABNORMAL THAT EVEN THE TWO LANDLOR DS, WHO HAD LET- OUT THE PROPERTIES TO THESE SUPPLIERS, WERE NOT FOU ND AVAILABLE. THE AO ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 12 HAS NOT ALLEGED THAT THOSE LANDLORDS HAVE SOLD OFF THE PROPERTIES AND GONE SOMEWHERE ELSE NOR ANY ENQUIRY APPEARS TO HAVE BEEN MADE FROM THE NEIGHBOURS. ON THE CONTRARY, WHEN THE ASSE SSEE TRIED TO CONTACT SHRI SANTOSH PROP. OF M/S S.K. ENTERPRISES AT THE GIVEN ADDRESS, HE WAS FOUND AVAILABLE AND EVEN RATHER CONFIRMED TH E FACT OF SUPPLY OF MATERIAL TO THE ASSESSEE. A CONFIRMATION, DULY ATTE STED, IS ENCLOSED IN SUPPORT. (PB-93) THUS, THE ENQUIRY CONDUCTED BY THE AO, HAS NOT SER VED THE PURPOSE BUT, AT THE SAME TIME, IT IS ALSO A FACT THAT EVEN IF THIS ENQUIRY HAS NOT BROUGHT ANYTHING IN FAVOUR OF THE ASSESSEE, ALS O (AT THE SAME TIME) NO ADVERSE INFERENCE COULD BE DRAWN FROM THE SAID E NQUIRY. 1.2 ANOTHER ASPECT TO BE CONSIDERED IS THAT THE TW O SUPPLIERS ARE VERY SMALL TRADERS OF BUILDING MATERIAL. THEY ARE NOT TH E SUPPLIER OF ANY REPUTED BRAND OR ESTABLISHED SUPPLIERS SO AS TO CON TINUE AT THE GIVEN ADDRESS FOR A LONG PERIOD RUNNING INTO YEARS. THERE FORE, THE ASSESSEE AFTER HAVING RECEIVED THE ENTIRE PAYMENT AND AFTER THE CLOSE OF THE TRANSACTION, WAS NOT AT ALL REQUIRED TO KEEP A CONT INUED WATCH ON THESE TWO SUPPLIERS SO AS TO PRODUCE THEM AT ANY MO MENT, THE DEPARTMENT WANTS THEM TO BE PRODUCED NOR THOSE SUPP LIERS ARE UNDER ANY SUCH OBLIGATION. THE NATURE OF TRADE IS ALSO SU CH WHICH SUPPORT THIS CONTENTION. 1.3 OTHERWISE ALSO, AFTER A LAPSE OF A LONG PERIOD OF SEVEN YEARS FROM THE DATE OF TRANSACTION, IT IS HIGHLY IMPROBABLE THAT T HE PERSONS WOULD BE FOUND AVAILABLE AT THE GIVEN ADDRESS OR EVEN IF THE Y ARE FOUND AVAILABLE, WE CANNOT EXPECT THEM TO REPLY OUT OF ME MORY WITH A MATHEMATICAL PRECISION. UNDER THESE PECULIAR FACTS AND CIRCUMSTANCES THEREFORE, A CIRCUMSPECT VIEW OF THE ENTIRE MATTER/ ALL THE FACTS OF THE CASE ARE REQUIRED TO BE CONSIDERED.' THE LD. CIT(A) HOWEVER, DID NOT APPRECIATED THE COU NTER COMMENTS JUDICIOUSLY. HE EVEN IGNORE THE FACT THAT FROM THE REMAND REPORT ITSELF THE FACTS OF EXISTENCE OF THE TWO SUPPLIERS WAS ADM ITTED, ONCE IT WAS STATED THAT THEY WERE PAYING RENT. HE WRONGLY REFUS ED TO CONSIDER CONFIRMATION OF S.K. ENTERPRISES, BECAUSE THE SAME WAS FILED BEFORE IN REMAND PROCEEDINGS DUE TO NON-OPPORTUNITY IN ASSESS MENT PROCEEDINGS. ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 13 4. PURCHASES DULY ESTABLISHED: THE PURCHASE CONSID ERATION TOWARDS THE PURCHASES MADE FROM THESE TWO SUPPLIERS, WERE ADMIT TEDLY PAID THROUGH BY ACCOUNT PAYEE CHEQUE ONLY, WHICH FACT IS EVIDENT FROM THE FINDINGS RECORDED BY THE LD. AO ITSELF AT PAGE 2 PA RA 4 BASED ON THE BANK ENQUIRY GOT MADE BY HIM HOWEVER, THE LD. AO NE VER CONFRONTED WITH THE RESULT OF THE ENQUIRY SO CONDUCTED WITH TH E BANK. THE LD. AO HOWEVER, IGNORED THIS VITAL FACT ON CER TAIN ALLEGATIONS. AT THE OUTSET, WE MAY SUBMIT THAT THE LD. AO NEVER CON FRONTED BEFORE MAKING THESE ALLEGATIONS BUT NOTICED ONLY FROM THE IMPUGNED ASSESSMENT ORDER. HENCE, OUR SUBMISSION FOLLOWS: (I) HE ALLEGED THAT THE BANK ACCOUNTS WERE OPENED BY THE SUPPLIERS JUST PRIOR TO RECEIPT OF CHEQUES FROM THE ASSESSEE. IT I S SUBMITTED THAT THE ASSESSEE ITSELF NORMALLY PREFERS TO MAKE PAYMENT ON LY THROUGH A/C PAYEE CHEQUES TO HAVE A BETTER ACCOUNTING AND INTER NAL CONTROL AND THEREFORE, IN THESE CASES, ALSO THE ASSESSEE STRONG LY INSISTED UPON THE SUPPLIERS THAT THE PAYMENT DUE TO THEM, COULD BE MA DE ONLY BY A/C PAYEE CHEQUE AND IT IS UNDER THIS COMPULSION ONLY, THESE PARTIES OPENED THE BANK ACCOUNTS OTHERWISE THEY WANTED AND RATHER INSISTED THAT THE PAYMENT BE MADE IN CASH ONLY. IN ANY CASE, IT WAS AN ONLY A PART OF REGULAR BUSINESS ACTIVITY AND NOTHING WRONG . (II) PAYMENTS TO BOTH THE SUPPLIERS COULD BE MADE AT THE CLOSE OF THE YEAR: IT IS SUBMITTED THAT AS A MATTER OF GENERAL PRACTIC E, THE ASSESSEE HAD BEEN MAKING PAYMENTS TO MOST OF THE CONCERNED PARTI ES WHETHER SUPPLIERS OR OTHERS, WITHIN A PERIOD OF 2 TO 3 MONT HS. HOWEVER, IN THIS CASE FIRSTLY, THE PAYMENTS WERE DELAYED DUE TO THE LATE OPENING OF THE BANK ACCOUNTS BY THE SELLERS AS STATED ABOVE. SECON DLY, THE ASSESSEE ITSELF WAS RUNNING SHORT OF FUNDS AND RECEIVED SUBS TANTIAL PAYMENT VERY LATE IN THE YEAR E.G. IN THE MONTH OF FEB., 20 07, RS.90 LACS WERE ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 14 RECEIVED FROM IDEA [KINDLY REF COPY OF LEDGER A/C ( PB 32-33)] WHICH ALSO DELAYED FURTHER PAYMENTS. CONSEQUENTLY, BOTH THE SE LLERS COULD BE PAID AT THE CLOSE OF THE YEAR. (III) THE THIRD ALLEGATION BEING THAT THE MATERIAL SHOWN TO HAVE BEEN PURCHASED THROUGH BILLS, WAS NOT NORMALLY OF THE TY PE BEING USED IN INTERIOR DECORATION. IT IS SUBMITTED THAT THE LD. A O IS NOT AN EXPERT NOR HE HAS CAREFULLY GONE THROUGH ALL THE BILLS NOR HE REFERRED THE MATTER TO THE DEPARTMENTAL VALUATION OFFICER (DVO). TOWARDS T HE CONTRACT RECEIPT OF RS.4.75 CRORE, THE RECEIPTS FROM IDEA WA S RS.4.02 CRORE AND PURCHASES OF MATERIAL OF RS.3.10 CRORE WAS MADE. TO JUSTIFY THE NATURE OF MATERIAL PURCHASED AND CONSUMED AT THE SITE OF I DEA, A DETAILED NOTE WAS SUBMITTED. A COPY OF ONE OF THE WORK ORDER IS HOWEVER ENCLOSED (PB 38-70) FOR A BETTER APPRECIATION. WE M AY CLARIFY THAT THE ASSESSEES RESPONSIBILITY WAS NOT CONFINED TO INTER IOR DECORATION ONLY BUT A SUBSTANTIAL AMOUNT OF CIVIL WORK WAS ALSO INV OLVED AND THERE WAS A COMPOSITE CONTRACT OF LABOUR AND MATERIAL. THE LD . AO APPEARS TO GET CONFUSED IN AS MUCH AS HE HAS COMPARED THE PURCHASE S OF BUILDING MATERIAL WITH THE NATURE OF ASSESSEES WORK AS INTE RIOR DECORATOR ONLY AND IGNORED THAT SUBSTANTIAL CIVIL WORK WAS ALSO IN VOLVED. (IV) HIS FURTHER ALLEGATION WAS THAT AS SOON AS CH EQUES WERE CLEARED FROM SUPPLIERS BANK ACCOUNTS, CASH WAS WITHDRAWN. IT IS SUBMITTED THAT THE ASSESSEE IS NOT CONCERNED WITH THIS FACT. THE LD. A O HAS NOT ESTABLISHED THAT CASH SO ALLEGEDLY WITHDRAWN, HAD COME BACK TO THE ASSESSEE. IT WAS FOR THE SELLERS HOW TO RUN THEIR BUSINESS. OTHE RWISE ALSO, THE DELAYED PAYMENT BY THE ASSESSEE TO THESE PARTIES MU ST HAVE HARD PRESSED THE SUPPLIERS TO MAKE ONWARD OVERDUE PAYMEN T TO THEIR RESPECTIVE SUPPLIERS AND THEREFORE, AS SOON AS THER E WAS CREDIT, AVAILABILITY WAS WITHDRAWN. ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 15 THIS IS NOTHING BUT A SUSPICION IN THE MIND OF THE LD. AO WHO GAVE UNWARRANTED STRESS TO THIS ISSUE. BUT THE SUBSTANCE IS THAT HE FAILED TO ESTABLISH THAT THE WITHDRAWAL OF CASH SO MADE, CAME BACK TO THE ASSESSEE ITSELF. THERE IS ABSOLUTELY NO WHISPER ON THIS ASPECT. IT IS USEFUL TO REFER THE CASE OF PADAM SINGH CHAUHAN (20 08) 215 CTR 303 (RAJ). 5.1 CONTRACT RECEIPTS ADMITTED: THE ENTIRE RECEIPT S OF RS.4.75 CRORES WERE DULY ACCOUNTED FOR AND THE LD. AO ALSO ACCEPTED THE SAME. NEEDLESS TO SAY THAT TO ACHIEVE SUCH A HUGE CONTRACT RECEIPT, T HE ASSESSEE MUST HAVE MADE PURCHASES. THEREFORE, THERE IS NO REASON TO DOUBT THESE TRANSACTIONS. MORE SO, WHEN THE AO NEVER DENIED/DIS APPROVED REQUIREMENT/CONSUMPTION OF SUCH MATERIAL. 5.2 BETTER RESULTS: THE SUBJECTED EXPENDITURE DIREC TLY AFFECTS THE NET PROFIT/ NP RATE AND THEREFORE, A REASONABLE COURSE MAY BE TO LOOK AT THE DECLARED TRADING RESULTS OF THIS YEAR VIS A VIS PAST HISTORY. A PERUSAL OF THE COMPARATIVE CHART HEREUNDER SHALL REVEAL THAT THE RATIO OF PURCHASES OF RAW MATERIAL TO THE RECEIPTS THIS YEAR AT 66% IS IN ACCORDANCE WITH THE PAST. NOTABLY THE ASSESSEE DECL ARED MUCH BETTER NP RATE AT 4.64% AGAINST 2.05% IN THE LAST YEAR. TH IS VERY FACT ITSELF STRONGLY SUGGESTS THAT THERE IS ABSOLUTELY NO REASO N TO DOUBT THE PURCHASES MADE FROM THESE TWO PARTICULAR PARTIES. M ORE SO WHEN THE LD. AO HIMSELF COULD NOT REACH TO A CONCLUSION IN A S MUCH AS THE ENQUIRY THOUGH INITIATED BY HIM BUT WAS LEFT HALF W AY. IN ANY CASE, THE LD. AO COMPLETELY FAILED TO BRING ANY CONTRARY MATE RIAL TO DISPROVE THE CLAIMED PURCHASES. WE HAVE ALREADY SUBMITTED THAT T HE CLAIMED PURCHASES ARE SUPPORTED BY PURCHASE INVOICE, THE NA TURE AND VOLUME OF PURCHASES ARE NOT ABNORMAL AND LASTLY, THE OVERA LL DECLARED RESULTS SUPPORT THE CONTENTION. THE ADMITTED CIVIL CONSTRUC TION WAS NOT ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 16 POSSIBLE WITHOUT SUBJECTED MATERIAL. HENCE, PURCHAS ES HAVE TO BE ACCEPTED IF NOT FROM THE CLAIMED SOURCE THEN FROM T HE OTHERS. BUT CANNOT BE DENIED. A.Y. CONTRACT RECEIPTS (A) PURCHASES (B) B/A (%) N.P N.P. RATE 2005-06 RS.1,59,84,389/- (PB 34) RS.96,25,113/- (PB 34) 60.22% RS.1,62,083/- 1.07% 2006-07 RS.1,94,00,540/- (PB 36) RS.93,65,715/- (PB 36) 48.28% RS.3,96,758/- 2.05% 2007-08 RS.4,75,29,475/- (PB 15) RS.3,14,07,414/ - (PB 15) 66.08% RS.22,06,766/- 4.64% 5.3 IN THIS CONNECTION IT WAS SUBMITTED BEFORE THE LD. CIT(A) AS UNDER: '2.1 THOUGH IT IS PERTINENT TO NOTE THAT THE AO HAS NOT DENIED THE FACT OF CONTRACT RECEIPTS AND THE VERY FACT OF EXECUTION OF THE CONTRACTS UNDERTAKEN BY THE ASSESSEE NOR THE AO HAS EXPRESSED HIS DISSATISFACTION OVER THE RATIO OF CONSUMPTION OF MA TERIAL PURCHASED (UNDER DISPUTE) TO TURNOVER (66.08%) OR UPON A BETT ER NP RATE OF 4.64% DECLARED BY THE ASSESSEE. NEEDLESS TO SAY THA T IT IS NOT THE CONTRACT RECEIPT WHICH ARE TO BE TAXED BUT IT IS ON LY THE INCOME ARISING THERE FROM I.E. AFTER REDUCING ALL THE EXPENDITURES VIZ THE COST OF LABOUR, MATERIAL, DIRECT/INDIRECT EXPENSES ETC. AND THUS, IT IS ONLY THE NET PROFIT WHICH IS TO BE CONSIDERED. BY ADMITTING THE FACT OF CONTRACT RECEIPT AND TAXING THE SAME THE AO HAS OTHERWISE AD MITTED THE INCURRENCE OF THE SUBJECTED PURCHASES AS WELL MORE PARTICULARLY, WHEN NO CONTRARY EVIDENCE WAS BROUGHT BY THE ASSESSING O FFICER ON RECORD, WHICH COULD NEGATE THE CLAIM OF PURCHASES MADE BY T HE ASSESSEE. 2.2 IT IS FURTHER SUBMITTED THAT THE CLIENT IDEA C ELLULAR LIMITED IS A NATIONAL LEVEL COMPANY BELONGING TO A REPUTED TATA GROUP AND ONE HAS TO BELIEVE THAT THE BILLS RAISED BY THE ASSESSE E MUST HAVE BEEN PASSED ONLY AFTER DUE SATISFACTION OF THE CLIENT AS REGARDS THE QUALITY OF THE MATERIALS SUPPLIED BY THESE SUPPLIERS AND CO NSUMED BY THE ASSESSEE. THEREFORE, SIMPLY FOR WANT OF VERIFICATIO N FROM THESE TWO SUPPLIERS, TO CONCLUDE THAT THE ASSESSEE DID NOT MA KE ANY PURCHASES, IS NOTHING BUT A SUSPICION. ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 17 2.3 OTHERWISE THE SUBJECTED ITEMS ARE VERY LOW COS T ITEMS. THE PARTNERS OF THE ASSESSEE FIRM ARE THEMSELVES PROFESSIONALS B EING ARCHITECT & ENGINEERS AND WORK CONSCIOUS OF THE QUALITY, THE VA LUE OF THE MATERIAL AND THE REQUIREMENT AS WELL. THE WORK ORDER CONTAIN S VERY MINUTE DETAILS AND IF AT ALL, THE ASSESSEE WANTED TO INFLA TE THE COST, HE COULD HAVE SELECTED HIGH VALUE ITEMS AS AGAINST CHOOSING THESE LOW VALUE ITEMS. THUS, WHAT APPEARS IS NOTHING BUT A SUSPICIO N IN THE MIND OF THE AO.' THUS, THIS WAS NOT A CASE OF BOGUS PURCHASE LIKE JE WELERS WHERE THE SELLER ITSELF DENIED. HERE THE AO DID NOT ESTABLISH SO. BUT THE LD. CIT(A) DID NOT APPRECIATED THE SUBMISSIONS JUDICIOUSLY. 6. SUPPORTING CASE LAWS: IN THE CASES OF JEWELERS WHERE DISALLOWANCES WERE MADE ON ACCOUNT OF ALLEGED UNVERIFIABLE/BOGUS PURCHASES, THE HONBLE JAIPUR BENCH OF ITAT HAS BEEN TAKING A CONS ISTENT VIEW AND THE DEPARTMENT ALSO HAS TAKEN A STAND THAT WHERE THE FA CT OF SALES/EXPORT STANDS ADMITTED, THE CLAIM OF PURCHASES CANNOT BE D ENIED. KINDLY REFER: (I) SHUBH LAXMI EXPORTS VS. ITO (2008) 10 DTR 0281 (JP) (TRIB.) (II) M/S SAMBHAV GEMS LTD. VS. ACIT 36 TAXWORLD 25 4 (III) CIT VS. M.K. BROTHERS (1986) 52 CTR (GUJ) 22 8 : (1987) 163 ITR 249 (GUJ) (IV) CIT V. NIKUNJ EXIMP ENTERPRISES (P.) LTD. (20 13) 216 TAXMAN 171 (MAG.) (BOM.)(HC) SALE TO GOVERNMENT DEPARTMENT-ALL EGED BOGUS PURCHASES-SALES NOT DOUBTED, MERELY BECAUSE SUPPLIE RS NOT APPEARED BEFORE THE ASSESSING OFFICER OR COMMISSIONER (APPEA LS), PURCHASES CANNOT BE DISALLOWED. (V) RAJESH P SONI V/S ACIT 100 TTJ 892 (AHD) WHERE PURCHASES ARE PROPERLY RECORDED IN BOOKS OF ACCOUNT AND SUPPORTED BY AUTHENTICATED PURCHASES BILLS/ VOUCHES PAYMENTS WERE MADE THROUGH BANKING CHANNEL, THE SALES AGAINST THESE PURCHASES NOT DOUB TED. NO ADDITION CAN BE MADE MERELY BECAUSE HE SUPPLIERS CANNOT BE L OCATED. ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 18 (VI) IN GUJRAT HIGH COURT IN JUDGEMENT REPORTED AT (2013) 356 ITR 451 CIT VS. SIMIT P. SETH HELD AS UNDER: - 'IN THE PRESENT CASE, THE COMMISSIONER OF INCOME-TA X (APPEALS) BELIEVED THAT WHEN AS A TRADER IN STEEL THE ASSESSEE SOLD CE RTAIN QUANTITY OF STEEL, HE WOULD HAVE PURCHASED THE SAME QUANTITY FROM SOME SOURCE. WHEN THE TOTAL SALE IS ACCEPTED BY THE ASSESSING OFFICER, HE COULD NOT HAVE QUESTIONED THE VERY BASIS OF THE PURCHASES. IN ESSE NCE, THEREFORE, THE COMMISSIONER (APPEALS) BELIEVED THE ASSESSEE'S THEO RY THAT THE PURCHASES WERE NOT BOGUS BUT WERE MADE FROM THE PARTIES OTHER THAN THOSE MENTIONED IN THE BOOKS OF ACCOUNT.' 7.1 ON THE OTHER HAND, ALTERNATIVELY EVEN ASSUMING FOR A MOMENT THAT THE SUBJECTED PURCHASES OF RS.39,04,150/- WAS NOT GENUI NE AND THE SAME IS REDUCED FROM THE PURCHASES, THE NP WOULD GO UP F ROM 4.64% TO 13.05% WHICH IS BEYOND IMAGINATION AND NOT AT ALL P OSSIBLE IN THIS LINE OF TRADE. 7.2 IN THE ALTERNATIVE, WITHOUT PREJUDICE TO THE O THER CONTENTIONS, IT IS SUBMITTED THAT ASSUMING THE SUBJECTED PURCHASES REM AINED UN- VERIFIED; AT THE WORST THE ACCOUNTS COULD BE REJECT ED. ONCE ACCOUNTS ARE REJECTED THE ONLY COURSE AVAILABLE IS TO MAKE A FAIR ESTIMATION WHICH MAY OR MAY NOT REQUIRE ANY ADDITION TO THE DE CLARED RESULTS. REJECTION OF ACCOUNTS DOESNT NECESSARILY REQUIRE A NY ADDITION AS HELD IN THE CASE OF CIT V/S GOTAN LIME KHANIZ UDYOG 256 ITR 243 (RAJ). IN THE FACTS OF THE PRESENT CASE, EVEN THE ACCOUNTS AR E REJECTED, NO FURTHER ADDITION IS REQUIRED AS THE DECLARED NP RAT E IS ALREADY BETTER THAN THE EARLIER YEARS. 7.3 AFTER CONSIDERING SIMILAR FACTS ONLY THIS HON` BLE ITAT IN ANUJ KR. VARSHNEY APPLIED 15%. THUS, UNDER THE TOTALITY OF FACTS AND CIRCUMSTANCE S, THERE WAS NO REASON TO DOUBT AND DISALLOW THE CLAIMED PURCHASES IN ABSENCE OF CONTRARY MATERIAL AND WHEN ACCOUNTS WERE NOT REJECT ED. ALTERNATIVELY, ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 19 THE TRADING RESULTS BEING BETTER NO DISALLOWANCE WA S CALLED FOR. HENCE THE SAME PLEASE BE DELETED OR REDUCED SUITABLY. 8. THE LD. CIT(A) HAS WRONGLY DENIED ADMISSION AND CONSIDERATION OF THE ADDITIONAL EVIDENCE SUBMITTED BEFORE HIM BEING THE CONFIRMATION FROM S.K. ENTERPRISES, IT IS SUBMITTED THAT THE SETTLED LEGAL IS THAT PROPOSITION THAT THE POWERS OF THE FIRST APPELLATE AUTHORITY ARE VERY VIDE AND CO-TERMINUS WITH THOSE OF THE AO AND WHAT AO CAN DO, HE CAN DO AND WHAT AO FAIL TO DO, THAT ALSO HE CAN DO. KI NDLY REFER KANPUR COAL SYNDICATE 53 ITR 225 (SC). SECTION 251 AND 25 2 OF THE ACT HAS ALSO BEEN WORDED KEEPING THE SAME SPIRIT, AS ALSO RULE 4 6A. SECTION 250 (4) EMPOWERS THE CIT (A) TO MAKE FURTHER INQUIRIES ON I TS OWN OR TO DIRECT THE AO TO MAKE FURTHER INQUIRY AND TO REPORT HIM. THE EMBARGO PUT ON HIS POWER U/R 46A (1) & (2) HAS ALSO BEEN LOOSEN ED BY SUB-RULE 4, WHICH ALSO EMPOWER THE CIT (A) TO DIRECT THE PRODUC TION OF ANY DOCUMENT/THE EXAMINATION OF WITNESS, TO ENABLE HIM TO DISPOSE OF THE APPEAL. THUS, THE LEGISLATIVE INTENT IS QUITE CLEA R THAT THE CIT(A) SHOULD NOT STRAIGHT AWAY REJECT, EVIDENCE/S FILED BEFORE H IM UNDER RULE 46A (1). THE POWERS OF CIT (A), AS SUBMITTED ABOVE ARE ALSO TO BE INTERPRETED IN THE CONTEXT OF THE AMENDED LAW, WHER EIN, HE IS NO MORE EMPOWERED TO RESTORE BACK ANY MATTER WHICH WAS AVAI LABLE EARLIER U/S 251 (1) (A), NECESSITATING A COMPULSORY ADMISSION O F THE EVIDENCE BEFORE HIM IN THE INTEREST OF JUSTICE. THIS MATTER HAS BEEN DEALT WITH ELABORATELY IN CIT VS. K. RAVINDRANATHAN NAYYAR (20 03) 184 CTR 46 (KER.), WHICH HAS HELD THAT THE CIT (A) WAS NOT JUS TIFIED IN REJECTING THE ADMISSION OF CONFIRMATORY LETTER STRAIGHT AWAY ON T HE PLEA THAT THE EVIDENCE WAS NOT FILED BEFORE THE AO (AT PG-47, PR- 6). THIS RATIO SQUARELY APPLIES ON THE FACTS OF THE PRESENT CASE. KINDLY REFER OUR W/S TO CIT(A) (PB 84 & 90) THAT AO DID NOT PROVIDE SUFF ICIENT TIME. ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 20 HOWEVER, BECAUSE OF THIS INVALID ACTION SUCH EVIDE NCE DESERVE CONSIDERATION HERE ITSELF BY THE HON`BLE ITAT AND H ENCE THE SAME KINDLY BE CONSIDERED AND THE APPEAL BE DECIDED HERE ITSELF. 8. ON THE OTHER HAND, THE LD DR HAS VEHEMENTLY SUPP ORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. THE BENCH HAVE HEARD BOTH THE SIDES ON THIS ISSUE AND ALSO TAKEN INTO CONSIDERATION VARIOUS CASE LAWS RELIED UPON. THE TOTAL CONTRACTUAL RECEIPTS WERE OF RS. 4.75 CRORES OUT OF WHICH RS. 4. 20 CRORES WERE FROM M/S IDEA TELE COMMUNICATION LIMITED (A TATA GROUP CO MPANY) AND THE BALANCE FROM SHREE CEMENT LIMITED. THUS, ALMOST ALL THE CONTRACTUAL RECEIPTS WERE FROM THE COMPANIES OF REPUTE. THE NET P ROFIT FOR THE YEAR UNDER CONSIDERATION WAS COMPARATIVELY BETTER THAN IM MEDIATE PRECEDING YEAR AS IT WAS 4.64% WHILE IT WAS 2.05% IN THE IMMEDIA TE PRECEDING YEAR. ALTHOUGH, TWO SUPPLIERS OF MATERIAL WERE NOT RE SPONDING TO THE INCOME TAX ENQUIRIES AS THE SUMMONS WERE RETURN UNSE RVED. IN THE INSPECTORS ENQUIRIES, THESE PARTIES COULD NOT BE T RACED OUT. THE ASSESSING OFFICER DISALLOWED WHOLE OF THE AMOUNT OF P URCHASES DEBITED IN THE NAME OF THESE CONCERNS. THE PAYMENTS WERE MAD E THROUGH THE BANKING CHANNELS BY ACCOUNT PAYEE CHEQUES TO THESE CONCERNS. THE ASSESSEE HAS DONE THE CONTRACTUAL WORK TO SATISFY T HE CONTRACTUAL OBLIGATIONS TO THESE REPUTED CONCERNS M/S IDEA TELE COMMUNICATION ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 21 LIMITED AND SHREE CEMENT LIMITED. THERE IS NO ALLEGA TION THAT ASSESSEE HAD NOT PERFORMED ITS CONTRACTUAL OBLIGATION TO THE SATISFACTION OF THE CLIENTS. HAD IT BEEN THE CASE THEN THE ASSESSEE COU LD NOT HAVE REALIZED THE WHOLE OF ITS CONTRACT RECEIPTS. THUS, THERE IS NO DENIAL OF THE FACT THAT THE ASSESSEE HAS NOT DISCHARGED THE CONTRACTUA L OBLIGATIONS. SINCE THE ASSESSEE COULD NOT PRODUCE THESE PARTIES DURING THE ASSESSMENT PROCEEDINGS AND AT THE LATER STAGE BUT PAYMENTS WERE MADE BY BANKING CHANNELS. THE NET PROFIT IS BETTER THAN PRECEDING YE ARS. CONSIDERING THESE ENTIRE FACTUAL MATRIX, THE BENCH IS OF THE VI EW THAT THE WHOLE OF THE PURCHASES FROM THESE TWO CONCERNS SHOULD NOT HAV E BEEN DISALLOWED. ONLY PART OF IT AS ESTIMATED INCOME ON T HESE UNVERIFIABLE PURCHASES SHALL BE SUFFICIENT TO PLUCK THE LEAKAGE OF REVENUE. THE ITAT, JAIPUR BENCH IN VARIOUS DECISIONS HAD CONSIDERED SU CH ISSUE OF UNVERIFIABLE PURCHASES AND IT HAS CONSIDERED 15% OF SUCH PURCHASES AS REASONABLE AND FAIR TO ESTIMATE THE PROFIT ELEMENT ON SUCH UNVERIFIABLE PURCHASES. THE ITAT, JAIPUR BENCH IN THE CASE OF AN UJ KUMAR VARSHNEY VS ITO IN ITA NO. 187/JP/2012 ORDER DATED 22/10/201 4 HAS CONSIDERED THE DISALLOWANCE AND HELD AS UNDER: 8.6 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. AS DISCUSSED IN ABOVE CASES, THE MATERIAL AVAILABLE ON RECORD ESTABLISHED THAT I N JAIPUR, A RAMPANT PRACTICE IS IN VOGUE TO GET AND ISSUE ACCOM MODATION BILLS ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 22 OF PURCHASES TO DEFLATE THE PROFIT. THE LEARNED ASS ESSING OFFICER MADE DISALLOWANCE @ 25% OF SUCH BOGUS PURCHASES ON THE BASIS OF DECISION IN THE CASE OF SANJAY OIL CAKE INDUSTRIES AND VIJAY PROTEIN LTD. (SUPRA). IN OUR VIEW THE 25% DISALLOWANCE APPE ARS TO BE HIGHER SIDE, THEREFORE, KEEPING IN VIEW OF THE FACTS OF TH E ASSESSEES CASE AS WELL AS OTHER CASES AS DISCUSSED ABOVE, WE FEEL THA T 15% DISALLOWANCE OUT OF BOGUS PURCHASES IS REASONABLE O N UNVERIFIABLE PURCHASES AND WILL MEET THE ENDS OF JUSTICE. THE RE JECTION OF BOOKS OF ACCOUNT IS JUSTIFIED. THE ASSESSEE GETS RELIEF PART LY. CONSIDERING ALL THESE FACTUAL AND LEGAL POSITION, T HE ADDITION TO THE EXTENT OF 15% OF PURCHASES IS SUSTAINED AND BALANCE IS DIRECTED TO BE DELETED. 10. IN THE GROUND NO. 3 OF THE APPEAL, THE ISSUE IN VOLVED IS CONFIRMING THE DISALLOWANCE OF RS. 25,260/- U/S 40A(3) OF THE A CT BEING 20% OF TOTAL PURCHASES. THE LD. CIT(A) HAS CONFIRMED THE ACT ION OF THE ASSESSING OFFICER. 11. WHILE PLEADING ON BEHALF OF THE ASSESSEE, THE L D AR HAS SUBMITTED THAT IT IS FACTUALLY INCORRECT THAT THE ASSESSEE MA DE PAYMENT IN CASH. IN FACT, THE PAYMENTS REFERRED TO BY THE LD. AO ARE GE NERAL ADJUSTMENTS ONLY AS EVIDENT FROM THE FACT THAT SUCH PAYMENTS AR E ENTERED THROUGH JOURNAL VOUCHERS BUT NOT THROUGH CASH VOUCHERS. THE LD. AUDITOR ALSO DID NOT REPORT ANY SUCH VIOLATION THE LD. AO WITHOUT GOING INTO DETAILS ITA 617/JP/2014_ M/S DESIGN CORE VS ITO 23 AND THE ACCOUNTS, MADE THE DISALLOWANCE ON MERE SURM ISE AND CONJUNCTURES. 12. ON THE OTHER HAND, THE LD DR HAS SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 13. THE BENCH HAVE HEARD BOTH THE SIDES ON THIS ISSU E. THE LD. CIT(A) HAS CONFIRMED 20% OF THE TOTAL PURCHASES. THERE IS N O CONTRARY MATERIAL ON RECORD NOT TO SUSTAIN SUCH ADDITION. HENCE, THE SAME IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/02/2018. SD/- HKKXPAN (BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 08 TH FEBRUARY, 2018 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S DESIGN CORE, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD 2(2), 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. 617/JP/2014) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR