ACIT, Jaipur V. SHRI MAHENDRA KUMAR AGARWAL, Jaipur

ITA 854/JPR/2010

• Counselvise Citation: 85423114 RSA 2010
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 28-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Keywords: Bogus purchase; Gross profit estimation; Unexplained cash credit; Rejection of books of accounts; Unexplained investment; Income from undisclosed sources; Cost of acquisition; Reasonable cause; Onus to prove
• Section: 143(3); 131; 69

Judgement Text

1 ITA 854(2)-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 854/JP/2010 ASSTT. YEAR : 2007-08. THE ACIT, CIRCLE-1, VS. SHRI MAHENDRA KUMAR AGAR WAL, JAIPUR. PROP. M/S.MOHANLAL MAHENDRA KUMAR JEWELLERS, 197, JOHARI BAZAR, JAIPUR. (APPELLANT) (RESPONDENT) C.O. NO. 66/JP/2010 ( ARISING OUT OF ITA NO. 854/JO/2010 ) ASSTT. YEAR : 2007-08. SHRI MAHENDRA KUMAR AGARWAL, VS. THE ACIT, CIRCLE- 1, JAIPUR. JAIPUR. (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY : SHRI SUBHASH CHANDRA RESPONDENT BY : SHRI VIJAY GOYAL ORDER DATE OF ORDER : 10/06/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AND A CROSS OBJECT ION BY ASSESSEE AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 20 07-08. 2. THE DEPARTMENT IS OBJECTING IN DELETING THE ADDI TION OF RS. 3,61,65,070/- MADE ON ACCOUNT OF UNACCOUNTED INVESTMENT IN PURCHASE FROM UNACCOUNTED INCOME. IN SECOND GROUND THE DEPARTMENT HAS TAKEN AN ALTERNATE GROUND THAT REDUCING THE TRADING ADDITION OF 2 RS. 3,46,21,220/- TO RS. 2,55,465/-. IN LAST, THE DEPARTMENT IS OBJECTING IN DELETING THE ADDITION OF RS. 2,68,00,000/- MADE BY AO ON ACCOUNT OF UNEXPLAINED CREDIT. 3. THE BRIEF FACTS OF THE CASE ARE THAT SH. MAHENDRA KUMAR AGARWAL IS PROPRIETOR OF M/S MOHAN LAI MAHENDRA KUMAR (MMJ), J AIPUR, M/S MOHAN LAI MAHENDRA KUMAR JEWELLERS (MMJ), NOIDA, M/S MOHAN LA I MAHENDRA KUMAR JEWELLERS (MMJ), DELHI, AND M/S A.M. EXPORTS, JAIPU R. SH. MAHENDRA KUMAR IS ALSO PARTNER OF M/S MOHAN & CO. AND M/S K.M. EXPORT S. 4. THE ASSESSEE HAS SHOWN PURCHASES OF RS.3,61,65,0 70/- FROM M/S M.D.R. JEWELLERS. IN RESPONSE TO THE SUMMONS ISSUED U/S 13 1 TO M/S M.D.R. JEWELLERS, PARTNER SH. KEWAL CHAND JAIN ATTENDED AND PRODUCED THE BOOKS OF ACCOUNTS. ON EXAMINATION OF STOCK REGISTER OF GOLD BAR AND SILVE R BAR IT WAS SEEN THAT M/S M.D.R. JEWELLERS PROCURED GOLD AND SILVER BARS FROM M/S AMIT AGENCY VIDE BILL NO.174 DT. 03/10/06 FOR RS.3,60,64,827/-. TO VERIFY THE PURCHASES MADE BY M/S M.D.R. JEWELLERS SUMMONS WERE ISSUED TO M/S AMIT AGENCY WHICH WERE RETURNED UNSERVED AS THE CONCERN WAS FOUND NON- EXISTENT AT THE GIVEN ADDRESS BY THE INSPECTOR. BAN K A/C OF M/S AMIT AGENCY WAS TRACED AND THROUGH THE BANK DETAILS ITS CURRENT ADDRESS WAS FOUND. AT THAT ADDRESS SUMMONS WERE ISSUED BUT AGAIN THE SUMM ONS REMAINED UNSERVED. HIS PROP. SH. ATAL BEHARI AGARWAL WAS ALS O NOT FOUND AT THE GIVEN ADDRESS. SH. KEWAL CHAND JAIN WAS TO PRODUCE M/S AM IT AGENCY FOR VERIFICATION BUT HE EXPRESSED HIS INABILITY TO DO S O. FROM THE RETURN OF INCOME OF SH. ATAL BEHARI AGARWAL IT WAS FOUND THAT HE HAS SHOWN INCOME 3 FROM SALE OF PLYWOOD U/S 44AF AND GROSS RECEIPTS AR E NOMINAL THOUGH M/S M.D.R. JEWELLERS HAS CLAIMED PURCHASES OF RS.7,32,4 9,225/- FROM M/S AMIT AGENCIES. FROM BANK A/C OF SH. ATAL BEHARI IT WAS F OUND THAT HIGHEST DEPOSIT IN HIS BANK A/C WAS ONLY RS.50,000/-. THE AO THEREF ORE, CONSIDERED PURCHASES FROM M/S AMIT AGENCIES AS BOGUS. THE AO H ELD THAT THE BOGUS TRANSACTIONS WERE ROUTED THROUGH M/S M.D.R. JEWELLE RS TO CREATE A LAYER AND GIVE IT A GARB OF AUTHENTICITY. PURCHASES OF RS. 3, 61,65,070/- WERE CONSIDERED AS UNVERIFIABLE AFTER CONSIDERING REPLY OF THE ASSE SSEE ON SHOW CAUSE NOTICE ISSUED. THE AO REJECTED THE CONTENTION OF THE ASSES SEE THAT AS THE ASSESSEE HAS NOT MADE PURCHASES FROM M/S AMIT AGENCY HE WAS NOT CONCERNED ABOUT PURCHASES MADE BY M/S M.D.R. JEWELLERS. THE AO DID NOT DENY THE SALES MADE BUT CAME TO CONCLUSION THAT THE APPELLANT HAS MADE PURCHASES OUT OF BOOKS BY ROUTING THROUGH M/S M.D.R. JEWELLERS AND THUS MADE UNACCOUNTED INVESTMENT OF RS.3,61,65,070/- FOR PURCHASE OF GOLD AND SILVER BA R FROM UNACCOUNTED INCOME GENERATED BY HIM. 5. THE AO FURTHER OBSERVED THAT SALES WERE MADE IN CASH AT ALL ITS FOUR BRANCHES/CONCERNS. ALSO THAT SALES WERE MADE TO M/S SILVER AND SILVER WHICH WAS PROVED TO BE AN ENTRY PROVIDER IN THE SURVEYS CONDU CTED BY THE BCTT WING OF THE DEPARTMENT. ITS PROPRIETOR SH SUBHASH CHAND JAIN AD MITTED IN HIS STATEMENT THAT NO ACTUAL SALE/PURCHASES WERE CARRIED OUT BY M/S SI LVER AND SILVER. 4 6. THE AO FURTHER OBSERVED THAT SALES OF RS. 149545 500/- WERE MADE TO M/S K.M. EXPORTS, A PARTNERSHIP CONCERN WHERE ONE OF TH E PARTNERS IS ASSESSEE. NO BOOKS OF ACCOUNTS OF M/S K.,M. EXPORTS WERE PRODUCE D. THE GENUINENESS OF THE SALES REMAINED UNPROVED. 7. THE A.O. RELYING ON THE DECISION OF ITAT JAIPUR BENCH IN THE CASE OF SRI SHRIKRISHAN MALPANI HAS HELD THAT BOGUS PURC HASES IS DEFECT IN MAINTENANCE OF BOOKS OF ACCOUNTS. THE AO THEREFORE INVOKED PROV ISIONS OF SEC 145(3) AND REJECTED BOOKS OF ACCOUNTS. THUS, THE REJECTION OF BOOKS OF ACCOUNTS WAS MADE ON ACCOUNT OF UNVERIFIABLE PURCHASES FROM M/S MDR JEWE LLERS, CASH SALES MADE TO VARIOUS CONCERNS INCLUDING SOME DOUBTFUL ENTITY AND ON ACCOUNT OF NON PRODUCTION OF BOOKS OF ACCOUNTS OF K.M. EXPORTS TO WHOM SUBSTA NTIAL SALES WERE MADE. 8. AFTER REJECTING BOOKS OF ACCOUNTS THE AO MADE AD DITION OF ENTIRE PURCHASES OF RS.36165070/- MADE FROM M/S MDR JEWELLERS AS UND ISCLOSED INVESTMENT MADE OUT OF UNDISCLOSED INCOME. 9. DETAILED WRITTEN SUBMISSIONS WERE FILED BEFORE L D. CIT (A) WHICH ARE DISCUSSED BY LD. CIT (A) AT PAGES 3 TO 7 OF HIS ORDER AS UNDER : - THE AO HELD THAT THE APPELLANT MADE PURCHASES FR OM M/S MDR JEWELLERS BUT SINCE M/S MDR JEWELLERS SUPPLIED THE GOODS TO THE ASSESSEE SHOWN AS PURCHASE FROM M/S AMIT AGENCY, A BOGUS CONCERN A ND THEREFORE THE PURCHASES FROM M/S MDR JEWELLERS TO THE EXTENT MADE FROM M/S AMIT AGENCY WERE HELD BOGUS AND ADDED BACK. THE APPELLANT HAS MADE PURCHASES FROM M/S MDR JEWEL LERS AND NOT FROM M/S AMIT AGENCY. BY PRODUCING SH. KEWAL CHAND JAIN PARTNER OF M/S MDR 5 JEWELLERS WHO PRODUCED THE BOOKS OF ACCOUNTS AND CO NFIRMED THE SALES TO THE APPELLANT, THE APPELLANT HAS DISCHARGED HIS ONUS TO PROVE THE PURCHASES FROM M/S MDR JEWELLERS. THE APPELLANT IS NOT CONCERNED WITH THE PURCHASES OF MDR JEWELLERS AS SH. KEWAL CHAND JAIN IS NOT A RELATIVE OF THE APPELLANT AND THE APPELLANT HAS NO CONTROL OVER ITS ACTIVITIES. THE A PPELLANT HAS NO ONUS TO PROVE THE SOURCE OF SOURCE. THE ASSESSMENT IN THE CASE OF M/S MDR JEWELLERS FOR AY 07-08 WAS COMPLETED WHEREIN SALES TO THE APPELLANT WERE C ONSIDERED GENUINE. IN THE CASE OF MDR JEWELLERS PURCHASES FROM M/S AMIT AGENC Y WERE CONSIDERED UNVERIFIABLE AND HELD THAT THOSE PURCHASES WERE MAD E FROM UNKNOWN SOURCES. ON THIS ACCOUNT TRADING ADDITION WAS MADE BY THE AO IN THE CASE OF MDR JEWELLERS. THE APPELLANT IS MAINTAINING QUANTITATIVE DETAILS OF THE GOODS PURCHASED AND NO DEFECT HAS BEEN POINTED OUT BY THE AO IN MAINTEN ANCE OF STOCK REGISTER. AS THE SALES HAVE BEEN ACCEPTED, PURCHASES CANNOT BE D OUBTED. PURCHASE OF 20 KG. GOLD BAR WAS MADE FROM MDR JEWELLERS ON 04/10/06 WH ICH WAS SOLD AS IT IS TO REPUTED CONCERNS (NAMES WERE GIVEN). FURTHER PURCHA SE OF 20 KG. GOLD BAR WAS MADE VIDE BILL DT.6/10/06 WHICH WAS ALSO SOLD TO VA RIOUS CONCERNS (NAMES GIVEN). 22 KG. SILVER WAS PURCHASED FROM MDR JEWELLERS ON 4 /10/06 AND SOLD IN THE MONTH OF NOV, 06. WITHOUT PURCHASING GOLD/SILVER BA RS, THE SALES THEREOF WERE NOT POSSIBLE. MARKET QUOTATION OF SILVER/GOLD BAR IS AL WAYS AVAILABLE FOR EACH DAY. THE AO HAS NOT POINTED OUT ANY DISCREPANCY IN THE PURCH ASE AND SALE RATES. THE OBSERVATION OF THE AO THAT THE ABOVE PURCHASES WERE MADE FROM UNACCOUNTED INCOME AND WAS THEREFORE, HELD AS UNACC OUNTED INVESTMENT IS BASED ON SURMISES AND CONJECTURES. WHEN THE PARTNER OF M/ S MDR JEWELLERS HAS CONFIRMED THE SALES TO THE APPELLANT WHICH IS REFLE CTED IN HIS BOOKS OF ACCOUNTS AND PAYMENT HAS BEEN MADE BY CHEQUE, THE PURCHASES ARE PROVED. EVEN IF IT IS ASSUMED THAT M/S AMIT AGENCIES IS A B OGUS BILLING FIRM THEN WHO PURCHASED THE GOODS FROM UNKNOWN SOURCE - THE A PPELLANT OR M/S MDR JEWELLERS. THE AO IN THE CASE OF MDR JEWELLERS HAS HELD THAT PURCHASES FROM AMIT AGENCIES MADE BY MDR JEWELLERS WERE FROM UNKNO WN SOURCE AND 6 THEREFORE, THE OBSERVATION OF THE AO THAT PURCHASES OF THE APPELLANT FROM MDR JEWELLERS IS FROM UNKNOWN SOURCE IS WRONG AND PERVE RSE AND WITHOUT ANY BASIS. THERE IS NO EVIDENCE TO PROVE THAT PAYMENT MADE TO M/S MDR JEWELLERS THROUGH A/C PAYEE CHEQUE HAS COME BACK TO THE APPELLANT IN CASH. THE SUSPICION HOWEVER STRONG CANNOT TAKE PLACE OF PROOF AS HELD BY HON'BL E SUPREME COURT IN THE CASE OF UMA CHARAN SHAH AND BROS. VS. CIT 37 ITR 271. WITH THIS IT WAS SUBMITTED THAT PURCHASES FROM M/S MDR JEWELLERS CANNOT BE HELD AS BOGUS AND NO ADDITION IN THIS REGARD CAN BE MADE. ON REJECTION OF BOOKS OF ACCOUNTS IT WAS SUBMITTED THAT PURCHASES, SALES AND EXPENSES ARE FULLY VOUCHED AND STOCK REGISTER H AS BEEN MAINTAINED. EXCEPT PURCHASES FROM M/S MDR JEWELLERS ALL OTHER PURCHASE S HAVE BEEN ACCEPTED. CASH SALES ARE SUPPORTED BY CASH MEMOS AND THE RATE MENT IONED IS VERIFIABLE FROM MARKET QUOTATIONS. COMPLETE ADDRESS OF THE PARTIES ARE NEITHER REQUIRED NOR IT IS POSSIBLE TO MAKE VERIFICATION OF ADDRESSES IN CASH MEMO. IN THE TRADE OF BULLION AND JEWELLERY GOODS ARE SOLD IN CASH MAINLY BECAUSE ASSESSEE CANNOT BELIEVE ON THE CHEQUES GIVEN BY UNKNOWN CUSTOMERS. THE REJECTI ON OF BOOKS OF ACCOUNTS ON THIS ACCOUNT IS NOT JUSTIFIED AS TRUE PROFIT CAN BE DEDUCED FROM THE BOOKS OF ACCOUNTS MAINTAINED. RELIANCE WAS PLACED ON THE DEC ISION IN THE CASE OF ST. TERRESSA OIL MILLS VS. STATE OF KERALA 76 ITR 365 ( KER) WHEREIN IT HAS BEEN HELD THAT ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS HAVE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REAS ON TO INDICATE THAT THEY ARE UNRELIABLE. 9.1. THE AO WHO REMAINED PRESENT DURING THE HEARING OF APPEAL IN HIS COMMENTS ON THE WRITTEN SUBMISSION OF THE AR HAS DE FENDED HIS ACTION OF HOLDING PURCHASES MADE FROM MDR JEWELLERS AS UNVERIFIABLE. IT WAS SUBMITTED THAT SH. KEWAL CHAND JAIN AND MAHENDRA KUMAR AGARWAL ARE OWN ING, CONTROLLING AND MANAGING THE BUSINESS AFFAIRS OF VARIOUS CONCERNS I NCLUDING MDR JEWELLERS AND KM EXPORTS IN THEIR CAPACITY AS EITHER PARTNER OR P ROPRIETOR OR RELATIVE. BECAUSE OF THEIR INEXTRICABLE LINK THE AO REQUIRED PERSONAL PR ESENCE OF THE PROPRIETOR OF M/S AMIT AGENCIES AND PRODUCTION OF BOOKS OF ACCOUNTS O F KM EXPORTS WHICH THE 7 APPELLANT AVOIDED. THERE ARE TRANSACTIONS WITH M/S AMIT AGENCIES IN THE BOOKS OF M/S MOHAN LAI MAHENDRA AS WELL IN EARLIER YEARS AND ENTRIES WERE SQUARED UP BY MAKING RECIPROCAL SALES. IN M/S KM EXPORTS SH. MAHE NDRA KUMAR AGARWAL AND SH. KEWAL CHAND JAIN ARE PARTNERS. IN M/S AGRASEN J EWELLERS AND M/S MOHAN & CO. ANOTHER CONCERNS OF THE APPELLANT GROUP PURCHAS ES WERE MADE FROM M/S KM EXPORTS. NON PRODUCTION OF BOOKS OF ACCOUNTS OF M/S KM EXPORTS IS DELIBERATE. IF BOOKS OF ACCOUNTS OF M/S KM EXPORTS WERE PRODUCED, THE ENTIRE CHAIN OF TRANSACTIONS WOULD BE OPEN TO THE AO FOR EXAMINATIO N INCLUDING THE PURCHASES FROM M/S AMIT AGENCIES. ANOTHER IMPORTANT FACTS WER E BROUGHT TO NOTICE ARE AS UNDER: 1. M/S RAJESH SALES CORPN. MADE PAYMENT OF RS.46138953 /- TO M/S KM EXPORTS WITHOUT ANY CONSIDERATION WHICH IS AGAINST BUSINESS PRUDENCE. THE ACCOUNT WAS CLOSED BY PASSING JOURNAL ENTRIES ON 31/03/07 B Y CREDITING THE AMOUNT TO M/S AMIT AGENCY. 2. IN THE ACCOUNT OF AMIT AGENCY RAJESH SALES CORPN. H AS SHOWN TO HAVE MADE PURCHASES OF RS.86811610/- FROM M/S AMIT AGENCY BUT MAJOR PAYMENTS WERE ADJUSTED BY PASSING JOURNAL ENTRIES. 3. MDR JEWELLERS MADE PAYMENTS OF RS. 10047500/- TO M/ S KM EXPORTS WITHOUT ANY CONSIDERATION WHICH IS AGAINST BUSINESS PRUDENCE. THE ACCOUNT WAS CLOSED BY PASSING JOURNAL ENTRIES. 4. BY NOT PRODUCING THE BOOKS OF ACCOUNTS OF M/S AMIT AGENCY AND M/S KM EXPORTS BOTH SH KEWAL CHAND AND SH. MAHENDRA KUMAR ARE THWARTING THE DEPTT.'S EFFORTS TO UNEARTH THE TRUE STATE OF AFFAI RS. 5. SH. ATAL BEHARI AGARWAL PROP, OF AMIT AGENCY WAS NO T PRODUCED. 6. SH. KEWAL CHAND ADMITTED THAT HE TRANSFERRED THE SA ME STOCK TO THE APPELLANT WHICH HE PURCHASES FROM AMIT AGENCY. 7. M/S AMIT AGENCY HAS NOT SHOWN ANY CONSIDERABLE INCO ME EXCEPT INCOME U/S 44AF ON SALE OF PLYWOOD PRODUCTS. ' 8. NO ACTUAL PAYMENTS BY M/S RAJESH SALES CORPN. AND M DR JEWELLERS TO M/S AMIT AGENCY. 9. IN THE BOOKS OF ACCOUNTS OF M/S MDR JEWELLERS CERTA IN ADJUSTMENT ENTRIES DO NOT APPEAR WHICH WERE APPEARING IN THE APPELLANT'S BOOKS. THAT THESE ENTRIES WERE MADE WITH THE CONSENT OF THE APPELLANT. MDR JE WELLERS CLAIMED TO HAVE 8 REVERSED THE ENTRY PERTAINING TO REDUCE RS. 4,90,00 ,000/- IN THE SUBSEQUENT FY. 10. NO ACTUAL PAYMENTS WERE EVER MADE TO M/S AMIT AGENC Y BY VARIOUS CONCERNS CONTROLLED BY MAHENDRA KUMAR AGARWAL AND KEWAL CHAN D JAIN. SH. MAHENDRA KUMAR AGARWAL IS BENEFICIARY OF THESE ADJU STMENT ENTRIES AND THEREFORE SEPARATE ADDITION OF RS.26800000/- WAS MA DE. 9.2. IN HIS REJOINDER TO THE COMMENTS OF THE AO THE AR HAS GIVEN PARA WISE REPLY. IT WAS SUBMITTED THAT AMOUNT OF PURCHASES MA DE FROM M/S MDR JEWELLERS WAS PAID BY A/C PAYEE CHEQUE OR BY DELIVERY OF BULL ION. THUS THE APPELLANT IS MAKING PURCHASES AS WELL AS SALES BOTH FROM/TO M/S MDR JEWELLERS. SH. KEWAL CHAND JAIN IS NOT A PARTNER IN ANY OF THE GROUP CON CERN. THE APPELLANT IS A PROP, OF M/S AM EXPORTS, MOHAN LAI MAHENDRA KUMAR AND M/S MO HAN & CO. SH. KEWAL CHAND JAIN AND SH MAHENDRA KUMAR AGARWAL ARE PARTNE RS ONLY IN M/S KM EXPORTS. THE AO HAS NOT BROUGHT ANY EVIDENCE TO EST ABLISH THAT THEIR EXISTED INEXTRICABLE LINK BETWEEN ASSESSEE AND KEWAL CHAND JAIN THROUGH THE CONCERNS CONTROLLED BY HIM. THE APPELLANT HAS NOTHING TO DO WITH M/S RAJESH SALES CORPN, M/S MDR JEWELLERS AND M/S ARIHANT GEMS AND JEWELLER S. THE AO IN THE CASE OF M/S MDR JEWELLERS HAS NOT FOUND ANY INEXTRICABLE LI NK OF SH. KEWAL CHAND WITH THE APPELLANT. IF AMIT AGENCY IS DOING UNACCOUNTED BUSINESS, THE APPELLANT CANNOT BE HELD RESPONSIBLE FOR IT. IT WAS SUBMITTED THAT BOOKS OF ACCOUNTS OF M/S KM E XPORTS WERE NOT AVAILABLE WITH HIM. THE PRINCIPAL PLACE OF BUSINESS IS THE PLACE OF BUSINESS OF SH. KEWAL CHAND JAIN. THE AFFIDAVIT FILED BY THE PARTNE RS OF M/S KM EXPORTS COULD HAVE BEEN CONTROVERTED BY PERSONAL EXAMINATION OF T HE PARTNERS. UNLESS THE CONTENTS OF THE AFFIDAVITS ARE PROVED OTHERWISE, TH E AFFIDAVITS PROCURED BY THE PARTIES WOULD BE MAINTAINABLE. RELIANCE WAS PLACED ON VARIOUS CASE LAWS. KM EXPORTS IS A REGULAR ASSESSEE. COPY OF ITS TRADI NG ACCOUNT WAS OBTAINED FROM THE AUDITORS AND FILED. THE OTHER GRO UP CONCERNS HAVE PURCHASED GOODS FROM KM EXPORTS AND THEREFORE THEY HAVE SALE INVOICE ISSUED. 9 THE APPELLANT HAS NOT MADE ANY PURCHASES FROM M/S A MIT AGENCY AND KM EXPORT. THE AO HAS MADE ADDITION ON THE PURCHASE S MADE FROM MDR JEWELLERS WHICH THE APPELLANT HAS PROVED TO BE GENU INE. THE APPELLANT HAS NO OBLIGATION TO PROVE SOURCE OF SOURCE. FURTHER THERE CANNOT BE DOUBLE ADDITION FOR ONE AND SAME THING. THE AO OF M/S MDR JEWELLERS HAS MADE ADDITION FOR UNVERIFIABLE PURCHASES MADE FROM AMIT AGENCY AND OT HERS. THE SALES OF MDR JEWELLERS WERE TREATED AS GENUINE AND THEREFORE, AP PELLANT'S PURCHASES CANNOT BE HELD NON-GENUINE. FURTHER THE AO HAS NOT MADE ANY ADDITION IN RESPECT OF TRANSACTION WITH KM EXPORTS AS NO PURCHASES WERE MADE. PRODUCTION OR NON PRODUCTION OF BOOKS OF ACCOUNTS OF KM EXPORTS HAS NO RELEVANCE TO THE A DDITION MADE BY THE AO. THE REJECTION OF BOOKS OF ACCOUNTS DOES NOT GIVE UN FETTERED POWERS TO THE AO TO MAKE THE ADDITION ARBITRARILY. THE AO HAS MAD E ADDITION OF 100% OF THE BOGUS PURCHASES MORE SO WHEN THE SALES OF THE ASSES SEE HAVE BEEN ACCEPTED. IN THE CASE OF MOHAN AND CO AND M/S AGRASEN JEWELLERS THE ADDITION WAS MADE @ 25% OF THE ALLEGED BOGUS PURCHASES WHEREAS IN THE C ASE OF MAHENDRA KUMAR AGARWAL ADDITION WAS MADE FOR 100% OF THE PURCHASES . THE APPELLANT HAS NOT MADE ANY PURCHASES FROM M/S A MIT AGENCY AND THEREFORE IS NOT CONCERNED WITH THE ALLEGED DUBIOUS TRANSACTIONS IN THE BOOKS OF MDR JEWELLERS AND RAJESH SALES CORPN. IN RESPECT OF AMIT AGENCY AND KM EXPORTS. THE AO OF MDR JEWELLERS HAS NOT MADE ANY A DDITION FOR THE ALLEGED DUBIOUS TRANSACTION OF MDR JEWELLERS WITH M/S AMIT AGENCY AND KM EXPORTS. SH. MAHENDRA KUMAR AGARWAL IS NOT BENEFICIARY TO TH E SUM OF RS.2,68,00,000/- FOR WHICH A WRONG JOURNAL ENTRY WA S PASSED AND LATERON THE SAME WAS REVERSED. THE ASESSEE HAS PAID THIS AMOUNT TO M /S RAJESH SALES CORPN. BY A/C PAYEE CHEQUE. COPY OF ACCOUNT OF THE APPELLANT IN T HE BOOKS OF M/S RAJESH SALES CORPN WAS FILED. REGARDING ENTRY OF RS.2,68,00,000/ -PASSED WRONGLY, IT WAS EXPLAINED THAT THE APPELLANT RECEIVED PAYMENTS FROM M/S RAJESH SALES CORPN. 10 AGAINST THE SUPPLY OF BULLION AT FIXED RATE BUT THE ASSESSEE COULD NOT SUPPLY BULLION TO M/S RAJESH SALES CORPN. RAJESH SLES CORPN. INSTR UCTED TO THE APPELLANT TO MAKE REPAYMENT BY DRAWING CHEQUE OF RS.2,68,00,000/- IN FAVOUR OF AMIT AGENCY AND THEREFORE, RAJESH SALES CROPN. CREDITED THE AMOUNT BY DEBITING THE ACCOUNT OF M/S AMIT AGENCY. HOWEVER THE APPELLANT COULD NOT MA KE THE PAYMENTS AS DESIRED AND THEREFORE ACCOUNT OF RAJESH SALES CORPN. WAS SH OWING OUTSTANDING IN THE BOOKS OF THE ASSESSEE. AT THE TIME OF FINALIZATION AND AUDIT OF THE ACCOUNTS THE ACCOUNTANT MADE A WRONG JOURNAL ENTRY TO RECONCILE THE ACCOUNT OF THE APPELLANT WITH M/S RAJESH SALES CORPN. LATER ON WHEN THE MIST AKE WAS REALIZED CORRECTED ENTRY WAS PASSED IN THE BOOKS OF THE ASSESSEE. THE ASSESSE MADE PAYMENT OF RS.2,68,00,000/- BY ISSUING A/C PAYEE CHEQUE TO M/S RAJESH SALES CORPN. THIS PROVES THAT THE ASSESSEE WAS NOT BENEFICIAL OWNER O F THIS AMOUNT AS ALLEGED BY THE AO. THE AO HAS TOTALLY IGNORED THE PAST PRECEDENCE AND DECIDED CASES OF HON'BLE ITAT WHEREIN IT HAS BEEN HELD THAT PAST HIS TORY OF THE ASSESSEE IS BEST GUIDING FACTOR WHEN ESTIMATION OF PROFIT IS MADE BY REJECTING BOOKS OF ACCOUNTS. THE UNEXPLAINED INVESTMENT CANNOT BE ALLEGED MERELY ON POSSIBILITIES OR PROBABILITIES OR ON SUSPICION. THE ONUS IS ON THE D EPARTMENT TO SHOW BY TANGIBLE EVIDENCE THAT THE APPELLANT HAS MADE UNDISCLOSED IN VESTMENT. INITIAL BURDEN U/S 69 OF IT ACT IS ON DEPARTMENT TO PROVE THAT THE INV ESTMENT WAS MADE BY THE ASSESSEE. WITH THIS IT WAS SUBMITTED THAT ADDITION MADE BY THE AO DESERVES TO BE DELETED. 10. THEREAFTER, LD. CIT (A) CONSIDERED THE ISSUE IN DETAIL AND GAVE HIS FINDING RECORDED AT PAGES 8 TO10 AS UNDER : CONTENTION OF THE AR IS CONSIDERED. THE APPELLANT DEALS IN PRECIOUS AND SEMI PRECIOUS STONES, GOLD JEWELLERY A ND BULLIONS. THE APPELLANT HAS MADE PURCHASES OF RS.36165070/- FROM M/S MDR JEWELLERS WHICH WERE IN TURN PURCHASED BY MDR JEWELLERS FROM M/S AMIT AGENCY. 11 THE AO HAS HELD THAT M/S AMIT AGENCY IS NOTHING BUT A PAPER CONCERN CREATED FOR ISSUING ACCOMMODATION BILLS. THAT SUMMO NS ISSUED TO M/S AMIT AGENCY REMAINED UNSERVED. SH. ATAL BEHARI PROP , OF THE CONCERN GAVE HIS STATEMENT ON OATH DURING SURVEY CONDUCTED BY THE BCTT WING ON M/S AMIT AGENCY. IN HIS STATEMENT HE HAS ADMITTED T HAT NO ACTUAL SALES OR PURCHASES ARE DONE IN THE CONCERN AND ONLY ACCOMMOD ATION BILLS ARE ISSUED. IN ITS RETURN OF INCOME NO INCOME FROM BUSI NESS OF PRECIOUS/SEMI- PRECIOUS STONES AND BULLION HAS BEEN SHOWN. THUS, T HE AO COULD ESTABLISH SUCCESSFULLY THAT M/S AMIT AGENCY IS A BOGUS CONCER N. HOWEVER, IN THE PRESENT CASE NO PURCHASES HAVE BEEN MADE FROM M/S A MIT AGENCY BUT FROM M/S MDR JEWELLERS. THE AO HAS NOT HELD THAT M/ S MDR JEWELLERS IS A BOGUS CONCERN. IN THE CASE OF M/S MDR JEWELLER S ITS AO MADE TRADING ADDITION AFTER REJECTING BOOKS OF ACCOUNTS ON ACCOU NT OF UNVERIFIABLE PURCHASE FROM M/S AMIT AGENCY. IN THE APPELLANT'S C ASE IT IS NOT THE FINDING OF THE AO THAT ANY PURCHASES MADE BY THE AP PELLANT IS UNVERIFIABLE. HOWEVER, AS THE PURCHASES MADE FROM A MIT AGENCY BY M/S MDR JEWELLERS COULD NOT BE PROVED BY PARTNER OF M/S MDR JEWELLERS AND IN THE APPELLANT'S CASE PART PURCHASES FROM M/S MDR JEWELLERS WERE HELD BOGUS. THE ACTION OF THE AO CANNOT BE APPROVED AS I N THE APPELLANT'S CASE PURCHASES ARE PROVED. IF PURCHASES MADE BY MDR JEWE LLERS COULD NOT BE PROVED, ANY ADDITION WAS JUSTIFIED IN THE CASE OF M DR JEWELLERS BUT NOT IN THE CASE OF THE APPELLANT. SALES HAVE BEEN MADE DUR ING THE YEAR UNDER CONSIDERATION TO M/S AMIT AGENCY. ONCE M/S AMIT AGE NCY HAS BEEN HELD AS NON GENUINE CONCERN, AT THE MOST SALES MADE TO T HIS WOULD HAVE BEEN EITHER EXCLUDED OR HELD TO BE MADE TO SOME OTHER CO NCERN. HOWEVER ON ACCOUNT OF SALES TO M/S AMIT AGENCY ADDITION IS NOT JUSTIFIED. TO VERIFY THE PURCHASES MADE BY THE APPELLANT FROM M/S MDR JEWELLERS SUMMONS WERE ISSUED AND PARTNER OF THAT C ONCERN SH. KEWAL CHAND JAIN APPEARED WITH BOOKS OF ACCOUNTS OF THE C ONCERN. THUS, THE APPELLANT HAS DISCHARGED ITS ONUS TO PROVE THE PURC HASES FROM M/S MDR 12 JEWELLERS. THERE IS NO DISPUTE THAT PURCHASES OF RS .36165070/- MADE BY THE APPELLANT FROM MDR JEWELLERS WAS CLAIMED TO HAV E BEEN MADE BY MDR JEWELLERS FROM M/S AMIT AGENCY. IF THE TRANSACT ION BETWEEN M/S AMIT AGENCY AND M/S MDR JEWELLERS WAS HELD TO BE SU SPECTED THEN ACTION COULD HAVE BEEN TAKEN ONLY IN THE HANDS OF M DR JEWELLERS AND NOT IN THE APPELLANT. SIMILARLY FOR TRANSACTIONS BETWEE N M/S AMIT AGENCY AND M/S RAJESH SALES CORPN. ANY ADDITION/DISALLOWANCE C OULD HAVE BEEN CONSIDERED ONLY IN THE HANDS OF M/S RAJESH SALES CO RPN. THE PAYMENT WAS MADE TO M/S MDR JEWELLERS BY A/C PAYEE CHEQUE O R BY DELIVERY OF BULLION AND IT IS NOT THE FINDING OF THE AO THAT TH E CHEQUE DEPOSITED TO THE ACCOUNT OF MDR JEWELLERS WAS EN-CASHED AND THE PROC EEDS HAVE COME BACK TO THE APPELLANT TO PROVE THAT THE TRANSACTI ONS BETWEEN THE APPELLANT AND MDR JEWELLERS WAS NON-GENUINE. THE AO'S FINDING THAT THERE WERE TRANSACTIONS WORTH CRORES AMONGST MDR JEWELLERS, RA JESH SALES CORPN. AND AMIT AGENCY BUT NO REAL MONEY EXCHANGED SHOULD HAVE NO BEARING ON THE BOOK RESULTS OF THE APPELLANT. ANY ADDITION IF AT ALL TO BE MADE IT SHOULD BE MADE IN THE HANDS OF RAJESH SALES CORPN. OR MDR JEWELLERS. THE APPELLANT HAS NOT MADE ANY PURCHASES FROM M/S K M EXPORTS AND THEREFORE IF BOOKS OF ACCOUNTS OF KM EXPORTS WERE N OT PRODUCED, IT CANNOT EFFECT THE TRADING RESULTS AS IT HAS NO RELE VANCE WITH THE PURCHASES MADE BY THE APPELLANT FROM MDR JEWELLERS. SIMPLY BE CAUSE SH. KEWAL CHAND JAIN AND SH., MAHENDRA KUMAR ARE PARTNERS IN M/S KM EXPORTS IT DOES NOT ESTABLISH THAT M/S AMIT AGENCY IS CONTROLL ED BY THESE TWO PERSONS. M/S KM EXPORTS IS ALSO AN INCOME TAX ASSES SEE. IF BOOKS OF ACCOUNTS ARE NOT MAINTAINED BY THAT CONCERN APPROPR IATE ACTION MAY BE TAKEN BY THE AO OF KM EXPORTS BUT IT SHOULD NOT AFF ECT THE BOOK RESULTS OF THE APPELLANT. FURTHER THE AO'S OBSERVATION THAT SH. MAHENDRA KUMA R AGARWAL BENEFITED BY THE ADJUSTMENT ENTRIES HAS ALSO BEEN P ROVED WRONG BY REVERSING THE ENTRY IN THE BOOKS OF ACCOUNTS AND MA KING PAYMENT OF 13 RS.2,68,00,000/- BY THE APPELLANT TO M/S RAJESH SAL ES CORPN. BY A/C PAYEE CHEQUE IN MARCH 2010. UNDISPUTEDLY M/S AMIT AGENCY IS A BOGUS CONCERN AND TRANSACTIONS MADE THROUGH SUCH BOGUS CONCERN MAY NO T BE GENUINE. BUT AS THE PREVAILING PRACTICE IN THE MARKET AND INVESTIGA TION CARRIED OUT IN THE CASES OF SUCH BOGUS ENTRY PROVIDERS, THE RIGHT COUR SE OF ACTION WITH THE AO IS ONLY TO REJECT THE BOOKS OF ACCOUNTS AND THEN ES TIMATE THE GROSS PROFIT. AS THE MDR JEWELLERS IS AN IDENTIFIABLE CONCERN BEI NG ASSESSED ON INCOME FROM THE SAME BUSINESS OF PRECIOUS/SEMI-PRECIOUS ST ONES AND BULLION IT CANNOT BE SAID THAT THE TRANSACTION WAS ROUTED THRO UGH M/S MDR JEWELLERS TO CREATE A LAYER AS LONG AS THE ACTUAL PURCHASE/SA LES HAVE BEEN MADE BETWEEN THE APPELLANT AND MDR JEWELLERS. EVEN IF TH E APPELLANT HAD PURCHASES FROM M/S AMIT AGENCY OR ANY OTHER SUCH BO GUS CONCERN, THE COURSE OF ACTION AVAILABLE WITH THE AO WAS TO REJEC T THE BOOKS OF ACCOUNTS AND ESTIMATE THE PROFITS. EVEN IF IT IS PRESUMED TH E TRANSACTIONS WERE ROUTED THROUGH MDR JEWELLERS, THE POSITION OF THE A PPELLANT CANNOT BE WORSE THAN THAT. FURTHER A PAYMENT MADE BY A/C PAYEE CHEQUE OR BULLI ON WHICH HAS NOT BEEN PROVED NON-GENUINE, CANNOT BE HELD AS UNAC COUNTED INVESTMENT. PAYMENT OF PURCHASE CANNOT BE AN INVESTMENT BUT AT THE MOST IT CAN BE HELD AS EXPENDITURE FOR THE PURPOSE OF SEC.40(A)(3) . WITH ANY INVESTMENT AN ASSET IS CREATED. IN THE PRESENT CASE THE AO HAS NOT STATED WHAT ASSET WAS CREATED BY THE APPELLANT BY MAKING PAYMENT TOWA RDS THE PURCHASES. THE AO HAS NOT DENIED THE SALES AND WITHOUT PURCHAS ES THERE CANNOT BE ANY SALES. IT MEANS THAT THE APPELLANT HAS DEFINITE LY PURCHASED THE GOODS, CERTAINLY MAY NOT BE FROM THE DECLARED PARTY BUT FR OM OTHER PARTIES. SIMPLY BECAUSE THE NAME OF REAL SUPPLIERS IS DIFFER ENT IT DOES NOT MEAN THAT THE PAYMENT WAS NOT MADE FROM THE BOOKS OF ACC OUNTS. THE APPELLANT HAS SHOWN PURCHASES AS WELL AS SALES FROM/TO MDR JE WELLERS. WHEN THE AO HAS ADMITTED THE ENTIRE SALES IT INCLUDES SALES MADE TO MDR JEWELLERS 14 AS WELL. WHEN SALES ARE ADMITTED FROM MDR JEWELLERS PURCHASES FROM THE SAME CONCERNS CANNOT BE DENIED UNLESS IT IS CONCLUS IVELY PROVED THAT NO PURCHASE WAS MADE AT ALL. THUS THE AO'S FINDING THA T UNACCOUNTED INVESTMENT OF RS.36165070/- FOR PURCHASE OF GOLD AN D SILVER BAR FROM UNACCOUNTED INCOME GENERATED BY HIM IS NOT CORRECT IN ABSENCE OF HIS ANY FINDING THAT HOW THAT UNACCOUNTED INCOME WAS GENERA TED. THE ADDITION OF RS.36165070/- IS THEREFORE DELETED. FIRST GROUND OF APPEAL IS THEREFORE DECIDED IN FAVOUR OF THE APPELLANT. 11. AFTER HOLDING SO, THE LD. CIT (A) DISCUSSED THE ISSUE IN RESPECT TO REJECTION OF BOOKS OF ACCOUNT AND HELD THAT THE AO WAS RIGHT IN REJECTING THE BOOKS OF ACCOUNT. FOLLOWING FINDINGS WERE GIVEN BY LD. CIT (A) IN RES PECT TO THIS ISSUE : REGARDING REJECTION OF BOOKS OF ACCOUNTS THE A PPELLANT HAS SHOWN SALES TO M/S AMIT AGENCY AND M/S SILVER AND S ILVER. BOTH THESE CONCERNS HAVE BEEN ESTABLISHED AS BOGUS CONCERNS AN D THEREFORE SALES ARE NOT FULLY VERIFIABLE. FURTHER SALES OF RS.149545500 /- TO M/S KM EXPORTS REMAINED UNVERIFIABLE AS NO BOOKS OF ACCOUNTS OF KM EXPORTS WERE PRODUCED. FURTHER CASH SALES TO DIFFERENT PARTIES W ERE ALSO NOT AMENABLE TO VERIFICATION. THUS, ON ACCOUNT OF UNVERIFIABLE SALE S THE REJECTION OF BOOKS OF ACCOUNTS IS HEREBY CONFIRMED. SECOND GROUND OF APPE AL IS DECIDED AGAINST THE APPELLANT. 12. THE LD. CIT D/R WHO APPEARED ON BEHALF OF THE D EPARTMENT FIRST PLACED RELIANCE ON THE ORDER OF AO. SOME PORTION OF THE ORDER OF T HE AO WAS READ ALSO. RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF KANCHWALA GEMS, 288 ITR 10 (SC). REGARDING REDUCING THE TRADING ADDITION W HICH WAS MADE BY THE AO, ALTERNATIVELY IT WAS SUBMITTED THAT IN EARLIER YEAR THE ASSESSEE HAS SHOWN 20% G.P. WHEREAS NOW THE G.P. HAS SHOWN AT 3% ONLY, THEREFOR E, THERE WAS NO JUSTIFICATION AT THE 15 END OF THE LD. CIT (A) IN REDUCING THE TRADING ADDI TION MADE BY AO ON AN ALTERNATE GROUND. 13. THE LD. COUNSEL OF THE ASSESSEE REITERATED THE CONTENTIONS RAISED BEFORE LD. CIT (A). IT WAS FURTHER SUBMITTED THAT THE PURCHASES W ERE MADE FROM M/S. M.D.R. JEWELLERS WITH WHOM THE ASSESSEE HAS NO RELATION DIRECTLY OR INDIRECTLY. ALL THE PURCHASES WERE MADE THROUGH ACCOUNT PAYEE CHEQUE. ON SUMMONS ISSU ED, THE PARTNER OF M/S. M.D.R. JEWELERS WAS APPEARED BEFORE THE AO. BOOKS OF ACCO UNT WERE PRODUCED. IT WAS FURTHER SUBMITTED THAT THE ASSESSMENT OF M/S. M.D.R. JEWELL ERS WAS COMPLETED UNDER SECTION 143(3) AND SALES SHOWN BY ASSESSEE HAVE BEEN ACCEPT ED BY THE AO HIMSELF. IT WAS FURTHER SUBMITTED THAT THE ISSUE IN RESPECT OF UNVERIFIABLE PURCHASES WAS RAISED IN CASE OF M/S. M.D.R JEWLLERS WHO PURCHASED THE MATERIAL FROM M/S. AMIT AGENCIES. IN CASE OF M/S. M.D.R. JEWELLERS, ITS ASSESSING OFFICER HELD THAT P URCHASES REMAINED UNVERIFIABLE, THEREFORE, HE MADE ADDITION ON THE BASIS OF GROSS P ROFIT AND NO ADDITION ON ACCOUNT OF UNVERIFIABLE PURCHASES WERE MADE. ATTENTION OF THE BENCH WAS DRAWN ON COPY OF ASSESSMENT ORDER IN CASE OF M/S. M.D.R. JEWELLERS P LACED AT PAGES 80 TO 90 IN THE PAPER BOOK. RELEVANT PORTION OF THE ORDER OF THE AO WHER E HE DISCUSSED THE ISSUE IN RESPECT OF UNVERIFIABLE PURCHASES WERE ALSO READ. IT WAS FURT HER SUBMITTED THAT IN THIS CASE ALSO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/ S. KANCHWALA GEMS WAS CONSIDERED AND THEREAFTER THE BOOKS OF ACCOUNT WERE REJECTED A ND ADDITION WAS MADE ON THE BASIS OF GROSS PROFIT AND NOT ON THE BASIS OF UNVERIFIABLE P URCHASES AS STATED EARLIER. THEREFORE, THERE IS NO DEFECT IN THE ORDER OF LD. CIT (A) IN D ELETING THE ADDITION OF RS. 3.61 CRORES OR ODD. 16 14. REGARDING THE REJECTION OF BOOKS OF ACCOUNT, IT WAS SUBMITTED THAT ASSESSEE MADE SALES TO M/S. K.M. EXPORTS AND SALES HAVE BEEN ACCE PTED IN HANDS OF M/S. K.M. EXPORTS. RETURN WAS FILED BY M/S. K.M. EXPORTS. THE PAYMENTS WERE RECEIVED THROUGH ACCOUNT PAYEE CHEQUE. THEREFORE, IT CANNOT BE SAID THAT ASS ESSEE HAD NOT MADE ANY SALES TO M/S. K.M. EXPORTS. THEREFORE, THE LD. CIT (A) DRAWING A DVERSE INFERENCE AGAINST THE ASSESSEE THAT SALES MADE TO M/S. K.M. EXPORTS REMAINED UNVER IFIABLE AS NO BOOKS OF ACCOUNT OF M/S. K.M. EXPORTS WERE PRODUCED. IF BY ANY REASON NO BOOKS OF ACCOUNT OF OTHER PARTY WERE PRODUCED THEN NO ADVERSE INFERENCE CAN BE DRAW N AGAINST ASSESSEE AS SALES WERE MADE THROUGH PROPER BANKING CHANNEL. 15. IN RESPECT TO SALES MADE TO M/S. AMIT AGENCIES AND M/S. SILVER AND SILVER, THE LD. CIT (A) HAS DRAWN ADVERSE INFERENCE THAT THESE TWO PARTIES HAVE BEEN ESTABLISHED AS BOGUS CONCERNS, THEREFORE, SALES MADE TO THESE PART IES BY ASSESSEE IS ALSO NOT VERIFIABLE. THERE IS NO REASON TO HOLD THAT THE SALES MADE BY A SSESSEE ARE NOT VERIFIABLE AS ASSESSEE HAS MADE SALES THROUGH PROPER BANKING CHANNEL. BOOK S OF ACCOUNT HAVE BEEN PRODUCED AND NO DEFECT WAS FOUND IN MAINTAINING THE BOOKS OF ACCOUNT BY THE ASSESSEE. ONUS LAY UPON ASSESSEE HAS BEEN DULY DISCHARGED. IT WAS FUR THER SUBMITTED THAT THIS IS NOT THE CASE OF THE DEPARTMENT THAT M/S. AMIT AGENCIES AND M/S. SILVER AND SILVER HAVE GIVEN ANY STATEMENT AGAINST THE ASSESSEE THAT THEY HAVE NOT M ADE PURCHASES FROM THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT LD. CIT (A) HAS ALSO DRA WN ADVERSE INFERENCE THAT ASSESSEE HAS MADE CASH SALES TO DIFFERENT PARTIES WERE ALSO NOT AMENABLE TO VERIFICATION. IT WAS FURTHER SUBMITTED THAT IN BUSINESS OF BULLION THE CASH SALE HAS TO BE MADE, THEREFORE, THIS IS NOT A CASE OF REJECTION OF BOOKS OF ACCOUNT. THIS IS NOT THE CASE OF THE DEPARTMENT THAT ASSESSEE HAS MADE SALES ON CASH AT A LOWER RATE TO AVOID TAX BURDEN. THEREFORE, NO BOOKS OF 17 ACCOUNT CAN BE REJECTED ON THIS ACCOUNT. RELIANCE WAS PLACED ON VARIOUS CASE LAWS IN THIS RESPECT AS MENTIONED IN THE WRITTEN SUBMISSION FILE D IN THE APPELLATE PROCEEDINGS. 16. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERI AL ON RECORD, WE FIND THAT THERE IS NO SUBSTANCE IN THE GROUND OF THE DEPARTMENT. HOWEVER , ASSESSEE DESERVES TO SUCCEED IN RESPECT TO GROUND NO. 1 RAISED THROUGH CROSS OBJECT ION WHICH IS AGAINST CONFIRMING THE REJECTION OF BOOKS OF ACCOUNT MADE BY THE AO. ALL THE PURCHASES MADE BY ASSESSEE ARE VERIFIABLE. MOST OF THE PURCHASES ARE MADE FROM M/ S. M.D.R JEWELLERS. PARTNER OF M/S. M.D.R. JEWELLERS WAS APPEARED WHO CONFIRMED HAVING SALES MADE TO THE ASSESSEE. THE BOOKS OF ACCOUNT OF M/S. M.D.R. JEWELLERS WERE PROD UCED FOR TEST CHECK. THEREFORE, THIS IS NOT A CASE THAT PURCHASES MADE BY ASSESSEE ARE N OT VERIFIABLE. IT IS FURTHER SEEN THAT PURCHASES OF RS. 3.61 CRORES OR ODD MADE FROM M/S. M.D.R. JEWLLERS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES. IT MEANS THE PAYMENT HAS BE EN MADE FROM KNOWN SOURCES. THE ALLEGATION OF THE DEPARTMENT THAT THE INVESTMENT IN PURCHASES IS FROM UNACCOUNTED MONEY IS NOT ESTABLISHED IN ANY MANNER. IT IS FURTHER SE EN THAT EVEN M/S. M.D.R. JEWELLERS IS NOT A BOGUS FIRM. M/S. M.D.R. JEWELLERS HAS FILED ITS R ETURN REGULARLY AND THE SAME IS ASSESSED ALSO. COPY OF ORDER UNDER SECTION 143(3) IN CASE OF M/S. M.D.R. JEWELLERS IS PLACED AT PAGES 80 TO 90 AND THE ISSUE IN RESPECT TO UNVERIFI ABLE PURCHASES MADE BY M/S. M.D.R. JEWELLERS WERE DISCUSSED IN DETAIL IN ITS CASE AND THEREAFTER THE AO HELD THAT SINCE CERTAIN PURCHASES REMAINED UNVERIFIABLE, THEREFORE, PROVISI ONS OF SECTION 145(3) ARE ATTRACTED. THEREAFTER THE AO ESTIMATED THE INCOME OF THE ASSES SEE TAKING INTO ACCOUNT THE G.P. RATE DISCLOSED BY ASSESSEE ITEM-WISE AND ACCORDINGLY AN ADDITION OF RS. 13,20,105/- WAS MADE. TOTAL PURCHASES WHICH REMAINED UNVERIFIABLE IN CASE OF M/S. M.D.R. JEWELLERS 18 WERE TO THE TUNE OF RS. 30,80,36,135/-. THEREAFTER THE AO NOTED THAT PURCHASES OF RS. 10,27,47,036/- REMAINED UNVERIFIABLE. THEREFORE, TH E ADVERSE INFERENCE WAS DRAWN FOR REJECTING THE BOOKS OF ACCOUNT AND MAKING THE ADDIT ION IN THE GROSS PROFIT AS MENTIONED ABOVE. THIS ORDER WAS PASSED BY THE AO ON 31.12.20 09. IN THE CASE IN HAND, THE ASSESSMENT WAS ALSO COMPLETED ON 31.12.2009. THEREF ORE, IT CANNOT BE SAID THAT THE FACTS IN CASE OF M/S. M.D.R. JEWELLERS WERE NOT ASCERTAIN ABLE AND WERE NOT VERIFIABLE. SIMULTANEOUSLY ASSESSMENTS WERE GOING ON IN BOTH TH E CASES I.E. IN CASE OF ASSESSEE AND IN CASE OF M/S. M.D.R. JEWELLERS. IN VIEW OF THE A BOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS NOT JUSTIFIE D IN HOLDING THAT THE ASSESSEE HAS USED ITS OWN UNACCOUNTED MONEY FOR SHOWING THE PURCHASES MADE FROM M/S. M.D.R. JEWELLERS. 17. THOUGH THE LD. D/R HAS PLACED RELIANCE ON THE O RDER OF AO BUT HOW THE ORDER OF THE LD. CIT (A) IS DEFECTIVE COULD NOT BE EXPLAINED . THE LD. CIT (A) HAS GIVEN A CATEGORICAL FINDING AFTER GIVING OPPORTUNITY TO THE AO WHO WAS PRESENT DURING THE APPELLATE PROCEEDINGS THEN ONLY HAS CONCLUDED THAT NO ADDITION CAN BE MADE ON ACCOUNT OF INVESTMENT FROM UNACCOUNTED MONEY. IN VIEW OF T HESE FACTS AND CIRCUMSTANCES, WE HOLD THAT LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITIONS. IT IS WORTH MENTIONING THAT THERE IS NO MATERIAL BEFORE THE AO TO HOLD THAT ASS ESSEE HAS INVESTED IN THE PURCHASE ITS OWN UNACCOUNTED INCOME. THE HONBLE SUPREME COURT IN THE CASE OF SHREELEKHA BANERJEE, 49 ITR 112 (SC) HAS HELD THAT THE SUSPICI ON HOWSOEVER STRONG CANNOT TAKE THE PLACE OF EVIDENCE. WE ORDER ACCORDINGLY. 18. NOW WE WILL TAKE UP THE ISSUE IN RESPECT OF REJ ECTION OF BOOKS OF ACCOUNT AND REDUCING THE TRADING ADDITION TO RS. 2,55,465/-. 19 19. THE ASSESSEE HAS RAISED GROUND AGAINST SUSTAINI NG THIS TRADING ADDITION AS WELL AS UPHOLDING REJECTION OF BOOKS OF ACCOUNT. 20. THE FINDING OF LD. CIT (A) IN RESPECT TO REJECT ION OF BOOKS OF ACCOUNT HAVE ALREADY BEEN DISCUSSED AND REPRODUCED ABOVE. AFTER REJECTING THE BOOKS OF ACCOUNT AND MAKING ADDITION FOR THE ENTIRE PURCHASES MADE FROM M/S. M.D.R. JEWELLERS, THE AO MADE ADDITION OF RS.3,46,21,220/- BY APPLYING HIGHER G. P. RATE. IN MMJ, JAIPUR BRANCH ON SALES OF RS.63,86,61,874/-, THE AO APPLIED G.P. RAT E OF 3% AGAINST 0.76% DECLARED BY THE ASSESSEE WHICH RESULTED INTO ADDITION OF RS. 1,43,0 8,857/-. IN MMJ, DELHI BRANCH ON DECLARED SALES OF RS.4,02,21,839/- THE AO APPLIED G .P. RATE OF 1% AS AGAINST 0.50% DECLARED BY THE ASSESSEE RESULTING INTO ADDITION OF RS.1,99,705/-. IN MMJ, NOIDA BRANCH ON DECLARED SALES OF RS. 197,89,70,379/- THE AO APP LIED G.P. RATE OF 1% AS AGAINST 0.1% DECLARED BY THE ASSESSEE. IN AM EXPORT ON SALES OF RS.27,58,67,117/- THE AO APPLIED G.P. RATE OF 1% AS AGAINST 0.2% DECLARED BY THE ASSESSEE RESULTING INTO ADDITION OF RS.2206270/-. THUS THE TOTAL TRADING ADDITION OF RS .34621220/- WAS MADE. 21. IT WAS CONTENDED BEFORE LD. CIT (A) THAT IN THE YEAR UNDER CONSIDERATION THE DECLARED G.P. RATE IN THE CASE OF M/S MMJ, NOIDA IS BETTER THAN THE IMMEDIATE PRECEDING YEAR. ON SALES OF RS. 197.8 CR. THE DECLARED G.P. R ATE IS 0.10% WHICH IS BETTER THAN 0.04% ON SALES OF RS.59.5 CR. SHOWN IN THE IMMEDIATE PREC EDING YEAR IN SPITE OF SUBSTANTIAL INCREASE IN THE SALES. IN M/S AM EXPORTS THE DECLAR ED G.P. RATE OF 0.20% ON SALES OF RS.27.5 CR. IS BETTER THAN 0.07% DECLARED ON SALES OF RS.498.1 CR. IN THE IMMEDIATE PRECEDING YEAR. IN MMJ, JAIPUR THE DECLARED GP RATE OF 0.76% IS SLIGHTLY LOWER THAN 0.95% SHOWN IN THE IMMEDIATE PRECEDING YEAR. THE SA LES HAVE INCREASED FROM RS.42.9 CR. TO 63.8 CR. THE PROFIT RATE ON SALE OF BULLION IS B ETTER WITH 0.66% AS COMPARED TO 0.14% 20 DECLARED IN THE IMMEDIATE PRECEDING YEAR. HOWEVER, IN THE JEWELLERY THE G.P. RATE HAS COME DOWN FROM 1.92% TO 0.76%. IN MMJ, DELHI THE DE CLARED G.P. RATE OF 0.50% ON SALES OF RS.4.02 CR. IS DEFINITELY LOWER THAN 11% ON SALE S OF RS.30.7 LACS. THE REASON WAS THAT IN THE IMMEDIATE PRECEDING YEAR MAINLY IT WAS SALE OF JEWELLERY. THE SALE OF BULLION WAS ONLY OF RS.85,000/-. THIS YEAR THE POSITION IS REVE RSED AS THERE IS NO SALE OF JEWELLERY AND ENTIRE SALE IS OF BULLION ONLY. 22. THE AO HAS APPLIED G.P. RATE ARBITRARILY WITHOU T ANY BASIS. IN MMJ, JAIPUR THE AO APPLIED G.P. RATE OF 3% THOUGH IN THE IMMEDI ATE PRECEDING YEAR IT WAS ONLY 0.95%. THE SALES HAVE INCREASED BY 25% AS COMPARED TO LAST YEAR. LAST YEAR SALE OF JEWELLERY WAS RS.3.9 CR. WHICH HA S COME DOWN TO RS.98 LACS. THE MARGIN IN GOLD JEWELLERY IS ALWAYS HIGHER THAN THE BULLION. IN THE CASE OF MMJ, DELHI LAST YEAR THE ASSESSEE WAS DEALI NG ALMOST IN GOLD JEWELLERY ONLY AND THEREFORE G.P. RATE WAS 11%. THIS YEAR THERE IS NO SALE OF JEWELLERY. HOWEVER, THE AO WITHOUT ANY BASIS HAS ESTIMATED G.P. RATE OF 1%. WI TH THIS IT WAS SUBMITTED THAT THE G.P. ADDITION MADE BY THE AO IS NOT JUSTIFIED. 23. AFTER CONSIDERING THE ORDER OF AO AND CONTENTIO NS, THE LD. CIT (A) GAVE FOLLOWING FINDINGS :- CONTENTION OF THE AR IS CONSIDERED. AFTER REJE CTING BOOKS OF ACCOUNTS THE AO HAS RIGHTLY ESTIMATED THE PROFITS. HOWEVER, THE AO HAS NOT GIVEN ANY BASIS FOR APPLYING PARTICULAR G.P. RATE I N RESULTS DECLARED BY DIFFERENT BRANCHES. IN THE CASE OF MMJ, NOIDA AND M /S AM EXPORTS AS THE DECLARED G.P. RATES ARE BETTER THAN THE G.P. RATES DECLARED IN THE IMMEDIATELY PRECEDING YEAR THERE IS NO JUSTIFICATION FOR APPLYI NG HIGHER G.P. RATE. IN THE CASE OF MMJ, JAIPUR AND MMJ, DELHI AS THERE IS A FA LL IN G.P. RATE TRADING 21 ADDITION IS JUSTIFIED. HOWEVER, IN THE CASE OF MMJ, JAIPUR THE SALES HAVE INCREASED BY 25% AND BY MORE THAN RS.20 CR. IN ABSO LUTE TERMS AND THEREFORE FALL IN G.P. RATE TO SOME EXTENT IS JUSTIFIED. ALSO THAT IT IS MMJ, JAIPUR WHERE SALES WERE FOUND UNEXPLAINED. THE DECLARED G.P. RAT E OF 0.76% IS BETTER THAN 0.51% DECLARED IN THE YEAR BEFORE. IF THE AVERAGE G .P. RATE OF THREE YEARS IS CONSIDERED THEN THE AVERAGE COMES TO LESS THAN THE G.P. RATE DECLARED. AS THE DECLARED G.P. RATE OF 0.76% ON SALES OF RS.63.8 CR. IS BETTER THAN THE G.P. RATE OF 0.51% ON SALES OF RS.43.6 CR. THOUGH IT IS LESS THAN THE DECLARED G.P. RATE OF 0.95% OF THE IMMEDIATE PRECEDING YEAR, IT WILL B E REASONABLE IF THE OVERALL G.P. RATE OF 0.80% IS APPLIED ON THE DECLARED SALES OF RS.63 8661874/-. THE TRADING ADDITION IN MMJ, JAIPUR IS BE REDUCED TO RS .2,55,465/-. IN THE CASE OF MMJ, DELHI AS DURING THE YEAR UNDER CONSIDERATION THERE ARE NO SALES OF JEWELLERY, COMPARISON CANNOT BE MADE FROM THE DECLARED G.P. RATE OF LAST YEAR. AS COMPARED TO THE YEAR BEF ORE THE DECLARED G.P. RATE OF 0.50% IS BETTER THAN 0.22%, THEREFORE, NO G.P. ADDI TION IS JUSTIFIED. AS RESULT THE TRADING ADDITION OF RS.34621220/- IS REDUCED TO RS.255465/-. THE THIRD GROUND OF APPEAL IS DECIDED PARTLY IN FAVOUR OF THE APPELLANT. 24. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT ASSESSEE DESERVES TO SUCCEED ON THE GROUND AGA INST UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT. COMPLETE BOOKS OF ACCOUNT WERE PRODUCE D BEFORE LD. CIT (A) WHICH WERE AUDITED. ALL THE PURCHASE VOUCHERS, SALE BILLS WER E PRODUCED. PURCHASES MADE FROM M/S. M.D.R. JEWELLERS WERE VERIFIABLE AS PARTNER OF M/S. M.D.R. JEWELLERS APPEARED BEFORE THE AO FOR NECESSARY TEST CHECK. BOOKS OF ACCOUNTS OF M/S. M.D.R. JEWELLERS WERE PRODUCED BEFORE THE AO. THE SALES MADE BY M/S. M.D.R. JEWELL ERS HAVE BEEN ACCEPTED BY ITS AO WHILE PASSING ORDER UNDER SECTION 143(3), COPY OF T HE SAME IS PLACED ON RECORD. THEREFORE, IN OUR CONSIDERED VIEW, NO ADVERSE INFER ENCE CAN BE DRAWN IN RESPECT TO PURCHASES MADE FROM M/S. M.D.R. JEWELLERS. THEREAF TER, THE LD. CIT (A) OBSERVED THAT 22 M/S. AMIT AGENCIES AND M/S. SILVER AND SILVER HAVE BEEN ESTABLISHED AS BOGUS FIRMS, THEREFORE, SALES MADE TO THESE PARTIES REMAINED UNV ERIFIABLE. IN OUR CONSIDERED VIEW, THESE OBSERVATIONS OF LD. CIT (A) ARE NOT CORRECT A S ASSESSEE HAS MADE SALES FROM ITS STOCK WHICH HAS NOT BEEN DISTURBED, SALES MADE BY ASSESSE E HAS BEEN ACCEPTED. IF OTHER PARTIES ARE BOGUS THEN IT CANNOT BE SAID THAT THE GENUINE P ARTY WHO MADE SALES TO THESE PARTIES ARE ALSO BOGUS. FURTHER, THE LD. CIT (A) HAS DRAWN INFE RENCE THAT BOOKS OF ACCOUNT OF M/S. K.M. EXPORTS WERE NOT PRODUCED AND, THEREFORE, SALE S MADE TO THAT PARTY REMAINED UNVERIFIABLE. 25. AGAIN WE SEE THAT ASSESSEE HAS PRODUCED ITS BOO KS OF ACCOUNT AND SALES HAVE BEEN ACCEPTED, PAYMENT HAS BEEN RECEIVED THROUGH PROPER BANKING CHANNEL. NO MATERIAL WAS BROUGHT ON RECORD THAT SALES MADE TO THESE PARTIES WERE UNDER INVOICED OR ASSESSEE HAS NOT RECEIVED ANY AMOUNT FROM THESE PARTIES. THEREFORE, IN OUR CONSIDERED VIEW ADVERSE INFERENCE DRAWN FOR REJECTING THE BOOKS OF ACCOUNT WAS NOT JUSTIFIED. SIMILARLY ON ACCOUNT OF CASH SALES, NO ADVERSE INFERENCE CAN BE DRAWN IF IT IS NOT ESTABLISHED THAT THESE SALES UNDER INVOICED. THERE IS NO BAR TO MAKE CASH SALES. MOST OF THE SALES OF BULLION ARE MADE IN CASH. EXCEPT THIS DISCREPANCY THERE IS NO O THER DEFECT IN THE BOOKS OF ACCOUNT. THEREFORE, WE SEE NO REASON TO REJECT THE BOOKS OF ACCOUNT. THE LD. CIT (A) HAS EXAMINED THE REASON IN FALL OF GROSS PROFIT FIRM-WI SE AND HAS FOUND THAT THERE WAS A REASONABLE CAUSE IN FALL OF GROSS PROFIT. THE ASSE SSEE HAS ALSO EXPLAINED THE REASON IN FALL OF GROSS PROFIT ELABORATELY THROUGH ITS WRITTEN SUB MISSION PLACED ON RECORD. IT IS SEEN THAT IN MMJ JAIPUR BRANCH, THE GROSS PROFIT RATE DECLARE D IS 0.76%. THE AO HAS APPLIED 3% G.P. RATE WITHOUT ASSIGNING ANY REASON. IN CASE OF MMJ DELHI BRANCH GROSS PROFIT RATE HAS BEEN SHOWN AT 0.50% AND A.O. HAS APPLIED 1% G.P. RA TE. IN CASE OF MMJ NOIDA BRANCH 23 AGAINST 0.10% THE AO HAS APPLIED 1% G.P. RATE AND I N CASE OF M/S. A.M. EXPORTS AGAINST G.P. RATE 0.20% SHOWN, THE AO HAS APPLIED 1% G.P. R ATE WHICH RESULTED IN A TRADING ADDITION OF RS. 3,46,21,220/-. ALL THE PURCHASES A ND SALES ARE SUPPORTED THROUGH PROPER VOUCHERS. THEREFORE, IN OUR VIEW, NO ADVERSE INFER ENCE COULD HAVE BEEN DRAWN AGAINST THE ASSESSEE WITHOUT ANY MATERIAL. THE EXPLANATION IN RESPECT TO FALL IN G.P. RATE HAS BEEN GIVEN BY THE ASSESSEE THROUGH ITS WRITTEN SUBMISSIO NS WHICH ARE AS UNDER :- A) THE PURCHASES AND SALES ARE SUPPORTED BY PROPER BILLS AND VOUCHERS. THE ASSESSEE IS MAINTAINING THE STOCK REC ORDS AND THE OPENING AND CLOSING STOCK OF THE ASSESSEE ARE VERIFIABLE. THE A O HAS NOT POINTED OUT ANY DEFECT IN THE VALUATION OF OPENING AND CLOSING STOCK. ALL THE PURCHASES OF THE ASSESSEE ARE VERIFIABLE AND THE AO HAS NOT POINTED OUT ANY I NSTANCE OF PURCHASE OVER AND ABOVE THE PREVAILING MARKET PRICE. THE SALES ARE S UPPORTED BY INVOICES AND THE AO HAS NOT POINTED OUT ANY INSTANCE OF SALE AT LOWE R PRICE. THE RESULTED FIGURE OF THE FORMULA I.E. [SALES + CLOSING STOCK] MINUS [OPENING STOCK + PURCHASES+ DIRECT EXPENSES] IS GROSS PROFIT. WHEN ALL THE COM PONENT OF THE FORMULA IS VERIFIABLE THAN THE RESULTED FIGURE CANNOT BE DOUBT ED. HONBLE RAJASTHAN HIGH COURT IN THE CASE OF MALANI RAMJIVAN JAGANNATH VS. ASSISTANT COMMISSIONER OF INCOME TAX (2009) 316 IT R 120 HAS HELD AS UNDER:- 10. IN THE FACE OF THESE UNDISPUTED FACTS AND CIRC UMSTANCES, THE TRIBUNAL IN OUR OPINION COULD NOT HAVE INTERFERED W ITH THE ORDER OF CIT(A). IN DOING SO, IT HAD IGNORED ALL ADMITTED FA CTS NOTICED BY US ABOVE, IN THE FACE OF WHICH THERE WAS NO OCCASION FOR THE AO TO HAVE RESORTED TO ESTIMATE METHOD. THE GP IS PRIMARILY RESULT OF EXCE SS OF SALES OVER PURCHASES, OPENING STOCK, CLOSING STOCK, THE UNSOLD STOCK AT TWO TERMINALS IS ONLY BALANCING FACTOR. ADMITTEDLY OUT OF THIS FO UR COMPONENTS OF TRADING RESULT, THERE COULD NOT HAVE BEEN ANY GROUND FOR TH E REVENUE TO ARRIVE AT DIFFERENT RESULT. SO FAR AS CLOSING STOCK IS CONCER NED, INVENTORIES OF EXISTING STOCK WERE NOT FOUND TO BE INCORRECT BY TH E AO I.E. THAT POSITION OF STOCK AS SHOWN IN THE ACCOUNT BOOKS WAS NOT INCORRE CT. THERE BEING NO DISPUTE ABOUT THE SALES AND PURCHASES, NON-MAINTENA NCE OF STOCK REGISTER LOST ITS SIGNIFICANCE SO FAR AS ARRIVING AT GP IS C ONCERNED. THEREFORE, THE 24 CIT(A) WAS RIGHT IN HIS REASONING ABOUT ADMITTED ST ATE OF AFFAIRS. RESORTING TO ESTIMATE OF GP RATE WAS FOUNDED ON NO MATERIAL. IT WAS MERELY A CASE OF MAKING CERTAIN ADDITIONS ON THE BA SIS OF CERTAIN DEFECTS POINTED OUT BY THE AO AND WHICH HE HAS SHOWN IN DIF FERENT ACCOUNT BY GIVING MARGIN OF UNVOUCHED EXPENSES. HE HAS DISALLO WED CERTAIN EXPENSES. 11. THE TRIBUNAL COMMITTED BASIC ERROR IN NOT APPRE CIATING THE REASONING GIVEN BY THE CIT(A). IT IS TRITE TO SAY T HAT IN THE FACTS AND CIRCUMSTANCES OF PRESENT CASE, ACCOUNT BOOKS ARE MA INTAINED AS THEY WERE ORDINARILY MAINTAINED YEARS AFTER YEARS AND WHICH W ERE FOUND TO YIELD A FAIR RESULT. MERE DEVIATION IN GP RATE CANNOT BE A GROUND FOR REJECTING BOOKS OF ACCOUNT AND ENTERING REALM OF ESTIMATE AND GUESSWORK. LOWER GP RATE SHOWN IN THE BOOKS OF ACCOUNT DURING CURREN T YEAR AND FALL IN GP RATE WAS JUSTIFIED AND ALSO ADMITTED BY THE AO AS W ELL AS CIT(A) AS WELL AS THE TRIBUNAL. THEREFORE, FALL IN GP RATE LOST IT S SIGNIFICANCE. HAVING ACCEPTED THE REASON FOR FALL IN GP RATE, NAMELY, ST IFF COMPETITION IN MARKET AND ALSO THAT HUGE LOSS CAUSED IN PARTICULAR TRANSA CTION, NEITHER THE REJECTION OF BOOKS OF ACCOUNT WAS JUSTIFIED NOR RES ORT TO SUBSTITUTION OF ESTIMATED GP BY RULE OF THUMB MERELY FOR MAKING CER TAIN ADDITIONS. WE ARE, THEREFORE, OF THE OPINION THAT THE FINDINGS AR RIVED AT BY THE TRIBUNAL SUFFERS FROM BASIC DEFECT OF NOT APPLYING ITS MIND TO THE EXISTING MATERIAL WHICH WERE RELEVANT AND WENT TO THE ROOT OF THE MAT TER. WHEN ALL THE DATA AND ENTRIES MADE IN THE TRADING ACCOUNT WERE NOT FO UND TO BE INCORRECT IN ANY MANNER, THERE COULD NOT HAVE BEEN ANY OTHER RES ULT EXCEPT WHAT HAS BEEN SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. WE ARE, THEREFORE, UNABLE TO SUSTAIN THE ORDER OF THE TRIBUNAL. B) GP CHART OF THE ASSESSEE FOR LAST THREE YEARS WAS A S UNDER:- M/S MOHAN LAL MAHENDRA KUMAR JEWELLERS, JAIPUR YEAR TURNOVER GROSS PROFIT % OF GP 2005 - 06 463,661,747.00 2,377,445.00 0.51 2006 07 429,424,685.00 4,092,438.00 0.95 2007 - 08 638,661,874.00 4,850,999.00 0.76 M/S MOHAN LAL MAHENDRA KUMAR JEWELLERS, DELHI YEAR TURNOVER GROSS PROFIT % OF GP 2005 - 06 109,051,036.00 235,081.00 0.22 25 2006 - 07 3,074,808.00 338,309.00 11.00 2007 - 08 40,221,839.00 202,513.00 0.50 M/S MOHAN LAL MAHENDRA KUMAR JEWELLERS, NOIDA YEAR TURNOVER GROSS PROFIT % OF GP 2005 - 06 - - - 2006 - 07 595,277,454.00 234,402.00 0.04 2007 - 08 1,978,970,379.00 1,883,315.00 0.10 M/S A.M. EXPORTS, JAIPUR YEAR TURNOVER GROSS PROFIT % OF GP 2005 - 06 2,112,822,537.00 4,285,764.00 0.20 2006 - 07 4,981,610,475.00 3,584,906.00 0.07 2007 - 08 275,867,117.00 552,401.00 0.20 A) MMJ NOIDA & A M EXPORTS (GP BETTER THAN LAST YE AR AND NO DEFECT IN BOOKS OF ACCOUNT EXCEPT CASH SALES AND SA LES TO M/S K.M.EXPORTS BY MMJ NOIDA. THE DECLARED GP FOR THE CURRENT YEAR IS BETTER THAN PREVIOUS YEAR IN THE CASE OF MMJ NOIDA AND AM EXPORTS. THE CURRENT Y EARS GP IN THE CASE OF MMJ NOIDA AND AM EXPORTS WAS 0.10% AND 0.20 % RESPECTIVELY AS AGAINST GP RATE OF PREVIOUS YEAR 0.04% AND 0.10 % RESPECTIVELY. THE LD AO HAS ESTIMATED THE PROFIT BY APPLYING THE GP R ATE OF 1% AND MADE THE ADDITION OF RS. 1,79,06,388/- AND RS. 22,06,270 /- FOR THE TRADING RESULTS OF M/S MMJ NOIDA AND AM EXPORTS RESPECTIVELY. THUS , TRADING ADDITION OF RS. 1,79,06,388/- + 22,06,270/-= RS. 2,01,12,658 /- IS ARBITRARY, WITHOUT BASIS AND ON WILD ESTIMATES. 26 B) M/S MOHAN LAL MAHENDRA KUMAR JAIPUR (GP SLIGHTLY LOW THAN LAST YEAR AND NO DEFECT IN BOOKS OF ACCOUNT EXCEPT CASH SALES, SALES TO AMIT AGENCIES, SILVER N SILVER AND M/S K.M. EXPORTS). THE LD AO ESTIMATED THE PROFITS OF M/S MMJ JAIPUR B Y ESTIMATING THE GP RATE AT 3%. THE GP RATE IN MMJ JAIPUR WAS 0. 95% IN AY 2006-07 WHICH SLIGHTLY CAME DOWN TO 0.76% IN CURRENT YEAR. BUT THE FACT REMAINS THAT THE GP FOR AY 2005-06 WAS 0.51% AND CURRENT YE ARS GP WAS BETTER THAN AY 2005-06. THE ASSESSEE HAS EXPLAINED THE REA SON OF LOW GP IN THIS CONCERN AS UNDER:- I. THE ASSESSEE DEALS IN GOLD/SILVER BULLION WHERE PRI CES ARE VERY FLUCTUATING. DURING THE YEAR TOTAL TURNOVER OF THE ASSESSEE HAS INCREASED BY MORE THAN RS. 10.00 CORERS WHICH IS 25% MORE THAN LAST YEAR. THE ASSESSEE HAS TO SALE GOODS ON LOW MARGIN TO CAPTURE MORE BENEFIT OF TURNOVER IN THE MARKET. II. DURING THE YEAR THE ASSESSEE HAS SOLD MANUFACTURED GOLD JEWELLERY OF APPROX RS. 98.00 LACS WHERE AS IN PREVIOUS YEAR THE ASSESS EE HAS SOLD GOLD JEWELLERY OF RS. 3.94 CORERS WHICH INCLUDES IN THE ABOVE MENTIONED TOTAL TURNOVER. AS IT IS A FACT THAT MARGIN IN GOLD JEWEL LERY IS MORE WHICH IS ABOUT 3-5% THAN MARGIN IN BULLION. THEREFORE, THE G P RATE WAS HIGHER IN PREVIOUS YEAR BECAUSE OF MORE SALE OF JEWELLERY IN CLUDED IN PREVIOUS YEAR IN COMPRESSION TO THIS YEAR. IF MARGIN ON GOLD JEWE LLERY SALE IS EXCLUDED FROM THE BULLION MARGIN DURING THE YEAR THAN GP RAT E WILL BE HIGHER ON BULLION DURING THE YEAR. III. IT IS SUBMITTED THAT THE ASSESSEE IS DEALING IN GOL D\SILVER BULLION IN WHICH PRICE ARE FLUCTUATING DAY TO DAY OR EVEN HOURS TO H OURS IN A DAY. FURTHER THE ASSESSEE HAS TO TAKE DELIVERY OF GOODS FROM THE BAN K (SUPPLIER) AT A FIXED RATE MUTUALLY DECIDED WITH IN A PERIOD OF TIME. IN SUCH CASE THE ASSESSEE HAS TO TAKE DELIVERY OF GOODS FROM SUCH SUPPLIER AT FIXED RATE DECIDED. 27 THEREFORE IN SUCH TYPE OF TRANSACTIONS THERE MAY BE A LOSS TO THE ASSESSEE, BECAUSE THE ASSESSEE HAS TO DELIVER GOODS TO THE BU YER AT MARKET PRICE WHICH MAY BE LOWER THAN THE PURCHASE COST OF THE AS SESSEE. THEREFORE SUBMISSION IS THAT IN SUCH TYPE OF BUSINESS GP RATE CAN NOT BE COMPARED WITH THAT OF PREVIOUS YEAR OR EVEN FIRM TO FIRM. HO WEVER THE ASSESSEE IS MAINTAINING ALL THE VOUCHERS FOR PURCHASE AND SALES AND ALSO FOR EXPENSES. THE ASSESSEE IS ALSO MAINTAINING DAY TO DAY STOCK R EGISTER. THEREFORE LOOKING TO ALL SUCH REASONS AND MAINTENANCE OF COMP LETE BOOKS AND VOUCHERS, TRADING RESULT DECLARED BY M/S MOHAN LAL MAHENDRA KUMAR JEWELLERS, JAIPUR MAY BE ACCEPTED. THE LD AO HAS NOT REBUTTED ON THE FACTS MENTIONED I N THE ABOVE EXPLANATION BUT ACTED ARBITRARILY AND MADE WILD EST IMATED OF 3% GP WITHOUT ASSIGNING ANY LOGIC OR TANGIBLE REASON. C) MOHAN LAL MAHENDRA KUMAR JEWELLERS, DELHI (GP LOWER THAN LAST YEAR AND NO DEFECT IN BOOKS OF ACCOUNT EXCEPT CASH SALES, TURNOVER INCREASED AND SHIFTED FROM JEWELLERY TO BULLION ) IT IS SUBMITTED THAT DURING THE YEAR THE ASSESSEE H AS SHOWN GP RATE OF 0.50 % ON TOTAL TURNOVER OF RS. 40.22 CORERS IN COMPARISON TO 11.00 % ON TURNOVER OF RS. 30.74 LACS IN PREVIOUS YEAR. THE REASON FOR LOW GP RATE IS AS UNDER: I. DURING THE YEAR THE ASSESSEE IS DEALING IN BULLION WHERE AS IN PREVIOUS YEAR HE WAS DEALING IN GOLD JEWELLERY BUSINESS SINC E THE NATURE OF BUSINESS IS CHANGED DURING THE YEAR THEREFORE GP RATE CAN NO T BE COMPARED WITH THAT OF PREVIOUS YEAR. II. IT IS SUBMITTED THAT THE ASSESSEE IS DEALING IN GOL D\SILVER BULLION IN WHICH PRICE ARE FLUCTUATING DAY TO DAY OR EVEN HOURS TO H OURS IN A DAY. FURTHER THE ASSESSEE HAS TO TAKE DELIVERY OF GOODS FROM THE BAN K (SUPPLIER) AT A FIXED RATE MUTUALLY DECIDED WITH IN A PERIOD OF TIME. IN SUCH CASE THE ASSESSEE 28 HAS TO TAKE DELIVERY OF GOODS FROM SUCH SUPPLIER AT FIXED RATE DECIDED. THEREFORE IN SUCH TYPE OF TRANSACTIONS THERE MAY BE A LOSS TO THE ASSESSEE, BECAUSE THE ASSESSEE HAS TO DELIVER GOODS TO THE BU YER AT MARKET PRICE WHICH MAY BE LOWER THAN THE PURCHASE COST OF THE AS SESSEE. THEREFORE SUBMISSION IS THAT IN SUCH TYPE OF BUSINESS GP RATE CAN NOT BE COMPARED WITH THAT OF PREVIOUS YEAR OR EVEN FIRM TO FIRM. HO WEVER THE ASSESSEE IS MAINTAINING ALL THE VOUCHERS FOR PURCHASE AND SALES AND ALSO FOR EXPENSES. THE ASSESSEE IS ALSO MAINTAINING DAY TO DAY STOCK R EGISTER. THEREFORE LOOKING TO ALL SUCH REASONS AND MAINTENANCE OF COMP LETE BOOKS AND VOUCHERS, TRADING RESULT DECLARED BY M/S MOHAN LAL MAHENDRA KUMAR JEWELLERS, DELHI MAY BE ACCEPTED. THE LD AO HAS NOT REBUTTED ON THE FACTS MENTIONED I N THE ABOVE EXPLANATION BUT ACTED ARBITRARILY AND MADE WILD EST IMATED OF 1% GP WITHOUT ASSIGNING ANY LOGIC OR TANGIBLE REASON. D) NO ANY COMPARATIVE CASE WAS GIVEN IN SUPPORT OF HIS FINDING. EVEN, IF THE ESTIMATION IS MADE, IT CANNOT BE BASED ON WILD GUESS, BUT IT SHOULD BE BASED ON SOME MATERIAL. RELIANCE IS PLACE D ON THE FOLLOWING DECISIONS:- (I) DHAKESWARI COTTON MILLS LTD VS CIT 26 ITR 775 (SC) (II) LAL CHAND BHAGAT AMBICA RAM VS CIT 37 ITR 288 (SC) (III) OMAR SALAY MOHAMAD VS CIT 37 ITR 151 (SC) THEREFORE TRADING ADDITION CONFIRMED BY CIT(A) DES ERVES TO BE DELETED. 26. THE ABOVE WRITTEN SUBMISSIONS FILED ON BEHALF O F THE ASSESSEE ARE SELF EXPLANATORY. IN SOME OF THE BRANCHES THE GROSS PRO FIT RATE SHOWN IS HIGHER AND ONLY IN ONE BRANCH THE GROSS PROFIT RATE DECLARED BY ASSESS EE IS LOWER, REASON FOR THE SAME HAS BEEN EXPLAINED WHICH COULD NOT BE CONTROVERTED BY T HE DEPARTMENT BY BRINGING ANY POSITIVE MATERIAL. NO DEFECTS IN THE BOOKS OF ACCO UNT WERE FOUND. ALL THE PURCHASES AND 29 SALES ARE VOUCHED. THEREFORE, WE ARE OF THE CONSIDE RED VIEW THAT THERE WAS NO JUSTIFICATION IN MAKING TRADING ADDITION AND SUSTAI NING PARTLY AT THE END OF THE LD. CIT (A). 27. THE LD. CIT D/R HAS PLACED RELIANCE ON THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF M/S. KANCHWALA GEMS THE HONBLE SUPREM E COURT IN THIS CASE HAS OBSERVED THAT IT IS WELL SETTLED THAT IN A BEST JUDGMENT A SSESSMENT THERE IS ALSO CERTAIN DEGREE OF GUESS WORK. NO DOUBT, THE AUTHORITY SHOULD TRY TO M AKE A FAIR ESTIMATE OF THE INCOME EVEN IN BEST JUDGMENT ASSESSMENT AND SHOULD NOT ACT TOTA LLY ARBITRARILY, BUT THERE IS NECESSARILY SOME AMOUNT OF GUESS WORK INVOLVED IN A BEST JUDGME NT ASSESSMENT. IN THIS CASE THE AO RESORTED TO BEST JUDGMENT OF THE ASSESSEE ON THE FO LLOWING GROUNDS. THE ASSESSEE HAS NOT MAINTAINED THE QUANTITATIVE D ETAILS/STOCK REGISTER. THERE WAS NO EVIDENCE TO VERIFY THE CLOSING STOCK, THE GENUIN ENESS OF PURCHASE WAS NOT PROVED WITHOUT ANY DOUBT. THE LD. CIT (A) AND TRIBUNAL HE LD THAT THE BOOKS WERE RIGHTLY REJECTED AND ONLY REDUCED THE G.P. RATE ADOPTED BY THE AO AND THE HIGH COURT REJECTED THE APPEAL OF THE ASSESSEE. ON APPEAL, THE HONBLE SUP REME COURT HAS HELD THAT ON THE FACTS THERE WAS NO ARBITRARINESS IN THIS CASE IN RESORTIN G TO BEST JUDGMENT ASSESSMENT. IT WAS ASSESSEE HIMSELF WHO WAS TO BLAME AS IT DID NOT SUB MIT PROPER ACCOUNTS. 28. AFTER GOING THROUGH THE RATIO OF THIS DECISION, WE FIND THAT THE RATIO OF THIS DECISION IS NOT APPLICABLE ON THE FACTS OF THE PRES ENT CASE AT ALL AS IN THE CASE IN HAND, THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNT INC LUDING QUANTITATIVE DETAILS/STOCK REGISTER. THE CLOSING STOCK WAS VERIFIABLE, THE GE NUINENESS OF PURCHASES WAS PROVED. THEREFORE, THERE WAS NO QUESTION OF REJECTING BOOKS OF ACCOUNT AND MAKING ANY G.P. ADDITION. RATHER THE DECISION OF HONBLE APEX COURT SUPPORTS THE CASE OF THE ASSESSEE. 30 29. IN VIEW OF THESE FACTS AND CIRCUMSTANCES, WE HO LD THAT LD. CIT (A) WAS NOT JUSTIFIED IN RESTRICTING THE TRADING ADDITION TO RS . 2,55,465/-. ACCORDINGLY THE SAME IS DELETED. 30. IN THIS WAY THE GROUND OF THE DEPARTMENT IS DIS MISSED AND GROUNDS OF THE ASSESSEE IS ALLOWED. 31. THE REMAINING GROUND IN APPEAL OF DEPARTMENT IS AGAINST DELETING THE ADDITION OF RS. 2.68 CRORES OR ODD. 32. ON PERUSAL OF ACCOUNT OF M/S RAJESH SALES CORPO RATION THE AO FOUND THAT M/S RAJESH SALES CORPORATION WAS STANDING AS A CREDITOR IN THE ASSESSEE'S ACCOUNT FOR RS. 13174265/-. THAT FROM THE MONTH OF OCTOBER ONWARDS THERE WERE ONLY RECEIPTS TO THE TUNE OF RS.39974265/- AND ON 31.3.2007 A JOURNAL ENTRY W AS PASSED. MAHENDRA KUMAR AGARWAL'S CURRENT ACCOUNT WAS CREDITED BY RS.268000 00/- AND RAJESH SALES CORPORATION'S ACCOUNT WAS DEBITED BY THE SAME AMOUNT. THE AO HAS OBSERVED THAT OUT OF RECEIPTS OF RS.39974265/-, RS.2.68 CRORE WAS TRANSFERRED TO THE CURRENT ACCOUNT OF THE ASSESSEE AND BALANCE RS. 13174265/- WAS CARRIED FORWARDED TO THE NEXT FINANCIAL YEAR. IN THE BOOKS OF M/S RAJESH SALES CORPN. THE SAME AMOUNT WAS CREDITE D TO M/S MOHANLAL MAHENDRA KUMAR JEWELLERS AND DEBITED TO M/S AMIT AGENCIES TH ROUGH A JOURNAL ENTRY. SHRI KEWAL CHAND JAIN EXPLAINED THAT THE ENTRY PASSED BY M/S R AJESH SALES CORPN. WAS WITH A VIEW TO ADJUST ACCOUNTS OF BOTH THE PARTIES WITH THEIR C ONSENT. FROM THE STATEMENT OF ACCOUNT OF M/S AMIT AGENCY IN THE BOOKS OF ASSESSEE IT WAS SEE N BY THE AO THAT THERE WAS AN OPENING CREDIT BALANCE OF RS.21796260/- AGAINST WHI CH CORRESPONDING SALES OF THE SAME AMOUNT WERE MADE AND THERE WAS NO OUTSTANDING BALAN CE. CONSIDERING THE FACT THAT JOURNAL ENTRY WAS PASSED BY ASSESSEE BY DEBITING TH E ACCOUNT OF M/S RAJESH SALES CORPN. 31 AND CREDITING THE CURRENT ACCOUNT OF THE ASSESSEE, AO CONSIDERED RS.2.68 CRORE AS UNEXPLAINED CASH CREDIT. 33. IT WAS SUBMITTED BY THE ASSESSEE THAT THE JOURN AL ENTRY PASSED BY DEBITING RAJESH SALES CORPORATION AND CREDITING THE ASSESSEE'S CURR ENT ACCOUNT WAS WRONGLY PASSED AND WRONG ENTRY WAS RECTIFIED ON 30.9.2009. HOWEVER, TH E ASSESSEE FAILED TO PROVIDE COPY OF LEDGER ACCOUNT IN WHICH RECTIFICATION ENTRY WERE PA SSED. THE AO CONSIDERED REVERSING OF ENTRY AS AN AFTER THOUGHT. THAT FOR TWO YEARS RS.2. 68 CRORES REMAINED WITH THE ASSESSEE AND HE COULD NOT RECTIFY THE ENTRY. THE ACCOUNTS WE RE AUDITED AND RETURNS WERE FILED. AS THE BOOKS OF ACCOUNTS OF THE CURRENT YEAR WERE OPEN AND THEREFORE, ADJUSTMENT WAS MADE. DURING THE YEAR A SURVEY WAS CONDUCTED ON 2.9.2009 AND ADJUSTMENT ENTRY WAS PASSED AFTER THE DATE OF SURVEY. IN ANY CASE PASSING OF RE CTIFICATION ENTRY DOES NOT TAKE AWAY THE BASIC NATURE OF THE TRANSACTION. THAT CREDITS WERE TRANSFERRED TO THE CURRENT ACCOUNT OF SH.MAHENDRA KUMAR FOR WHICH NO EXPLANATION WAS OFFE RED. THE AO HAS FURTHER OBSERVED THAT M/S RAJESH SALES CORPORATION HAS NOT PASSED SU CH RECTIFICATION ENTRY AS INFORMED BY SHRI KEWAL CHAND JAIN VIDE HIS LETTER DATED 29.12.2 009. FURTHER, EXPLANATION OF THE ASSESSEE THAT IT WAS NOT A REAL CREDIT WAS NOT ACCE PTED BY THE AO AS IT WAS FACTUALLY INCORRECT. RS.2.68 CRORE WAS NOT IN THE NATURE OF J OURNAL ENTRY BUT A CONSOLIDATED ENTRY OF VARIOUS BANK CREDITS WHICH WERE TRANSFERRED TO THE CURRENT ACCOUNT OF SHRI MAHENDRA KUMAR. WITH THIS THE AO MADE ADDITION OF RS.2.68 CR ORE AS UNEXPLAINED CASH CREDITS. 34. IT WAS CONTENDED BEFORE LD. CIT (A) THAT THE AS SESSEE RECEIVED RS.39974265/- BY CHEQUE FROM M/S RAJESH SALES CORPORATION, JAIPUR. O N 31.3.2007 THE ASSESSEE PASSED A JOURNAL ENTRY DEBITING THE ACCOUNT OF M/S RAJESH SA LES CORPORATION AND CREDITING THE CURRENT ACCOUNT OF SHRI MAHENDRA AGARWAL BY RS.2.68 CRORE RESULTING THE NET CREDIT 32 BALANCE OF RS. 13174265/- IN THE ACCOUNT OF M/S RAJ ESH SALES CORPORATION. THE AO TREATED THE AMOUNT SO TRANSFERRED THROUGH JOURNAL E NTRY AS UNEXPLAINED CASH CREDIT. 35. IN THE PRESENT CASE THE IDENTITY AND CREDITWORT HINESS OF M/S RAJESH SALES CORPN. IS NOT IN DOUBT. THE MONEY WAS RECEIVED THROUGH CHEQUE AND M/S RAJESH SALES CORPORATION IS AN EXISTING ASSESSEE. NO MONEY WAS RECEIVED FROM SHRI MAHENDRA AGARWAL BUT MONEY WAS RECEIVED FROM RAJESH SALES CORPORATION. IN S.68 THE WORDS USED ARE 'WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE'. IN THIS CONNECTION THE WORDS 'SUM' IS OF PARAMOUNT IMPORTANCE. THE WORD 'ANY SUM' CANN OT BE TAKEN AS PARALLEL TO 'ANY ENTRY'. THE PROVISIONS OF S.68 ARE DEEMING PROVISIO NS AND THEREFORE, ONUS IS ON THE DEPARTMENT TO PROVE THAT ANY SUM WAS CREDITED TO TH E BOOKS OF THE ASSESSEE. THE ASSESSEE HAS MADE ONLY A JOURNAL ENTRY BY DEBITING RAJESH SA LES CORPORATION AND CREDITING THE ASSESSEE'S CURRENT ACCOUNT WRONGLY AND THIS WRONG E NTRY WAS RECTIFIED LATER ON. IT IS NOT A REAL CREDIT AND THEREFORE, DOES NOT COME WITHIN THE PREVIEW OF UNEXPLAINED CASH CREDIT BUT A MERE ACCOUNTING ENTRY. HON'BLE RAJASTHAN HIGH COU RT IN THE CASE OF CIT V/S HAZARIMAL MILAP CHAND SURANA 263 ITR 573 HAS HELD THAT MERE B OOK ENTRY DOES NOT CREATE INCOME. HON'BLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO. V/S CIT 82 ITR 363 HAS ALSO HELD THAT MERE ACCOUNTING ENTRY WOULD NOT GIVE RISE TO INCOME UNLESS INCOME HAS RESULTED IN REAL TERMS. 36. THE AO IN HIS COMMENTS ON THE WRITTEN SUBMISSIO N OF THE AR HAS OBSERVED THAT M/S RAJESH SALES CORPN. DECLARED PURCHASES WORTH RS .86811610/- FROM M/S AMIT AGENCIES. IN REAL TERMS THE PAYMENT WAS TO BE MADE TO M/S AMIT AGENCIES. SINCE, THE TRANSACTION WITH THAT FIRM IS NOT GENUINE, NO ACTUA L PAYMENT WAS TO BE MADE. THE ASSESSEE GOT ROUTED THE PAYMENT OF RS.2.68 CRORE THROUGH M/S RAJESH SALES CORPN. AND ULTIMATELY 33 CREDITED TO HIS CURRENT ACCOUNT BY PASSING JOURNAL ENTRY. AS PER THE ASSESSEE'S ACCOUNT NO ACCOUNT WITH M/S AMIT AGENCIES WAS TO BE SETTLED. T HE AO HAS DRAWN INFERENCE THAT THE ASSESSEE'S UNDISCLOSED INCOME WAS INTRODUCED BY WAY OF JOURNAL ENTRIES. ACTUAL ISSUE IS NOT OF PROVING IDENTITY, GENUINENESS AND CREDITWORT HINESS OF RAJESH SALES CORPORATION. THAT WHAT IS APPARENT IS NOT REAL IN THIS CASE. FUR THER, THE SUBMISSION OF THE AR THAT MERE ACCOUNTING ENTRY CANNOT GENERATE INCOME WAS NOT COR RECT. M/S RAJESH SALES CORPN. HAS PAID RS.2.68 CRORE TO THE ASSESSEE WHICH HAS BEEN U LTIMATELY SETTLED WITH ACCOUNTING ENTRIES. THE PAYMENT RECEIVED FROM M/S RAJESH SALES CORPN. HAS BEEN CLANDESTINELY APPROPRIATED WITH THE HELP OF JOURNAL ENTRIES. THE ASSESSEE'S SUBMISSION THAT HE HAD PASSED REVERSE ENTRY IN HIS BOOKS OF ACCOUNTS WILL NOT TAKE AWAY THE REAL IMPACT OF THE ORIGINAL JOURNAL ENTRY PASSED BY RAJESH SALES CORPN . AND THE ASSESSEE SIMULTANEOUSLY. RAJESH SALES CORPN. VIDE LETTER DATED 29.12.2009 HA S FURTHER CONFIRMED THAT THEY HAVE NOT PASSED ANY CORRESPONDING REVERSE ENTRY IN THEIR BOO KS. 37. IN THE FINAL SUBMISSION, THE AR HAS SUBMITTED T HAT THE WRONG JOURNAL ENTRY PASSED WAS LATER ON REVERSED. THE ASSESSEE HAS PAID THE OU TSTANDING AMOUNT OF RS. 2.68 CRORE TO M/S RAJESH SALES CORPN. BY ACCOUNT PAYEE CHEQUE. CO PY OF ACCOUNT OF THE ASSESSEE IN THE BOOKS OF M/S RAJESH SALES CORPN. WAS FILED. THIS IS SUFFICIENT TO PROVE THAT ASSESSEE WAS NOT BENEFICIAL OWNER OF THIS AMOUNT AS ALLEGED BY T HE AO. 38. CONTENTION OF THE AR IS CONSIDERED. THE ISSUE T O BE DECIDED IS WHETHER THE JOURNAL ENTRY PASSED FOR RS.2.68 CRORE CAN BE ADDED AS UNEXPLAINED CASH CREDIT U/S 68 OF I.T. ACT. 39. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE LD. CIT (A) OBSERVED THAT THIS ISSUE IS TO BE DECIDED WHETH ER JOURNAL ENTRY PASSED FOR RS. 2.68 34 CRORES OR ODD CAN BE ADDED AS UNEXPLAINED CASH CRED IT UNDER SECTION 68 OF THE ACT. THEREAFTER THE LD. CIT (A) DISCUSSED THE ISSUE IN D ETAIL AT PAGES 14 TO16 AND GAVE FOLLOWING FINDING :- RAJESH SALES CORPN. MADE PAYMENT OF RS.39974265/- TO THE APPELLANT IN THE PROPRIETARY CONCERN OF M/S MOHANLA L MAHENDRA KUMAR JEWELLERS AND THIS PAYMENT RECEIVED BY THE APPELLAN T IS UNDISPUTED. ON 31.3.2007 A JOURNAL ENTRY HAS BEEN MADE IN THE BOOK S OF ACCOUNTS OF THE APPELLANT BY DEBITING M/S RAJESH SALES CORPORATION AND CREDITING THE CURRENT ACCOUNT OF SHRI MAHENDRA AGARWAL BY THE AFO RESAID BALANCE AMOUNT OF RS.2.68 CRORE RESULTING NO AMOUNT PAYABLE TO RAJESH SALES CORPN. IN THE BOOKS OF ACCOUNTS OF THE APPELLANT AS ON 31.3.2007. IN THE LOGICAL SEQUENCE IN THE BOOKS OF ACCOUNTS OF RAJESH SALES CORPN. THE ENTRY SHOULD HAVE BEEN MADE BY CREDITING THE ACCOUN T OF THE APPELLANT AND DEBITING THE PARTNER'S CURRENT ACCOUNT BY THE AFORE SAID SUM OF RS.2.68 CRORES. HOWEVER, IN THE BOOKS OF ACCOUNTS OF RAJESH SALES CORPN. THE APPELLANT'S ACCOUNT WAS CORRECTLY CREDITED BUT IT W AS DEBITED TO M/S AMIT AGENCIES. THIS ENTRY HAS BEEN MADE IN THE BOOKS OF ACCOUNTS OF M/S RAJESH SALES CORPN. BECAUSE THE APPELLANT WAS INSTR UCTED TO MAKE THE PAYMENT TO M/S AMIT AGENCIES AND THEREFORE, WITH TH E MUTUAL CONSENT OF ALL CONCERNED PARTIES THESE ADJUSTMENT ENTRIES WERE TO BE MADE. HERE IT IS IMPORTANT TO NOTE THAT AS ON 31.3.2007 NO PAYMENT HAS BEEN RECEIVED OR MADE BY ANY OF THE PARTY-NAMELY THE APPELLANT, AMIT AGENCIES AND BY M/S RAJESH SALES CORPN. THIS FACTUAL SITUATION IS N OT IN DISPUTE AND IS ALSO NOT CHALLENGED BY THE ASSESSING OFFICER IN HIS REPO RTS FROM TIME TO TIME AND IN THE DISCUSSION BEFORE ME DURING THE COURSE O F APPELLATE PROCEEDINGS. WITH THESE FACTS, IT IS ABSOLUTELY CLE AR THAT THERE IS NO CREDIT WHICH CAN BE SAID AS UNEXPLAINED FOR THE AMOUNT OF RS.2.68 CRORES IN THE BOOKS OF ACCOUNTS OF THE APPELLANT FOR WHICH THE AD DITION HAS BEEN MADE BY AO U/S 68 OFL.T.ACT. IN FACT, IN APPELALNT'S BOO KS THERE IS DEBIT ENTRY OF RS.2.68 CRORE DEBITING TO RAJESH SALES CORPN. THE A O IS NOT FOUND 35 CORRECT IN MAKING OBSERVATION THAT ANY PAYMENT WAS DUE TO M/S AMIT AGENCIES AS APPELLANT HAS NOT MADE ANY PURCHASES DI RECTLY FROM M/S AMIT AGENCIES. ON THE CONTRARY SALES WERE MADE BY THE AP PELLANT TO M/S AMIT AGENCIES. FURTHER, INTRODUCTION OF UNDISCLOSED INCO ME IN THE BOOKS CANNOT BE MADE BY PASSING JOURNAL ENTRY BECAUSE FRO M JOURNAL ENTRY CASH CANNOT BE INTRODUCED IN THE BOOKS. FURTHER, THE AO HAS NOT POINTED OUT THE INTRODUCTION OF UNDISCLOSED ASSETS IN THE BOOKS OF ASSESSEE CORRESPONDING TO THIS JOURNAL ENTRY. WITH THIS DISCUSSION IT IS C LEAR THAT THE ASSESSING OFFICER HAS NOT UNDERSTOOD THE ACCOUNTING SEQUENCE OF AFORESAID ADJUSTMENT ENTRY AND WRONGLY CONSIDERED THE SAME AS UNEXPLAINED CREDIT WHICH WAS FACTUALLY INCORRECT. SUBSEQUENTLY ON BEING REALIZED THAT THERE WAS WRONG ADJUSTMENT ENTRY IT WAS REVERSED BY WAY OF RECTIFICATION ENTRY ON 30.9.2009 AND CONSEQUENT TO SUCH REVERSAL ENTRY IN THE BOOKS OF THE APPELLANT THE ANOTHER PARTY NAMELY RAJESH SALES CORPN. HAS ALSO PASSED AN ADJUSTMENT ENTRY ON 17.2.2010 BY REVERSIN G THE EARLIER ADJUSTMENT ENTRY IN WHICH THE APPELLANT ACCOUNT WAS DEBITED AND THE ACCOUNT OF AMIT AGENCIES WAS CREDITED WITH THE AMOU NT OF RS.2.68 CRORE. THE AFORESAID MISTAKE HAS BEEN RECTIFIED ON 17.2.20 10 IN WHICH THE EARLIER ENTRY WAS REVERSED. SUBSEQUENTLY, RAJESH SALES CORP N. HAS RECEIVED THE AFORESAID AMOUNT OF RS.2.68 CRORE THROUGH THREE DIF FERENT CHEQUES OF RS.70 LACS, RS.1.20 CRORE AND RS.78 LACS. THE SAME PAYMENT HAS BEEN SHOWN BY THE APPELLANT IN HIS BOOKS OF ACCOUNTS ALS O. THE JOURNAL ENTRY HAS NO CONSEQUENCE AS FAR AS APPLICATION OF S.68 IS CONCERNED. IN ORDER TO ATTRACT THE PROVISIONS OF S.68 OFL.T.ACT IT IS PRIM ARY CONDITION THAT THE APPELLANT SHOULD HAVE RECEIVED AMOUNT IN HIS BOOKS WHICH OBVIOUSLY SHOULD HAVE BEEN PAID BY THE CREDITOR. IF SUCH CRED IT IS CONSIDERED AS UNEXPLAINED THEN ONLY IT CAN BE A CASE OF MAKING AD DITION U/S 68 OF I.T. ACT AS UNEXPLAINED CASH CREDIT. SINCE, THERE IS NO SUCH CREDIT OF SUM AT ALL, THERE CAN BE NO QUESTION THAT WHETHER SUCH CREDIT I S SATISFACTORY OR UNSATISFACTORY BECAUSE THIS QUESTION WILL ARISE ONL Y WHEN THERE IS CREDIT OF SUM IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. IN F ACT THERE IS NO SUCH 36 CREDIT OF RS.2.68 CRORE AS AMOUNT RECEIVED IN THE B OOKS OF ACCOUNTS OF THE APPELLANT. WITH THIS DISCUSSION IT IS CLEAR THAT TH E ASSESSING OFFICER WAS FACTUALLY INCORRECT AND WRONG IN MAKING AFORESAID A DDITION OF RS.2.68 CRORE U/S 68 OF I.T. ACT. THE AO IS HEREBY DIRECTED TO DELETE THE SAME. THE ABOVE FINDINGS FIND SUPPORT FROM THE DECISION O F HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S HA ZARIMAL MILAPCHAND SURANA 263 ITR 573 WHEREIN THE HON'BLE COURT HAS HE LD THAT MERE BOOK ENTRY DOES NOT CREATE INCOME. THE FOURTH GROUND OF APPEAL IS THEREFORE, DECIDED IN FAVOUR OF THE APPELLANT. 40. THE LD. CIT D/R PLACED RELIANCE ON THE ORDER OF AO. 41. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). HE FURTHER PLACED RELIANCE ON THE WRITTEN SUBMISSIONS WHICH ARE IN LINE OF THE SUBMISSIONS MADE BEFORE LD. CIT (A). 42. AFTER CONSIDERING THE ORDERS OF AO AND LD. CIT (A), WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). THE FINDING OF LD. CIT (A) ARE FINDING OF FACT WHICH ARE REPRODUCED SOMEWHERE ABOVE IN THIS ORDER. THESE FI NDINGS COULD NOT BE CONTROVERTED NOR ANY OTHER MATERIAL BROUGHT ON RECORD TO ESTABLISH O THERWISE. THEREFORE, IN VIEW OF THE REASONING GIVEN BY LD. CIT (A) WE CONFIRM HIS ORDER ON THIS ISSUE. 43. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. 44. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 10 .6.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, 37 D/- COPY FORWARDED TO :- THE ACIT, CIRCLE-1, JAIPUR. SHRI MAHENDRA KUMAR AGARWAL, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 854(2)/JP/2010) BY ORDER, AR ITAT JAIPUR.