ITO, Jaipur V. M/S MOHAN & COMPANY, Jaipur

ITA 860/JPR/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 47942 (ITAT-JAIPUR)
• 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; Question of law

Judgement Text

1 ITA 861(4)-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 861/JP/2010 ASSTT. YEAR : 2007-08. THE INCOME-TAX OFFICER, VS. M/S. AGRASEN JEWELLER S, WARD 1(1), JAIPUR. 223, JOHARI BAZAR, JAIPUR. (APPELLANT) (RESPONDENT) C.O. NO. 68/JP/2010 (ARISING OUT OF ITA NO. 861/JP/2010 ) M/S. AGRASEN JEWELLERS, VS. THE INCOME-TAX OFFICE R, JAIPUR. WARD 1(1), JAIPUR. (CROSS OBJECTOR) (RESPONDENT) ITA NO. 860/JP/2010 ASSTT. YEAR : 2007-08. THE INCME-TAX OFFICER, VS. M/S. MOHAN & COMPANY, WARD 1(1), JAIPUR. 197, JOHARI BAZAR, JAIPUR. (APPELLANT) (RESPONDENT) C.O. NO. 67/JP/2010 ( ARISING OUT OF ITA NO. 860/JP/2010 ) ASSTT. YEAR : 2007-08. M/S. MOHAN & COMPANY, VS. THE INCOME-TAX OFFICER, JAIPUR. WARD 1(1), JAIPUR. (CROSS OBJECTOR) (RESPONDENT) APPELLANT BY : SHRI SUBHASH CHANDRA RESPONDENT BY : SHRI VIJAY GOYAL 2 ORDER DATE OF ORDER : 10/06/2011. PER BEBCH : THESE ARE TWO APPEALS BY DEPARTMENT IN CASE OF TWO DIFFERENT ASSESSEES AND TWO CROSS OBJECTIONS BY THE ASSESSEES. 2. SINCE COMMON ISSUES ARE INVOLVED IN ALL THESE AP PEALS, THEREFORE, THEY ARE BEING DISPOSED OFF TOGETHER. 3. WE WILL DISCUSS THE FACTS IN CASE OF M/S. AGRASE N JEWELLERS AND THE OUT COME OF THE SAME WILL BE APPLICABLE IN CASE OF OTHER ASSESS EES ALSO I.E. M/S. MOHAN & COMPANY AS FACTS ARE SIMILAR. 4. IN THIS CASE THE DEPARTMENT IS OBJECTING THAT WH ETHER THE LD. CIT (A) WAS JUSTIFIED IN REDUCING THE TRADING ADDITION OF RS. 1,05,58,554 /- TO RS. 7,35,863/- EVEN THOUGH UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT UNDER S ECTION 145(3) AS AGAINST 25% APPLIED BY THE AO ON UNVERIFIABLE PURCHASES OF RS. 4,22,34, 219/- PLACING RELIANCE ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF M/S. SANJA Y OIL CAKE INDUSTRIES, 10 DTR 153 (GUJ.). 5. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE DE ALS IN JEWELLERY AND GEM STONES. DURING THE YEAR UNDER CONSIDERATION ON SALES OF RS. 6,99,90,493/- THE DECLARED GP RATE IS 1.95%. THE ASSESSEE HAS SHOWN PURCHASES OF RS.42234 219/- FROM M/S. K.M. EXPORTS, JAIPUR. THE ASSESSEE WAS ASKED TO PRODUCE THE PARTI ES FOR EXAMINATION BUT THE ASSESSEE FAILED TO DO SO. THE AO ISSUED SHOW CAUSE NOTICE IN FORMING THAT SH.MAHENDRA KUMAR AGARWAL BROTHER OF ONE OF THE PARTNER OF THE ASSESS EE FIRM WAS ALSO ONE OF THE PARTNER IN M/S K.M. EXPORTS ALONGWITH SHRI KEWAL CHAND JAIN. I N THE ASSESSMENT PROCEEDINGS OF SHRI MAHENDRA KUMAR AGARWAL WAS ASKED TO PRODUCE T HE BOOKS OF ACCOUNTS OF M/S K.M. 3 EXPORTS BUT THE SAME WAS NOT DONE. THE ASSESSEE'S S ISTER CONCERN M/S MOHANLAL MAHENDRA KUMAR JEWELLERS HAS MADE SALES OF BULLION RS. 149545500/- TO M/S K.M. EXPORTS. THIS JEWELLERY MANUFACTURED OUT OF THE BUL LION WAS SOLD TO THE ASSESSEE. IN ABSENCE OF BOOKS OF ACCOUNTS OF M/S K.M. EXPORTS TH E PURCHASES OF RS.4,22,34,219/- REMAINED UNVERIFIABLE AND IT WAS PROPOSED THAT WHY BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED. 6. IT WAS SUBMITTED BEFORE AO THAT THE BOOKS OF ACC OUNTS WERE NOT TRACEABLE HOWEVER, CONFIRMATION WAS FILED STATING THAT SALE O F JEWELLERY TO M/S MOHAN & COMPANY AND M/S AGRASEN JEWELLERS WERE MADE. AFFIDAVIT BY T HE PARTNERS OF M/S K.M. EXPORTS WAS ALSO FILED. THE AO HAS OBSERVED THAT IN THE ASS ESSMENT OF SHRI MAHENDRA KUMAR AGARWAL THE ASSESSEE WAS ASKED TO PRODUCE THE BOOKS OF ACCOUNTS OF M/S K.M. EXPORTS BUT BOTH THE PARTNERS DENIED TO PRODUCE BOOKS OF AC COUNTS. THE ENQUIRIES WERE MADE IN THE CASE OF ONE PROPRIETARY CONCERN M/S AMIT AGENCY AND IT WAS FOUND THAT ITS PROPRIETOR SHRI ATAL BIHARI AGARWAL HAS DECLARED NOMINAL INCOM E FROM SALE OF PLYWOOD THOUGH SHRI KEWAL CHAND JAIN HAVE SHOWN HUGE TRANSACTIONS WITH M/S AMIT AGENCIES. NO PAYMENTS OF PURCHASES HAVE BEEN SHOWN TO BE MADE FROM M/S AM IT AGENCIES. FROM THE BOOKS OF ACCOUNTS OF M/S MDR JEWELLERS AND M/S RAJESH SALES AGENCIES, ANOTHER CONCERNS CONTROLLED BY SHRI KEWAL CHAND JAIN AND SHRI MAHEND RA KUMAR AGARWAL, IT WAS FOUND THAT K.M. EXPORTS HAD TRANSACTIONS WITH M/S AMIT AG ENCIES. THAT THE AFFIDAVIT FILED BY PARTNERS OF M/S K.M. EXPORTS IS NOTHING BUT A SELF SERVING DOCUMENT AND DESERVES TO BE REJECTED. THAT THE ASSESSEE HAS NOT FILED ANY REPLY FOR THE QUERY THAT HOW IT REACHED CONCLUSION THAT M/S K.M. EXPORTS GOT MANUFACTURED T HE JEWELLERY SOLD TO IT OUT OF SALE OF BULLION MADE BY M/S. MOHANLAL MAHENDRA KUMAR JEWELL ERS WITHOUT HAVING ANY 4 DOCUMENTARY EVIDENCE. THE ONUS WAS ON THE ASSESSEE TO PROVE THE GENUINENESS OF PURCHASES. THE BEST WAY WAS TO PRODUCE THE PARTY FO R EXAMINATION WHICH THE ASSESSEE HAS NOT DISCHARGED ITS ONUS. THE CONFIRMATION FILED COU LD NOT BE ACCEPTED AS THERE WERE EVIDENCES TO PROVE THAT THE CONCERN WAS NOT GENUINE . THE AO FINALLY RELYING ON THE DECISION OF HON'BLE ITAT JAIPUR BENCH IN THE CASE O F SHRI KISHAN MALPANI IN ITA NO.L045/JP/1997 HAS HELD THE BOGUS PURCHASES AS A D EFECT IN MAINTENANCE OF BOOKS OF ACCOUNTS AND INVOKED PROVISIONS OF S.145(3). THE AO HAS ALSO RELIED UPON THE DECISION IN THE CASE OF M/S INDIAN WOOLEN CARPET FACTORY 178 CTR 420 (RAJ.) WHEREIN IT WAS HELD THAT ONUS LIED ON THE ASSESSEE TO PROVE ALL THE EXP ENSES INCLUDING PURCHASES. 7. AFTER REJECTING BOOKS OF ACCOUNTS THE AO HELD TH AT THE GP RATE DECLARED OF 1.95% WAS VERY LOW IN THIS BUSINESS. THAT THE ASSESSEE HA S ARRANGED BILLS WORTH RS.4,22,34,219/- FROM M/S K.M. EXPORTS TO SUPPRESS ITS TRUE PROFITS THE AO HAS ALSO OBSERVED THAT SALES ARE NOWHERE IN DOUBT. WHEN THE SALES ARE GENUINE TH EN WHY WOULD ANY PERSON INDULGE IN ARRANGING BOGUS BILLS. THE AO HIMSELF HAS REPLIED T HAT IT WAS DONE ONLY TO SUPPRESS THE ACTUAL PROFITS. WITH THIS OBSERVATION THE AO MADE A DDITION @ 25% OF UNVERIFIABLE PURCHASES WHICH RESULTED INTO ADDITION OF RS. 1,05, 58,554/-. FOR THIS RELIANCE WAS PLACED BY AO IN THE FOLLOWING CASE LAWS : 1. M/S SANJAY OIL CAKE IND. V/S CIT 10 DTR (GUJ.) 153 2. M/S VIJAY PROTEINS LTD. V/S ACIT 58 ITD 428 (ITAT A HD. - C BENCH) 8. IT WAS CONTENDED BEFORE LD. CIT (A) THAT THE AO HAS REJECTED BOOKS OF ACCOUNTS ON THE GROUND OF UNVERIFIABLE PURCHASES OF RS. 4,22,34 ,219/- FROM M/S K.M. EXPORTS. AFFIDAVIT OF PARTNERS OF M/S K.M. EXPORTS VERIFYING THE PURCHASES WAS FILED THOUGH THE BOOKS OF ACCOUNT COULD NOT BE PRODUCED. THE AO HAS MADE GRATE EFFORTS TO PROVE THAT M/S 5 AMIT AGENCY WAS A BOGUS BILLING FIRM. THAT THE ASSE SSEE HAS MADE PURCHASES FROM M/S K.M. EXPORTS AND THIS FIRM HAS TRANSACTIONS WITH M/ S AMIT AGENCIES. ALSO THAT THE BOOKS OF ACCOUNTS OF M/S K.M. EXPORTS WERE NOT PRODUCED A ND THEREFORE, ON THESE GROUNDS PURCHASES FROM M/S K.M. EXPORTS WERE HELD NON GENUI NE. 9. IT WAS SUBMITTED THAT THOUGH THE BOOKS OF ACCOUN TS OF M/S K.M. EXPORTS COULD NOT BE PRODUCED AFFIDAVIT WAS FILED CONFIRMING THE SALE AND THEREFORE, THE ASSESSEE HAS DISCHARGED ITS ONUS. THE AO HAD NO MATERIAL TO PROV E THAT PURCHASES FROM M/S K.M. EXPORTS WERE BOGUS. M/S K.K. EXPORT IS AN EXISTING ASSESSEE FILING ITS RETURN OF INCOME. IF THE SOURCE OF SALE IN THE BOOKS OF ACCOUNTS OF M /S K.M. EXPORTS IS NOT PROVED THE ACTION COULD BE TAKEN IN THE ASSESSMENT OF M/S K.M. EXPORTS AND NOT IN THE CASE OF THE ASSESSEE. THE ASSESSEE HAS BEEN MAINTAINING QUANTIT ATIVE DETAILS AND NO DEFECT HAS BEEN POINTED OUT IN MAINTENANCE OF STOCK REGISTER. IT IS WELL SETTLED POSITION OF LAW THAT WHEN THE ASSESSEE IS MAINTAINING QUANTITATIVE DETAILS, N O ADDITION CAN BE MADE ON ACCOUNT OF UNEXPLAINED PURCHASES. RELIANCE WAS PLACED ON THE F OLLOWING CASE LAWS : 1. DCIT V/S ADINATH IND. 252 ITR 476 (GUJ.) 2. CIT V/S M.K. BROTHERS 163 ITR 249 (GUJ.) 9.1. IT WAS SUBMITTED THAT THE JAIPUR BENCH OF THE TRIBUNAL IN THE CASE OF M/S ANTIQUARIAT V/S ACIT 37 TW 145 HAS HELD THAT PURCHA SES CANNOT BE TREATED AS NON GENUINE SIMPLY BECAUSE THE PARTIES WERE NOT PRODUCE D. SIMILAR FINDING WAS GIVEN BY ITAT JAIPUR BENCH IN VARIOUS OTHER CASE LAWS. THE A O IS NOT CORRECT IN FINDING MOTIVE OF THE ASSESSEE. 6 9.2. FOR TREATING THE PURCHASES AS BOGUS THE AO SHO ULD LOOK THE MATTER FROM JUDICIAL PERSPECTIVE AND THE MATTER SHOULD BE EXAMINED THROU GH SURROUNDING EVIDENCES AND CIRCUMSTANCES. THERE CANNOT BE ANY MOTIVE IN TAKING THE BOGUS BILLS. 10. THE CASE LAW RELIED UPON BY THE AO ARE NOT APPL ICABLE TO THE FACTS OF THE CASE. IN THE CASE OF SANJAY OIL CAKE IND. (SUPRA) THE SUPPLI ERS WERE NOT TRACEABLE WHEREAS IN THE PRESENT CASE THE SUPPLIERS ARE EXISTING AND CONFIRM ED THE TRANSACTIONS. THE DECISION OF DIFFERENT HIGH COURT IS NOT BINDING IN RAJASTHAN. 11. SEPARATE TRADING ACCOUNTS WERE DRAWN FOR VERIFI ABLE PURCHASES AND ALLEGED UNVERIFIABLE PURCHASES. IN VERIFIABLE PURCHASES THE GP RATE COMES TO 2.62% WHEREAS IN UNVERIFIABLE PURCHASES THE GP RATE COMES TO 1.44%. IT WAS SUBMITTED THAT THE LOW PROFIT RATE IN UNVERIFIABLE PURCHASES WAS BECAUSE OF PRICE FLUCTUATIONS BUT EVEN IF THE PROFIT RATE OF 2.62% (AS IN THE CASE OF VERIFIABLE PURCHASES) I S APPLIED THEN THE TRADING ADDITION COMES TO RS.467694/- ONLY. 12. THE OVERALL DECLARED GP RATE IS 1.95% ON SALES OF RS.6,99,90,493/-. AS AGAINST THIS IN THE IMMEDIATE PRECEDING YEAR ON SALE OF RS. 1542995/- THE DECLARED GP RATE WAS 20.41%. THE GP RATE WAS DOWN AS IN A.Y.2006-07 THE ASSESSEE WAS DOING RETAIL SALE OF GOLD JEWELLERY BUT IN A.Y.2007-08 THE SALE OF THE A SSESSEE REPRESENTS WHOLESALE SALES ONLY. THE TURNOVER HAS INCREASED BY 4436% AND OVERA LL GP IN ABSOLUTE TERM HAS INCREASED BY 333%. WITH THIS IT WAS SUBMITTED THAT THE ADDITI ON MADE BY THE AO MAY BE DELETED. 13. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, THE LD. CIT (A) GAVE THE FOLLOWING FINDING :- CONTENTION OF THE AR IS CONSIDERED. THE APPELLANT H AS MADE PURCHASES FROM M/S K.M. EXPORTS AND K.M. EXPOR TS BOOKS OF 7 ACCOUNTS COULD NOT BE PRODUCED FOR VERIFICATION. TH E AFFIDAVIT FILED BY THE PARTNERS OF K.M. EXPORTS HAS NO MEANING AS T HE VERACITY OF THE AFFIDAVIT COULD NOT BE VERIFIED IN ABSENCE OF T HE BOOKS OF ACCOUNTS. THE CONTENTION OF THE AR THAT M/S K.M. EX PORT IS AN EXISTING ASSESSEE HAS ALSO NOT MUCH SIGNIFICANCE AS THE PARTNER OF THE CONCERN HAS EXPRESSED HIS INABILITY TO PRODUCE THE BOOKS OF ACCOUNTS. CLOSE CONNECTION OF THE APPELLANT WITH M/ S K.M. EXPORTS MAY BE THERE. IN THE PRESENT CASE THE APPELLANT FAI LED TO ESTABLISH GENUINENESS OF PURCHASES OF RS.42234219/- CLAIMED T O HAVE BEEN MADE FROM M/S K.M. EXPORTS. ON THIS ACCOUNT THE REJ ECTION OF BOOKS OF ACCOUNTS IS HEREBY CONFIRMED AS HELD BY HO N'BLE ITAT JAIPUR BENCH IN THE CASE OF SHRI KISHAN MALPANI. TH AT BOGUS / UNVERIFIABLE PURCHASES IS A DEFECT IN MAINTENANCE O F BOOKS OF ACCOUNTS AND THEREFORE, REJECTION OF BOOKS OF ACCOU NTS IS HEREBY UPHELD. THE AO HAS ADMITTED THAT SALES CANNOT BE DENIED AND THEREFORE, ONCE CERTAIN PURCHASES ARE HELD BOGUS / UNVERIFIED THE ONLY COURSE OF ACTION AVAILABLE WITH THE AO IS TO ESTIMA TE THE PROFIT ONCE THE BOOKS OF ACCOUNTS ARE REJECTED. THE AO HAS MADE ADDITION @ 25% OF BOGUS / UNVERIFIED PURCHASES RELYING ON THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF M/S SANJA Y OIL CAKE IND. (SUPRA) AND THE DECISION OF HON'BLE ITAT AHD. BENCH IN THE CASE OF M/S VIJAY PROTEINS (SUPRA). THE HON'BLE ITAT JAIPUR BENCH IN THE CASE OF M/S GEM PARADISE IN ITA NO.700/JP/2009 HAS CONSIDERED THE CASE OF SANJAY OIL CAKE IND. (SUPRA) AND HELD T HAT IN THE CASE OF SANJAY OIL CAKE A SPECIFIC FINDING WAS GIVEN BY THE AO THAT PURCHASES WERE MADE FROM THE ALLEGED BOGUS SUPPLIER S AT HIGHER RATE AS COMPARED TO OTHER PARTIES. THE HON'BLE TRIBUNAL HELD THAT THE 8 DECISION OF HON'BLE GUJARAT HIGH COURT WAS NOT APPL ICABLE IN THAT CASE. RESPECTFULLY FOLLOWING THE DECISION OF HON'BL E ITAT JAIPUR BENCH IT IS HELD THAT WITHOUT ESTABLISHING THAT THE PURCHASES WERE INFLATED ADDITION CANNOT BE MADE @ 25% OF THE BOGUS PURCHASES. THE HON'BLE GUJARAT HIGH COURT ITSELF IN THE CASE O F SANJAY OIL CAKE (SUPRA) HAS CLEARLY INDICATED THAT ESTIMATE AT PART ICULAR RATE IS NOT A QUESTION OF LAW AND HENCE, LEGAL PROPOSITION LAID D OWN BY THE AO FROM THESE CASES CANNOT BE APPROVED. THE FACT SHOUL D BE CONSIDERED INDEPENDENTLY IN EACH CASE. ONCE THE AO REJECTED BOOKS OF ACCOUNTS THE BEST COU RSE OF ACTION AVAILABLE WITH THE AO IS TO MAKE ESTIMATION OF PROFIT. ANY ADDITION / DISALLOWANCE CAN BE MADE INDEPENDENTLY B UT ONLY AFTER ESTIMATING THE GROSS PROFIT. FOR ESTIMATING THE PRO FIT PAST HISTORY OF THE CASE CANNOT BE IGNORED. IN THE PRESENT CASE THE DECLARED GP RATE OF 1.95% IS LOWER THAN GP RATE OF 20.41% DECLARED I N THE IMMEDIATELY PRECEDING YEAR AND THEREFORE, ENHANCEME NT OF GP RATE IS JUSTIFIED. HOWEVER, CONSIDERING THE EXPLANATION OFFERED BY THE APPELLANT THAT IN THE IMMEDIATE PRECEDING YEAR THER E WERE ONLY RETAIL SALES WHEREAS IN THE YEAR UNDER CONSIDERATION THERE ARE WHOLESALE SALES, THE FALL IN GP RATE TO SOME EXTENT IS ACCEPT ED. FURTHER, THE TURNOVER IS NOT COMPARABLE AS THE TURNOVER HAS INCR EASED BY 4436%. THE GP HAS ALSO INCREASED BY 333%. HOWEVER, CONSIDE RING THE FACT THAT IN THE ACCEPTED PURCHASES THE DECLARED GP RATE COMES TO 2.62% WHEREAS IN THE CASE OF UNVERIFIABLE PURCHASES THE G P RATE COMES TO ONLY 1.44%, OVERALL GP RATE OF 3% WILL BE MORE REAS ONABLE. THE AO IS THEREFORE, DIRECTED TO APPLY GP RATE OF 3% AS AGAINST 1.95% DECLARED BY THE APPELLANT ON THE DECLARED TURNOVER OF RS.6,99,90,493/-. THE TRADING ADDITION OF RS. 10558 554/- IS 9 THEREFORE, REDUCED CONSIDERABLY. THE APPELLANT THUS GETS PARTIAL RELIEF. THE GROUNDS OF APPEAL ARE DECIDED PARTLY IN FAVOUR OF THE APPELLANT. 14. NOW THE DEPARTMENT AND ASSESSEES ARE IN APPEAL HERE BEFORE THE TRIBUNAL AGAINST REDUCING THE ADDITION AND AGAINST UPHOLDING THE REJ ECTION OF BOOKS OF ACCOUNT AND CONFIRMING THE PART ADDITION RESPECTIVELY. 15. THE LD. CIT D/R HAS PLACED RELIANCE ON THE ORDE R OF AO. HE FURTHER PLACED RELIANCE ON THE DECISION OF HONBLE APEX COURT IN C ASE OF M/S. KANCHWALA GEMS, 288 ITR 10 (SC). 16. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE ORDER OF LD. CIT (A) TO THE EXTENT TO WHICH THE ADDITIONS ARE RE DUCED AND IN RESPECT TO REJECTION OF BOOKS OF ACCOUNT AND CONFIRMING PART ADDITION. REL IANCE HAS ALSO BEEN PLACED ON THE NOTE FILED. 17. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A), WE FIND THAT THERE IS NO MERIT IN THE CASE OF THE DEPARTMENT. HOWEVER, ASSE SSEE DESERVES TO SUCCEED IN ITS CROSS OBJECTION IN PART. 17.1. THE JAIPUR BENCHES OF THE TRIBUNAL ARE TAKING A CONSISTENT VIEW THAT WHERE CERTAIN PURCHASES REMAINED UNVERIFIABLE THE REJECTION OF BO OKS OF ACCOUNT BY INVOKING PROVISIONS OF SECTION 145(3) IS JUSTIFIED. HOWEVER, THE JAIPUR BENCHES OF THE TRIBUNAL ARE TAKING A CONSISTENT VIEW ALSO THAT WHERE BOOKS OF ACCOUNT AR E REJECTED ON ACCOUNT OF UNVERIFIABLE PURCHASES, THEN IN THAT CASE THE ADDITION SHOULD BE MADE AFTER TAKING INTO CONSIDERATION THE PAST HISTORY OF THE CASE AND ALSO CURRENT EVENT S OF THE CASE. THE LD. CIT (A) HAS TAKEN CORRECT VIEW IN REJECTING THE BOOKS OF ACCOUNT AS C ERTAIN PURCHASES REMAINED UNVERIFIABLE. 10 THE HONBLE SUPREME COURT IN CASE OF M/S. KANCHWALA GEMS (SUPRA) HAVE ALSO HELD THAT WHERE CERTAIN PURCHASE REMAIN UNVERIFIABLE, THE REJ ECTION OF BOOKS OF ACCOUNT ARE CORRECT. HOWEVER, THE ADDITION CAN BE MADE IN THE TRADING AC COUNT TAKING INTO ACCOUNT THE G.P. RATE OF EARLIER YEAR AND CURRENT EVENTS OF THE CASE. G .P. RATE SHOWN BY ASSESSEE IS 1.95% ON TURNOVER OF RS. 6,99,90,493/- AGAINST G.P. RATE OF 20.41% ON SALES OF RS. 15,42,995/-. THERE IS SHARP DECLINE IN GROSS PROFIT RATE FOR THE REASON THAT IN EARLIER YEAR THE ASSESSEE WAS DEALING IN RETAIL SALE OF GOLD JEWELLERY BUT IN THE YEAR UNDER CONSIDERATION THE ASSESSEE DEALS IN WHOLESALE SALE AND THAT TOO OF B ULLION IN WHICH A VERY SMALL MARGIN IS AVAILABLE. SINCE CERTAIN PURCHASES REMAINED UNVERI FIABLE, THEREFORE, THERE IS A POSSIBILITY OF LEAKAGE OF REVENUE. THE PURCHASES OF RS. 4 CROR ES OR ODD ARE REMAINED UNVERIFIABLE, THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT IF AN ADDITION OF RS. 4,00,000/- IS SUSTAINED ON ACCOUNT OF UNVERIFIABLE PURCHASES THAT WILL MEET THE ENDS OF JUSTICE. ACCORDINGLY WE DIRECT THE AO TO MODIFY HIS ORDER. 18. BEFORE PARTING WE WOULD LIKE TO DISCUSS RATIO O F DECISION OF HONBLE APEX COURT IN THE CASE OF M/S. KANCHWALA GEMS (SUPRA). IN THI S CASE ALSO CERTAIN PURCHASES REMAINED UNVERIFIABLE. QUANTITY OF STOCK WAS NOT V ERIFIABLE AND THERE WAS NO EVIDENCE TO VERIFY THE CLOSING STOCK. THEREFORE, THE AO REJECT ED THE BOOKS OF ACCOUNT AND APPLIED A G.P. RATE OF 35.48% AGAINST 13.49% SHOWN BY HE ASSE SSEE. THEREAFTER ON APPEAL BEFORE LD. CIT (A), THE LD. CIT (A) APPLIED G.P. RATE OF 30%. TRIBUNAL ALSO CONFIRMED THE ACTION OF LD. CIT (A). ASSESSEE PREFERRED APPEAL BEFORE H ONBLE HIGH COURT AND HONBLE HIGH COURT ALSO CONFIRMED THE ORDER OF TRIBUNAL. ON APP EAL BEFORE HONBLE SUPREME COURT, THE HONBLE SUPREME COURT HAS HELD THAT THERE WAS N O ARBITRARINESS IN THIS CASE IN RESORTING TO BEST JUDGMENT ASSESSMENT. IT WAS THE ASSESSEE HIMSELF WHO WAS TO BLAME AS 11 HE DID NOT SUBMIT PROPER ACCOUNT. AFTER CONSIDERIN G THE RATIO OF THIS DECISION IT IS NOTICED THAT THE HONBLE SUPREME COURT HAS DECIDED THE MATT ER ON THE FACTS OF THAT CASE AND THE ORDER OF TRIBUNAL WAS SUSTAINED. NOW, HERE THE BEN CHES OF THE TRIBUNAL ARE TAKING A CONSISTENT VIEW THAT WHERE CERTAIN PURCHASES REMAIN UNVERIFIABLE THE ADDITION CAN BE MADE ON THE BASIS OF PAST HISTORY OR TAKING INTO AC COUNT THE CURRENT EVENTS OF THE CASE. PAST HISTORY HAS BEEN TAKEN INTO CONSIDERATION BY L D. CIT (A) AND THEREAFTER A REASONABLE PROFIT HAS BEEN ESTIMATED. WE HAVE CONFIRMED THE R EJECTION OF BOOKS OF ACCOUNT. HOWEVER, SMALL PORTION OF ADDITION HAS BEEN REDUCED TAKING INTO ACCOUNT THAT THERE MAY BE SOME LEAKAGE OF REVENUE ON ACCOUNT OF UNVERIFIAB LE PURCHASE. EACH CASE HAS ITS OWN FACTS AND ON THE FACTS OF PRESENT CASE WE HAVE TAKE N A REASONABLE VIEW WHICH IS IN LINE WITH THE DECISION OF HONBLE APEX COURT. THE HONB LE APEX COURT HAS TAKEN A NOTE THAT IN SIMILAR CIRCUMSTANCES IN CASE OF M/S. GEM PARADI SE AND IN CASE OF M/S. DHADDA EXPORTS THE PROFIT DECLARED BY THOSE PARTIES WERE 3 5% AND 43.8% AND, THEREFORE, FOR THIS REASON THE ACTION OF THE TRIBUNAL HAVE BEEN AFFIRME D IN APPLYING 35% OF G.P. RATE WHEREAS IN THE CASE IN HAND NO SUCH FACTS ARE INVOLVED, NEI THER ANY COMPARABLE CASE HAS BEEN BROUGHT ON RECORD FOR THE YEAR UNDER CONSIDERATION. IN VIEW OF THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE DISCUSSION MADE AB OVE, WE SUSTAIN THE ADDITION OF RS. 4,00,000/- AS STATED ABOVE. 19. SIMILAR FACTS ARE INVOLVED IN CASE OF THE ASSES SEE I.E. IN CASE OF M/S. MOHAN & COMPANY. IN THIS CASE TOTAL UNVERIFIABLE PURCHASE WERE OF RS. 6,97,48,643/- AND LD. CIT (A) HAS SUSTAINED ADDITION OF RS. 7,46,886/- BY APP LYING G.P. RATE OF 2.19% AGAINST G.P. RATE OF 1.44% DECLARED BY THE ASSESSEE. WE ARE O F THE VIEW THAT IF A TRADING ADDITION OF RS. 5,00,000/- IS SUSTAINED THAT WILL MEET THE ENDS OF JUSTICE AS IN THIS CASE CERTAIN 12 PURCHASES REMAINED UNVERIFIABLE. IN THIS CASE ALSO THE REJECTION OF BOOKS OF ACCOUNT IS UPHELD AS THE FACTS ARE SIMILAR. 20. IN THE RESULT, APPEALS OF THE DEPARTMENT ARE DI SMISSED AND CROSS OBJECTIONS OF THE ASSESSEES ARE ALLOWED IN PART. 21. 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, D/- COPY FORWARDED TO :- M/S. AGRASEN JEWELLERS, JAIPUR. M/S. MOHAN & COMPANY, JAIPUR. THE ITO WARD 1(1), JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 860(4)/JP/2010) BY ORDER, AR ITAT JAIPUR.