ITO, Jaipur V. AINBOW JEWELLERS, Jaipur

ITA 880/JPR/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 47988 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 01-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD JOHARI
• Assessee Lawyers: S K SHARMA; K R SABARWAL
• Keywords: Additional evidence
• Section: 131; 10

Judgement Text

1 ITA 880-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 880/JP/2010 ASSTT. YEAR : 2007-08. THE INCOME-TAX OFFICER, VS. M/S. RAINBOW JEWELLER S, WARD 5(1), NEW RAMGARH MODE, JAIPUR. AMER ROAD, JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VINOD JOHARI RESPONDENT BY : SHRI S.K.SHARMA & SHR I K.R. SABARWAL ORDER DATE OF ORDER : 14/07/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2007-08. 2. THE DEPARTMENT IS OBJECTING IN RESTRICTING THE T RADING ADDITION OF RS. 11,75,545/- TO RS. 1,14,048/- MADE BY AO @ 25% OF UNVERIFIABLE PURCHASES. 3. THE DEPARTMENT IS ALSO OBJECTING IN DELETING THE ADDITION OF RS. 71,75,069/- AND DELETING THE ADDITION OF RS. 4,69,600/- MADE BY AO ON ACCOUNT OF NON GENUINE TRADE CREDITORS AND ON ACCOUNT OF DISALLOWANCE OF PART SA LARY EXPENSES FOR NON VERIFICATION RESPECTIVELY. 4. A GROUND HAS ALSO BEEN TAKEN BY THE DEPARTMENT A DMITTING THE ADDITIONAL EVIDENCE IN CONTRAVENTION OF CONDITIONS PRESCRIBED UNDER RUL E 46A OF IT RULES. 5. THE LD. D/R HAS PLACED RELIANCE ON THE ORDER OF AO. 2 6. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 7. THE APPEAL OF THE DEPARTMENT IS DISPOSED OFF IN THE FOLLOWING MANNER : 8. REGARDING FIRST ISSUE, IT IS SEEN THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF TRADING OF PRECIOUS AND SEMI PRECIOUS STONES AND JE WELLERY AND ALL GOODS ARE BEING EXPORTED TO FOREIGN TOURISTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT ASSESSEE HAS SHOWN PURCHASES FROM VARIOUS PART IES. AFTER GOING THROUGH THE COPY OF PURCHASE BILLS ETC. THE AO ISSUED NOTICE UNDER SECT ION 131 FOR NECESSARY VERIFICATION TO 65 PARTIES, OUT OF WHICH IN 29 CASES SUMMONS ISSUED WE RE RETURNED UNSERVED WITH THE REMARK THAT EITHER THE FIRM DOES NOT EXIST OR ADDRESS IS N OT VERIFIABLE. THEREFORE, ASSESSEE WAS REQUIRED TO FILE CONFIRMATION OF THESE 29 PARTIES A LONG WITH THEIR LATEST COMPLETE POSTAL ADDRESS, PAN NUMBER ETC. ACCORDING TO THE AO ASSES SEE COULD NOT PRODUCE THESE PARTIES AND NO DOCUMENTARY EVIDENCE COULD ALSO BE FURNISHED REGARDING GENUINENESS OF THE PURCHASES. PLACING RELIANCE ON VARIOUS CASES INCLU DING THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SANJAY OIL CAKE INDUSTRIE S, 10 DTR 153 (GUJ.), THE AO DISALLOWED 25% OF SUCH UNVERIFIABLE PURCHASES WHICH RESULTED IN A TRADING ADDITION OF RS. 11,75,545/-. IT WAS SUBMITTED BEFORE LD. CIT (A) T HAT ALL THE PARTIES ARE GENUINE AND OUT OF 29 PARTIES, 17 ARE REGISTERED UNDER VAT AND REMA INING PARTIES THOUGH ARE UNREGISTERED BUT PAYMENT TO THEM HAS BEEN MADE BY ACCOUNT PAYEE CHEQUE. RST/CST ALONG WITH PAN NUMBERS OF THESE PARTIES WERE SUPPLIED TO THE A O. COPY OF RETURN WAS ALSO FILED. ACCORDINGLY IT WAS CONFIRMED THAT AO WAS NOT JUSTIF IED IN INVOKING PROVISIONS OF SECTION 145(3) AND MAKING TRADING ADDITION. 3 9. THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSION S AND PERUSING THE MATERIAL ON RECORD FOUND THAT DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SANJAY OIL CAKE INDUSTRIES (SUPRA) WAS DISTINGUISHABLE IN THE CASE OF M/S. GEM PARADISE DECIDED IN ITA NO. 700/JP/2009 BY THE JAIPUR BENCH. THE LD. CIT ( A) HELD THAT THE PROVISIONS OF SECTION 145(3) ARE APPLICABLE. HOWEVER, THE ADDITION MADE @ 25% OF UNVERIFIABLE PURCHASES IS NOT JUSTIFIED AS THE ADDITION CAN BE MADE TAKING IN TO CONSIDERATION THE PAST HISTORY OF THE CASE. IT WAS NOTICED BY LD. CIT (A) THAT G.P. RATE SHOWN BY ASSESSEE IS 16.81% IN THE IMMEDIATELY PRECEDING YEAR. THEREFORE, HE APPLIED A G.P. RATE OF 17.5% ON THE TOTAL TURNOVER WHICH RESULTED IN A TRADING ADDITION OF RS . 1,14,048/-. ACCORDINGLY, THE REMAINING ADDITION MADE BY AO WAS DELETED. 10. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A), WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). THERE WAS NO DEFECT IN THE BOOKS OF ACCOUNT EXCEPT THAT CERTAIN PURCHASES REMAINED UNVERIFIABLE. THE JAIPU R BENCHES OF THE TRIBUNAL ARE TAKING A CONSISTENT VIEW THAT IF CERTAIN PURCHASES REMAIN UN VERIFIABLE THEN REJECTION OF BOOKS OF ACCOUNT IS JUSTIFIED. HOWEVER, IT IS FURTHER HELD THAT THE ADDITION CANNOT BE MADE @ 25% AS THE ADDITION CAN BE MADE TAKING INTO CONSIDERATI ON THE PAST HISTORY AND CURRENT EVENTS OF THE CASE. IT IS SEEN THAT G.P. RATE SHOWN BY ASS ESSEE IS 16.81% AND SIMILAR G.P. RATE WAS SHOWN IN THE PRECEDING YEAR. THE LD. CIT (A) HAS DI RECTED THE AO TO APPLY G.P. RATE OF 17.5% WHICH RESULTED IN AN ADDITION OF RS. 1,14,048 /-. THIS ADDITION WILL TAKE CARE OF LEAKAGE OF REVENUE, IF ANY, AS CERTAIN PURCHASES RE MAINED UNVERIFIABLE. THEREFORE, WE CONFIRM THE ORDER OF LD. CIT (A) ON THIS ISSUE. 11. NEXT ISSUE RELATES TO DELETION OF ADDITION OF R S. 71,75,069/- ON ACCOUNT OF TRADE CREDITORS. 4 12. FROM THE ASSESSMENT ORDER IT IS SEEN THAT ASSES SEE HAS SHOWN CREDITS OF RS.71,75,069/- AS ON 31.3.2007. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO SUBMIT THE CONFIRMATION AL ONG WITH COMPLETE POSTAL ADDRESS AND PAN NUMBER OF THESE CREDITORS. SINCE NO SUCH CONFIR MATION COULD BE FURNISHED, THE AO CONSIDERED ALL THE TRADE CREDITS AS UNVERIFIABLE AN D MADE THE IMPUGNED ADDITION. IT WAS ARGUED BEFORE LD. CIT (A) THAT AO HAS MADE SERIOUS MISTAKE IN MAKING ADDITION TWICE IN RESPECT TO FOUR PARTIES SHOWN AS TRADE CREDITORS, N AMELY, M/S. AAYUSH ENTERPRISES, M/S.ANUPAM EXPORTS AND IMPORTS, M/S. SELECTIVE GEMS AND M/S. SUMIT GEMS AGGREGATING TO RS. 20,48,982/- SINCE THE PURCHASES FROM THESE PARTIES WERE ALSO HELD AS UNVERIFIABLE AND 25% OF THE SAME WAS ALSO DISALLOWE D. IT WAS FURTHER ARGUED THAT ALL THE CREDITORS HAVING OUTSTANDING BALANCE AS ON 31.3.200 7 IS BECAUSE OF REGULAR BUSINESS ACTIVITY AND AFTER PURCHASES PAYMENTS TO THESE PART IES WERE MADE BY ACCOUNT PAYEE CHEQUE FROM TIME TO TIME. COPIES OF ACCOUNT OF THE PARTIES WERE FILED SHOWING PAYMENT BY ACCOUNT PAYEE CHEQUE. IT WAS SUBMITTED THAT THE RE WAS NO EVIDENCE EVEN AFTER MAKING PAYMENT BY CHEQUE THE ASSESSEE HAS RECEIVED BACK CA SH MONEY FROM THESE CREDITORS AND, THEREFORE, THE AO HAS MADE SERIOUS MISTAKE. AFTER CONSIDERING THE SUBMISSIONS, THE LD. CIT (A) WAS SATISFIED WITH THE EXPLANATION. THE FIN DINGS OF LD. CIT (A) HAVE BEEN RECORDED AT PAGE 7 ARE AS UNDER, WHICH NEITHER COUL D BE CONTROVERTED NOR ANY OTHER MATERIAL WAS BROUGHT ON RECORD, THEREFORE, WE SEE N O REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A) :- I HAVE CONSIDERED FACTS OF THE CASE AND ARGUMENT S TAKEN BY SH. GUPTA QUITE CAREFULLY. IT IS A FACT THAT ALL THE TR ADE CREDITORS FOR WHICH ADDITION HAS BEEN MADE BY AO WERE HAVING REGULAR DE ALING WITH THE APPELLANT AND APPELLANT HAS SHOWN PURCHASES FROM TH ESE PARTIES FROM TIME 5 TO TIME NOT ONLY IN THE PRESENT YEAR BUT IN THE PRE CEDING AND SUCCEEDING YEAR ALSO. PAYMENT FROM TIME TO TIME TO THESE PARTI ES WAS NOT MADE IN CASH OR THROUGH BEARER CHEQUE BUT THE PAYMENT HAVE BEEN MADE BY THE ACCOUNT PAYEE CHEQUE. FURTHER, OUT OF THESE 31 CREDITORS IN 27 CASES THE PURCHASES WERE NOT HELD AS INGENUINE AND NOT VERIFIABLE BY TH E ASSESSING OFFICER WHICH MEANS THAT IN THESE 27 CASES THE PURCHASES SH OWN ARE CONSIDERED GENUINE THEN HOW OUTSTANDING BALANCE IN THE ACCOUNT OF THESE PARTIES AS ON 31.3.2007 CAN BE CONSIDERED AS NOT GENUINE ON THE S IMPLE GROUND THAT THE CONFIRMATIONS FROM THESE PARTIES COULD NOT BE FURNI SHED BY THE APPELLANT BEFORE THE ASSESSING OFFICER, WHEN IT IS A FACT THA T PAYMENT TO THESE PARTIES WAS MADE BY ACCOUNT PAYEE CHEQUE THEN THE EXISTENCE AND GENUINENESS OF THESE PARTIES IS CAPABLE OF BEING VERIFICATION FROM THE RESPECTIVE BANK AUTHORITIES WHERE THESE PARTIES WERE MAINTAINING BA NK ACCOUNT IN WHICH THE CHEQUES ISSUED BY THE APPELLANT WAS CREDITED TH ROUGH CLEARING/TRANSFER. IT IS FURTHER NOTICED THAT WHATEVER BALANCE HAS BEE N SHOWN IN THE NAME OF THESE SUNDRY CREDITORS IT WAS ALSO PAID IN SUBSEQUE NT PERIOD BY ACCOUNT PAYEE CHEQUE FOR WHICH THE COPY OF ACCOUNT HAS BEEN FURNISHED BY SH. GUPTA IN THE APPELLATE PROCEEDINGS. UNDER THESE CIR CUMSTANCES IN MY CONSIDERED VIEW THE ASSESSING OFFICER HIGHLY UNJUST IFIED IN TREATING ENTIRE TRADE CREDITORS SHOWN AS ON 31.3.2007 AS UNEXPLAINE D CREDITOR AND WITH THIS DISCUSSION SUCH ADDITION MADE BY AO OF RS. 71, 75,069/-. ACCORDINGLY, THE ABOVE FINDINGS OF LD. CIT (A) ARE CONFIRMED. 13. REGARDING DELETION OF ADDITION OF RS. 4,69,600/ -, THE AO NOTICED THAT ASSESSEE HAS CLAIMED SALARY EXPENSES OF RS. 11,74,000/- IN RESPE CT OF 16 EMPLOYEES. ASSESSEE WAS REQUIRED TO PRODUCE THESE EMPLOYEES FOR CROSS EXAMI NATION. HOWEVER, ASSESSEE COULD ONLY SUBMIT A CHART OF SUCH SALARIED EMPLOYEES. IN VIEW OF NON PRODUCTION OF THE EMPLOYEES, THE AO DISALLOWED 40% OF SUCH SALARY CLA IM WHICH RESULTED IN AN ADDITION OF RS. 4,69,600/-. IT WAS SUBMITTED BEFORE LD. CIT (A ) THAT SALARIES WERE PAID TO STAFF 6 MEMBERS AND ALL THE DETAILS REGARDING EMPLOYEES WER E SUBMITTED BEFORE AO. THE ASSESSEE HAS ALSO PRODUCED DETAILS OF WHEREABOUTS O F THE EMPLOYEES INCLUDING THEIR COMPLETE ADDRESS WHICH AGAIN ALONG WITH CONFIRMATIO N OF EMPLOYEES WERE FURNISHED BEFORE LD. CIT (A). IT WAS FURTHER SUBMITTED THAT THE PAYMENT WAS MADE BY CHEQUE TO SOME OF THE EMPLOYEES AND IN REMAINING CASES WHERE THERE IS SMALL SALARY PAYMENT, WHICH HAS BEEN PAID IN CASH BUT WITH PROPER SIGNATU RES. IT WAS SUBMITTED THAT SALARY PAID TO THE EMPLOYEES WERE PAID AS PER LAST YEAR. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD, LD. CIT (A) HELD T HAT ADHOC DISALLOWANCE OF 40% SALARY FOR NON PRODUCTION OF EMPLOYEES WAS NOT JUSTIFIED. COMPLETE NAMES AND ADDRESSES WERE BEFORE THE AO AND IF THE AO WAS NOT SATISFIED, HE C OULD HAVE MADE DIRECT ENQUIRIES FROM THE GIVEN ADDRESSES, WHICH HE HAS NOT DONE. THEREFO RE, DISALLOWANCE OF SALARY WAS NOT JUSTIFIED. THE FINDING OF LD. CIT (A) ARE FINDING OF FACT. ACCORDINGLY, WE SEE NO REASON TO INTERFERE WITH THE FINDING OF LD. CIT (A). THER EFORE, THE SAME ARE CONFIRMED. 14. REGARDING ADMITTING ADDITIONAL EVIDENCES, NOTHI NG HAS BEEN BROUGHT ON RECORD THAT WHAT ADDITIONAL EVIDENCES WERE FILED BEFORE LD . CIT (A) AND HOW THEY WERE IN CONTRAVENTION OF RULE 46A OF IT RULES. ACCORDINGLY THIS GROUND OF THE DEPARTMENT IS ALSO FAILS. 15. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. 16. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14 .07.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- 7 COPY FORWARDED TO :- THE ITO WARD 5(1), JAIUPR. M/S. RAINBOW JEWELLERS, JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 880/JP/2011) BY ORDER, AR ITAT JAIPUR.