Venus Arts & Gems V. The Income-Tax Officer Ward 1(1), Jaipur

ITA/582/2011

AI Insights

The case involves Venus Arts & Gems, a partnership firm engaged in the manufacturing and exporting of silver and metal articles, which appealed against the order of the Income Tax Appellate Tribunal, Jaipur. The dispute centered on the Gross Profit Rate applied for the Assessment Year 2006-07. The Assessing Officer had rejected the firm's books of account due to discrepancies and non-verifiable purchases, applying a higher G.P. rate of 14%. The CIT(A) reduced this to 11% after considering the firm's previous G.P. rates. Both the firm and the Revenue challenged this decision before the Tribunal, which upheld the CIT(A)'s decision. The High Court found no substantial question of law arising from the Tribunal's decision, affirming the lower authorities' findings.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 808839 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 20-08-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Assessment proceedings; Assessment Year; Book Results; G.P. Rate; Gross Profit Rate; Income tax appellate tribunal; 100% Exporter
• Section: 145(3); 260-A

Judgement Text

"1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR J U D G M E N T D.B. INCOME TAX APPEAL NO. 582/2011 Venus Arts & Gems Vs. The Income-Tax Officer Ward 1(1), Jaipur Date of Judgment : 20th August, 2014 HON'BLE MR.JUSTICE AJAY RASTOGI HON'BLE MR.JUSTICE J.K. RANKA None present for for the parties BY THE COURT(Per Hon'ble Ranka J.) The instant appeal filed by the appellant U/Sec. 260-A of the Income Tax Act, 1961 (for short the Act) is directed against order of Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (for short ITAT) dt. 27th May, 2011 passed in ITA No. 1313/JP/2010 relating to Assessment Year 2006-07. 2. The brief facts as emerging on the face of record are that the assessee-appellant is carrying on business of manufacturing of silver and metal beads, toggles, chains, other articles including semi precious and precious stones and is claimed to be a 100% exporter of goods. The said business is being carried on as a partnership firm. During the course of assessment proceedings it was noticed by the Assessing Officer that the assessee declared gross profit of Rs. 1,12,12,897/- on total turn over of Rs.12,74,65,482/- resulting into Gross Profit Rate (for short G.P. Rate) at the rate of 8.79% against G.P. rate declared in the 2 immediate preceding year at 11.4%. during the course of assessment proceedings, the Assessing Officer observed that the assessee had purchased goods from various concerns and names of ten parties were given by the Assessing Officer and it was desired by the Assessing Officer from the assessee to produce these parties for examination as the assessee had purchased goods from them. It was also desired that the assessee may produce their income tax returns as well as stock registers or evidence in support of availability of goods supplied to the assessee for the financial year 1.4.2005 to 31.3.2006. However, the assessee respondent submitted that the assessee is a 100% export oriented firm and all the sales of the assessee are export sales, which are duly verified by the Custom Department. It was also submitted that all the purchases are verifiable from the fact that all the payments have been made from bank and all the goods purchased stood exported. It was further submitted that they have tried to produce the creditors for verifying the purchases, but they have refused to appear before the Income Tax authorities and it was submitted that the department in this situation can issue summons to these parties and verify the purchases made by the assessee at the addresses already available with the Department. Along with the said reply, the assessee did furnish confirmation of accounts of some of the relevant parties. It is an observation by the Assessing Officer that all the summons either received back from postal authority 3 unserved or remained uncomplied with. Accordingly, thereafter the Assessing Officer again issued a show cause notice to the assessee on 8.12.2008 reiterating the fact that since notices (summons) have been returned back by Postal authority unserved or remained uncomplied with. Therefore, the assessee was directed again to prove genuineness of the transactions. It was also stated by the Assessing Officer that survey came to be conducted in 9 out of 10 parties from whom the assessee had purchased goods and during the course of survey one Shri Mitthu Lal Saini of M/s Royal Gems & Arts from whom the assessee had purchased goods stated that he was not doing any business but only issued sale bills. Similarly, one Shri Anil Kumar Lalwani admitted that M/s Anil Exports and M/s Puja Jewellers are not doing any business of sale & purchase of gems and jewellery but issued only sale bills to earn commission. The Assessing Officer stated that the BCTT wing of the department has covered the case of M/s Kiran Jeweller, M/s K.S. Exports, M/s Armilla Gems, M/s Samridhi Jewellers and M/s Unique Gems Trading Company for survey U/Sec.133A, but whereabouts of these firms were not found and again directed the assessee to produce the parties or to prove the genuineness of the transactions. The assessee responded and reiterated the fact that the statements if any of these persons cannot be relied upon. The Assessing Officer finding no alternative noticing the above fact as also noticing the defects in the stock register rejected the book results by 4 invoking the provisions of Sec. 145(3) of the Act and since the assessee was unable to prove the purchases as also the defects noticed by the Assessing Officer during the course of assessment proceedings applied a G.P. rate of 14% on the declared turnover and made a trading addition of Rs.66,32,270/-. 3. The matter was challenged before the CIT(A) and the facts were reiterated before the CIT(A). The CIT(A) after analysing the evidence on record and noticing the defects pointed out by the Assessing Officer upheld the finding of invoking the provisions of Section 145(3) of the Act however partly allowed the appeal and directed the application of a G.P. rate of 11% as against 14% applied by the Assessing Officer after perusing the previous history of the assessee. 4. Dis-satisfied with the deletion/sustenance of the G.P. rate, both the Revenue as well as the assessee preferred cross appeals before the Tribunal. The Tribunal also upheld the finding of the CIT(A) and dismissed the appeals of the department as well as assessee, which order has been assailed before us by the assessee. 5. None appeared on behalf of the assessee. 6. We have gone through the impugned order as well as the orders passed by the A.O. as well as CIT (A) and in our view, it is purely a finding of fact by 5 the two appellate authorities as to what should be a reasonable G.P. rate after rejection of books of account and various infirmities noticed by the lower authorities and in our view no question of law much less substantial question of law can be said to emerge out of the order of the Tribunal. It is a matter of fact that various defects were noticed by the Assessing Officer during the course of the assessment proceedings, which have already been enumerated. It may be that an assessee is 100% exporter but that does not mean that the Assessing Officer is precluded from enquiring into the purchases, which were made by the assessee from the said sellers. It would be appropriate to quote the relevant para 9, in which the Tribunal observed about not only rejecting the books results but also in upholding G.P. rate of 11%:- “The past history of the assessee is that in earlier year assessee has shown g.p. rate 11.4% whereas in this year the assessee has shown g.p. rate of 8.8.% which is on a very lower side. The assessee has taken ground that purchase value has been increased whereas sale value has not been increased in proportionate to purchase value. However, no documentary evidence has been filed by the assessee in support of this contention. Books of account were rejected by the AO and we have confirmed the rejection of books of account. Therefore, it has to be seen and ascertained that how the purchase price is increased and sale price remained constant or slightly higher. The onus is on the assessee to prove this fact. Assessee has not filed any instance of comparable sales case, neither has given the reasoning how the purchase price has been increased. A query was raised by the Bench that on a particular date the assessee is showing purchase @ Rs.10,400/- which remained unverifiable, but after a gap of 5-6 days the assessee has shown purchase @ 6 Rs.10,700/- per kg from a party which is verifiable. In four days, there is a difference of Rs.400/- per kg but no supporting evidence has been filed, neither rate of that particular date on which the purchase was shown at Rs.10,700/- per kg has been given. The ld. counsel of the assessee merely has stated that there may be one of the reasons that purchase price has been increased within 6 days. No doubt, the purchase price can vary from day to day but there should be some evidence. Neither paper cutting was filed nor any other evidence was filed. This is also not a very old case as the case in hand is for assessment year 2006- 07. Date of purchase can be easily procured and can be filed. Therefore, in our considered view, the purchase cost as well as sale price remained unverifiable. As we have already stated that rejection of books of account are justified, therefore, keeping in view all these facts and circumstances, we are of the view that ld. CIT (A) was justified in applying g.p. rate of 11% instead of g.p. rate of 11.4% shown in the immediately preceding year. The ld. CIT (A) has already given margin on account of increase in turnover as he has directed to apply 11% g.p. rate only. Therefore, we see no reason to interfere with the finding of ld. CIT (A). Accordingly we confirm the order of ld. CIT (A).” 7. We have already noticed the fact that the A.O. rejected the trading results and invoked the provisions of Sec. 145(3) on the defects noticed by the assessee and in addition to that he came to the conclusion that despite the assessee having been directed to produce the parties from whom the assessee purchased goods for verification, but despite ample opportunities having been granted, the parties were not produced, particularly in view of the fact that the summons at the addresses given by the assessee himself either came back unserved and returned 7 unserved by postal authorities or if served none of them presented before the A.O. It is the prime duty of an assessee to produce the sellers from whom he has purchased the goods in view of the fact that notices came back unserved. On perusal of the copies of the accounts of the firms as also the other details, it is noticed that from some of the parties, the goods purchased were to the extent of Rs.12 to Rs.20 Lacs. Merely because the parties are assessed to income tax and the transactions being by account payee cheques will not prove the genuineness of the transactions in view of the fact that in case of sellers as observed by the A.O. some of the parties denied the sale and stated that they did not sell the goods and merely issued bills without effecting actual delivery. Once this fact has come on record that the notice could not be served for one or the other reasons and the parties did not turn up then in our considered view the onus and burden shifts on the assessee which has to be discharged appropriately by the assessee and we have noticed in this case that the assessee has not been able to lead any evidence in furtherance of filing of confirmatory letters or merely showing that the amounts are being paid by account payee cheques. If the assessee was able to file confirmatory letters from the sellers than the assessee was certainly aware of the whereabouts and ought to have taken further steps in producing the parties and proving the genuineness of the purchases made by it, in view of what we have observed hereinabove. We are also of the 8 view that making exports of such goods purchased by the assessee is hardly of any consequence. Major deficiency has been noticed by the A.O. and in our view the Tribunal has rightly reached to the conclusion. 8. On perusal of the aforesaid finding, in our view, when the Assessing Officer found deficiencies as referred to by the Assessing Officer and approved by the two appellate authorities then provisions of Section 145(3) had to be invoked and have rightly been invoked and once provisions of Section 145(3) are invoked then what should be a reasonable G.P. rate is required to be seen which is a finding of fact and on the basis of appreciation of evidence thus it is a pure finding of fact. 9. The assessee has failed to highlight, bring on record any perversity in the order of the Tribunal so as to hold that substantial question of law is involved. The Hon'ble Apex Court and this Court has consistently held that when the matter is decided on appreciation of evidence and facts then it is finding of fact. 10. In view of above discussion, we find no merit in the appeal and the same stands dismissed, in limine. (J.K. RANKA) J. (AJAY RASTOGI) J. BKS/- “All corrections made in the judgment/order have been incorporated in the judgment/order being emailed.” B.K. SHRIVASTAVA PRIVATE SECRETARY "