The Income Tax Officer, Ward 5(5), Jaipur v. M/s Jewels and Gold Palace
[Citation -2016-LL-0930-93]

Citation 2016-LL-0930-93
Appellant Name The Income Tax Officer, Ward 5(5), Jaipur
Respondent Name M/s Jewels and Gold Palace
Court ITAT-Jaipur
Relevant Act Income-tax
Date of Order 30/09/2016
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags business concern • comparable case
Bot Summary: In respect of ground No.1 of Revenue s appeal and the assessee s cross objection, the facts of the case are that the assessee had made purchases from some parties which were bogus entry providers as per surveys/ enquiries conducted by the BCT wing in the month of March, 2008 and in these enquires it was noticed that these concerns were issuing bogus bills. Following the above said decisions, the AO rejected the books of accounts and estimated the profit of the assessee whereby 25 of the unverifiable purchases was added back to the total income of the assessee and a trading addition of Rs. 21,99,672/- was made. The onus is on the assessee to prove these purchases as genuine and sufficient purchases from the parties have been claimed to be made by him. During the course of hearing, the ld AR submitted that in the enquiry letter in point No.8, the AO asked the assessee to file details of purchases over 1 la c from a single party giving RST/CST No./PAN Nos., Items purchased and total amount of purchases made during the year. On page No.2 in para 3, the AO observed that Moreover it was seen that the assessee had made purchase from some parties which were related to the information recorded from BCIT and investigation wing. In A.Y. 2005-06 2007-08, Hon ble ITAT, Jaipur in assessee s own case has held that the facts of the above cases relied by the AO do not exist in the case of the assessee but applied rate of 24 as against 23 shown by the assessee. The AO has taken the necessary steps in terms of verifying these purchase transactions by issuing the summons u/s 131 and the assessee was allowed an opportunity to produce these parties for verification.


IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM ITA No.414/JP/15 &CO No.35/JP/15 Assessment Year : 2009-10 Income Tax Officer, Ward cuke M/s Jewels and Gold Palace, 5(5), Jaipur Vs. Dashera kothi, Amer Road, Jaipur PAN No. AACFJ 3657 N Appellant Respondent Assessee by : Shri H.M. Singhvi (CA) Revenue by :Shri O.P. Bateja (Addl.CIT) Date of Hearing : 29.09.2016 Date of Pronouncement : 30/09/2016. ORDER PER SHRI VIKRAM SINGH YADAV, A.M. This is appeal filed by Revenue and assessee s cross objection against order of CIT(A)-2, Jaipur on 06.02.2015 wherein following grounds of appeal have been taken: In ITA No. 414/JP/15 (1) Whether on facts and in circumstances of case and in law ld. CITA) erred in restricting trading addition to Rs. 13,19,803/- as against Rs. 21,99,672/, made by AO by disallowing 25% of total purchases of Rs. 87,98,686/-. (2) Whether on facts and in circumstances of case and in law ld. CIT(A) erred in deleting disallowance of Rs. 15,00,000/- made by AO on a/c of prepaid expenses. ITA No. 414/JP/15 & CO Bo. 35/JP/15 ITO ward 5(5), Jaipur vs. Jewels & Palace, Jaipur In CO No. 35/JP/15 (1) That Ld. CIT(A) erred in applying rate of 15% on un verified purchases through provisions of Section 145(3) without giving any comparable case. (2) That ld. CIT(A) erred in not following past history of cases wherein G.P. rate was applied. 2. In respect of ground No.1 of Revenue s appeal and assessee s cross objection, facts of case are that assessee had made purchases from some parties which were bogus entry providers as per surveys/ enquiries conducted by BCT wing in month of March, 2008 and in these enquires it was noticed that these concerns were issuing bogus bills. Further to verify genuineness of purchases, summons u/s 131 of IT Act, 1961 were issued and same were either received back with post remarks Not known or no reply was filed. Further, AO had sent the Notice Server as well as his Inspector of circle to find out that whether any such business concern exist at given address. He reported that no such business concern exists on given addresses. This fact was appraised to assessee vide order sheet entry dated 05.12.2011 and was also asked to personally produced following parties for verification, but assessee shows his inability to produce these parties for verification. Sl.No. Name of parties Purchases (Rs.) 1. Abhishek Enterprises 4,98,700/- 2. Blue World 13,95,050/- 3. Emereled World 7,67,143/- 4. Krishna Impex 9,91,250/- 5. Naman Gems 2,95,000/- 6. Prince Jeweller 1,53,900/- 7. R.V. Impex 11,48,000/- 8. Sanskar Jewels 5,42,400/- 9. SnehaImpex 10,80,000/- 10. Unique export 19,27,243/- Total 87,98,686/- AO drawn reference to decision of Hon ble Gujarat High court in case of Sanjay oil cake Industries vs. CIT report in (2008) 10 DTR Guj. 153 2 ITA No. 414/JP/15 & CO Bo. 35/JP/15 ITO ward 5(5), Jaipur vs. Jewels & Palace, Jaipur wherein it was held that appellate authorities were justified in upholding disallowance of payment made towards bogus purchases, decision in case of M/s Vijay Proteins Ld. vs.ACIT 58 ITD 428 wherein ITAT Ahmedabad has held that 25% of bogus purchases should be disallowed and decision of ITAT Jaipur Bench in case of BCIT, Circle-1, vs. M/s Nand Kishore Meghraj Jewellers, A.Y. 2006-07 in ITA No.433/JP/2009 dated 19,09,2009 where it was held that where none of bogus purchases have been got verified and therefore, purchases remain unverified which is defect in books of accounts and provisions of section 145(3) of IT Act, 1961 are applicable. Following above said decisions, AO rejected books of accounts and estimated profit of assessee whereby 25% of unverifiable purchases was added back to total income of assessee and trading addition of Rs. 21,99,672/- was made. Being aggrieved, assessee carried matter in appeal before ld CIT(A) who reduced addition on account of unverified purchases to 15%. Now, both Revenue and assessee are in appeal before us. 2. finding of ld. CIT(A) is given as under: I have perused facts of case, assessment order and submissions of appellant. assessee is engaged in purchase and sale of precious and semi precious stones, gold and silver jewellery etc. During year under consideration its g.p rate was 25.10% as against 23.11% in assessment year 2008-0-9 and 23.17% in A.Y. 2007-08. purchases from ten concerns amount to Rs. 87,98,686/- were held to be unverifiable, in view of fact that (i) sellers were not available at addresses mentioned (ii) assessee was unable to produce these sellers and (iii) inquiries conducted by Investigation Wing showed that above concerns were merely issuing bogus bills. contention of appellant that address, PAN, Sales tax registration number, confirmations, mode of payment, purchase bills have been submitted, does not discharge onus from assessee in view of fact that these concerns are now untraceable and these documents do not show that delivery 3 ITA No. 414/JP/15 & CO Bo. 35/JP/15 ITO ward 5(5), Jaipur vs. Jewels & Palace, Jaipur of goods have taken place. Therefore finding of AO that these purchases are unverifiable, is upheld. Also action of AO is rejecting books of accounts u/s 145(3) is therefore, upheld. AO has disallowed 25% of above unverifiable purchases by relying on decision of Gujarat High Court in case of Sanjay Oil Cake Industries (2008) 10 DTR 153 and decision of ITAT, Ahmedabad in case of Vijay Proteins Ltd. 58 ITD 428. ITAT, Jaipur Bench in ITA No. 241/JP/2012 dated 22.10.2014 has recently held, on pages 67-69 of consolidated order as under: We have heard rival contentions of both parties and perused material available on record. assessee has not challenged rejection of book result as defects pointed out by AO are sufficient to reject book result u/s 145(3) of act. department had conducted survey and search in various cases as mentioned by AO as well as ld. CIT(A). On investigation, it is found that four parties were also indulged in providing accommodation bills. sufficient opportunities have been given by AO to prove genuineness of purchase. AO himself issued notices to these parties but notices were returned back by postal department with remark no such party exist at given address. assessee could not produce these parties for verification during course of assessment proceedings. Even AO provided sufficient time to assessee. unverifiable purchases were Rs.3,28,40,664/- whereas assessee exported goods during year at Rs. 93,42,720/- during year under consideration . Therefore assessee s claim that all goods were exported goods during year at Rs.93,42,720/- during year under consideration. Therefore assessee s claim that all goods were exported during year is not correct. Further ld. AO had not precluded by law if assessee even exported goods 100% to investigate unverifiable purchases. ld. AO sent noticed to these parties which were returned back unserved with remark party 9is not existent . assessee was also produced these parties for verification whatever evidence were produced by assessee are not sufficient to prove purchase genuine even payments through account payee cheques is no sacrosanct and had not discharged onus on it. During course of investigation conducted by department, these parties were figured in list of entry provides and they had admitted that only provided bills no any real business with delivery of goods. AO applied Hon be Gujarat High Court decision in case of Sanjay Oil Cake Industries (supra) and ITAT Ahmedabad Bench decision in case of 4 ITA No. 414/JP/15 & CO Bo. 35/JP/15 ITO ward 5(5), Jaipur vs. Jewels & Palace, Jaipur Vijay Proteins wherein 25% disallowance held reasonable on unverifiable purchases. AR of assessee tried to distinguish this case with facts and circumstances and argued it apply past history of case. onus is on assessee to prove these purchases as genuine and sufficient purchases from parties have been claimed to be made by him. assessee also could not be able be lead any evidence in furthermore of filing of confirmatory letter or merely showing that payments were made by account payee cheque. assessee was aware of whereabouts of parties and he should have produced these parties, therefore, AO for verification or purchases, which could not be done at stage of assessment proceedings. addition on account of unverifiable purchases were made in A.Y. 2006-07. Thus, past history of assessee is not reliable and doctored. This funding is also got support from recent decision of Hon ble Rajasthan High court in case of Venus Arts & Gems order dated 20.08.2014 wherein it has been held that order passed by ITAT for confirming GP after rejection of books of accounts on basis of various discrepancies found by AO, there is no question of law involved in such profit estimates. Even assessee may be 100% exporter with does not preclude AO from enquiring into genuineness of purchases. Therefore, we are of considered view that 15% NP on unverifiable purchase is reasonable in this case. Accordingly assessee s appeal is partly allowed. Following above order of ITAT, Jaipur disallowance of 15% of unverifiable purchases amounting to Rs. 13,19,803/- is upheld. balance addition is directed to be deleted. above grounds are partly allowed. 3. During course of hearing, ld AR submitted that in enquiry letter in point No.8, AO asked assessee to file details of purchases over 1 la c from single party giving RST/CST No./PAN Nos., Items purchased and total amount of purchases made during year. All these details were filed vide letter date 03.10.2011. On page No.2 in para 3, AO observed that Moreover it was seen that assessee had made purchase from some parties which were related to information recorded from BCIT and investigation wing. Seventy surveys/enquiries were conducted in month of March 2008. In these enquiries it was noticed that these were issuing bogus bills. During course of assessment proceedings from information received as result of these inquiries it as noticed that concerns from which assessee has shown purchases are bogus entry providers. AO had not passed on such material to assessee for cross examination. assessee 5 ITA No. 414/JP/15 & CO Bo. 35/JP/15 ITO ward 5(5), Jaipur vs. Jewels & Palace, Jaipur vide letter dated 30.11.2011 filed information and explanation as noted in proceeding sheets with copies of PAN cards of Prop. of Abhishek Enterprises & Unique Exports and confirmations of Naman Gems, Sagar Exports, Vijay Gems, T.R. Jewellers, Siddhi Exports, Ritika International, Unique Exports, Sneha Impex, Pawan Internatoional, R.V. Impex & Sunrise International. AO issued notices u/s 131 to 12 parties mentioned on page 2 of AO. As mentioned in assessment order on page 3, notice issued to 10 parties as mentioned on para 3 returned unserved with remarks not known or no reply was filed. Notice server as well as Inspector also reported that no such business concerns exists in given address. But AO never showed remarks of Post Office nor report of Inspector and Notice Server. It is surprising that on one hand, AO is saying that these parties have given statement that they are entry providers, on other hand, AO is saying that they do not exist. Why AO has not made any enquiry from concerning AO and bank? parties are identified. AO asked to produce 10 parties as mentioned on page 3 of AO. However, assessee filed confirmation. AO has accepted sale. AO rejected books of accounts and added Rs.21,99,622/- calculated at rate of 25% of unverified purchases of Rs. 87,98,686/-. AO applied this rate of 25% on basis of judgement of High court in case of Sanjay Oil Cake Industries vs. CIT (10 DTR 153 Guj) & ITAT Ahmedabad C Bench in case of Vijay Proteins Ltd. vs. ACIT (38 ITR 428). facts of these cases are totally different. ratio cannot be applied in case of assessee. In A.Y. 2005-06 & 2007-08, Hon ble ITAT, Jaipur in assessee s own case has held that facts of above cases relied by AO do not exist in case of assessee but applied rate of 24% as against 23% shown by assessee. GP rate of current year is 25.21% as against 23.11% in immediately preceding year. Thus, GP is better than past year. ld. CIT(A) on page 6 following ITAT order in ITA No. 241/JP/2012 dated 22.10.2014 applied rate of 15% on unverified purchases. These findings are findings of fact. finding of case in one case could not be applied universally in all cases. It cannot also be considered as comparable case. If it is considered as comparable case, opportunity ought to have been given to assessee for comments. As held by Rajasthan High Court in Inani Marbles that past history of case is best guide or estimation of profits. Since in assesse s own cases ITAT Jaipur Bench in 2005-06 & 2007-08 wherein similar facts existed, held and sustained adhoc addition sustained by CIT(A). It is therefore prayed that rate of 15% applied on unverified purchases be deleted and marginal addition to cover up amount inflated @ 0.20 paise to 0.25 paise per Rs. 100/- for issuing bills be sustained. 6 ITA No. 414/JP/15 & CO Bo. 35/JP/15 ITO ward 5(5), Jaipur vs. Jewels & Palace, Jaipur 4. We have heard rival submissions and pursued material available on record. Undisputedly, books of accounts have been rejected on account of certain purchases which remain unverified during course of assessment proceedings. rejection of books of accounts is therefore not under challenge before us. AO has taken necessary steps in terms of verifying these purchase transactions by issuing summons u/s 131 and assessee was allowed opportunity to produce these parties for verification. However, besides sharing PAN numbers and some confirmations, purchases remain unverifiable. Only limited issue before us therefore relates to estimation of purchases which can be disallowed by AO. AO has estimated 25% of purchases whereas ld CIT(A) has reduced same to 15% following decision of Coordinate Bench in Anuj Kumar Varshney (supra). As per ld AR, even in earlier years, similar additions have been made on account of unverified purchases and estimation of G.P has been made based on past results. It is noted that decisions in case of Anuj Kumar Varshney and others were in respect of companies engaged in similar line of business i.e, gems and jewellery. Further, similar arguments were made in terms of following past history of assessee in those cases as well. Coordinate Bench has held that past history can be taken as basis where same is reliable. In instant case, in past years, books of accounts have been rejected and profit has been estimated and therefore, it cannot be said with certainty that past history will be reliable basis in instant case. In our view, ld CIT(A) has rightly estimated unverifiable purchases @ 15% based on decision of Coordinate Bench in case of Anuj Kumar Varshney (supra). We accordingly, confirm order of ld CIT(A). respective grounds of appeal taken by Revenue and assessee are dismissed. 5. In respect of ground No.2 of revenue s appeal, relevant facts and the finding of ld. CIT(A) as under: assessee has debited sum of Rs. 75,00,000/- on account commission on sales to Travel Corporation of India (TCI). AO has disallowed Rs. 15,00,000/- out of above expenditure on ground that it relates to prior period of 30.12.2007 to 31.03.2008. AO has arrived at this conclusion on basis of copy of agreement between assessee and TCI which states that this commission on sales pertains to period 30.12.2007 to 31.03.2009. This agreement is signed only by TCI and not assessee. appellant has claimed that this expenditure pertains wholly to this previous year. In support thereof, he has submitted copy of confirmation of TCI showing that this 7 ITA No. 414/JP/15 & CO Bo. 35/JP/15 ITO ward 5(5), Jaipur vs. Jewels & Palace, Jaipur expenditure pertains to period from 01.04.2008 to 31.03.2009. appellant has also denied entering into any such agreement with TCI which commenced on 30.12.2007. It is not in dispute that such expenditure has been incurred by appellant, only dispute is with respect to period to which expenditure pertains. contention of appellant that this expenditure pertains to this previous year only appears to be correct because it would have been beneficial to assessee to claim this amount in A.Y. 2008-09 because in that year its returned income was Rs. 5,83,030/- whereas in current assessment year it has shown returned loss. Moreover confirmation TCI clearly shows that this expenditure pertains to F.Y. 2008-09. Also agreement which states that this commission pertains to period of 15 months has not been signed by assessee. In view of above discussion, it is held that this expenditure pertains to previous year under consideration and disallowance of prepaid expenses of Rs. 15,00,000/- is directed to be deleted. This ground is allowed. 6. We have heard rival submissions and pursued material on record. above findings of ld CIT(A) remain uncontroverted before us. In any case, there is no loss to revenue as tax rates remain same in both years. We accordingly confirm finding of ld.CIT(A). ground taken by Revenue is accordingly dismissed. In result appeal filed by Revenue and cross objection by assessee is dismissed. Order pronounced in open court on 30/09/2016. Sd/- Sd/- (KUL BHARAT) (VIKRAM SINGH YADAV) Judicial Member Accountant Member Jaipur Dated:- 30/09/2016 8 ITA No. 414/JP/15 & CO Bo. 35/JP/15 ITO ward 5(5), Jaipur vs. Jewels & Palace, Jaipur Copy of order forwarded to: s 1. Appellant- ITO,Ward 5(5), Jaipur 2. Respondent- M/s Jewels & Gold Palace, Jaipur 3. CIT II, Jaipur 4. CIT(A)-II, Jaipur 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 414/JP/2015 & CO. No.35/JP/15) By order, Assistant. Registrar 9 Income Tax Officer, Ward 5(5), Jaipur v. M/s Jewels and Gold Palace
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