IN HIGH COURT OF DELHI AT NEW DELHI Reserved on: 18th July, 2019 Decided on: 31st July, 2019 ITA 828/2005 COMMISSIONER OF INCOME TAX Appellant Through: Mr. Deepak Anand and Mr. Zoheb Hossain, Senior Standing Counsel for Revenue versus RAJIV GUPTA Respondent Through: Mr. Ved Jain, Mr. Kislaya Parashar and Ms. Umang Luthra, Advocates AND + ITA 833/2005 COMMISSIONER OF INCOME TAX Appellant Through: Mr. Deepak Anand and Mr. Zoheb Hossain, Senior Standing Counsel for Revenue versus AJAY KUMAR GUPTA ... Respondent Through: Mr. Ved Jain, Mr. Kislaya Parashar and Ms. Umang Luthra, Advocates CORAM: JUSTICE S. MURALIDHAR JUSTICE TALWANT SINGH JUDGMENT Dr. S. Muralidhar, J.: 1. These two appeals are by Revenue and are directed against ITA 828/2005 & 833/2005 Page 1 of 8 common order dated 27th January, 2005 passed by Income Tax Appellate Tribunal in ITA Nos. 3919/Del/2001 and 3920/Del/2001 for Assessment Year (AY) 1998-99. 2. In ITA No. 828/2005 while admitting appeal on 21 st September, 2005 following question of law was framed for consideration: "Whether ITAT was correct in law in confirming order passed by CIT (Appeals) holding that provisions of Section 145(3) were not applicable completely ignoring fact that Assessing Officer has rejected account books of assessee?" 3. In ITA No. 833/2005 identical question was framed subsequently when said appeal was admitted by order dated 21st March, 2006. 4. This Court has heard submissions of Mr. Deepak Anand, learned Counsel for Revenue and Mr. Ved Jain, learned counsel for Assessees. 5. background facts are that Respondent/Assessee in ITA No. 828/2005 is proprietor of M/s S.R. Jewells whereas Respondent Assessee in ITA No. 833/2005 is proprietor of M/s Kishan Lal and Sons. Both are dealing in business of trading in gold and silver items. 6. Assessee in ITA No. 828/2005 filed his return of income for AY in question on 31st October, 1998 declaring loss of Rs.1,35,570/-. As far as Assessee in ITA No. 833/2005 is concerned, he filed return declaring ITA 828/2005 & 833/2005 Page 2 of 8 income of Rs.1,87,750/-. Both returns were picked up for scrutiny. 7. At this stage, it requires to be noticed that search and seizure operation under Section 132 of Income Tax Act, 1961 ( Act ) was carried out on Bamalwa Group of Calcutta. said group had declared huge amount of silver and silver utensils under Voluntary Disclosure of Income Scheme, 1997(VDIS). sale of silver as claimed by them through various jewellers in Delhi had been carried out only on paper to bring sale proceeds in regular books of accounts. 8. It was noticed by Assessing Officer (AO) that both these Assessees had contributed in said process by giving accommodation entries by issuing account payee cheques towards purchase of fictitious silver items. Simultaneous with above search and seizure operation, similar search and seizure operation was also carried out in premises of two Assessees on 16th February, 2000. purchase of silver as claimed by two Assessees was confirmed to be from persons of Bamalwa Group who had declared silver in their VDIS declarations. 9. perusal of assessment orders dated 30th March, 2001 passed in each of these matters reveals that several opportunities were given by AO to two Assessees to furnish complete names and addresses of alleged buyers of silver from whom cash had been received. No record was produced to explain how such huge amount of silver was transported to Delhi. Since Assessees were not able to substantiate sales as declared in books, accounts were rejected and Section 145 (3) of Act was ITA 828/2005 & 833/2005 Page 3 of 8 invoked. 10. AO on examining accounts came to conclusion that Assessee had given accommodation entries to persons who had declared high quantities of silver in VDIS declarations for purposes of earning commission thereon which ranged at 5% to 7% of interest. 11. What is significant is that queries were asked of Assessee by note sheet entry dated 13th December, 2000 to furnish names and addresses with respective amounts of all alleged buyers of silver items. This was reiterated by letter dated 29th December, 2000. Assessee failed to comply with this request. On 12th March, 2001 specific letter was again addressed in which it was stated as under: "With reference to abovementioned proceedings, vide note sheet entry dated 19-1-2001, you were asked to furnish bill wise details of silver purchased and sold. However vide your reply dated 22-2-2001 you have only given summary of sale of silver. However, you have not given complete name and address of parties to whom you have sold silver. You are again given another opportunity to furnish complete name, address of all persons to whom you have sold silver along with quantity and amount. In case you do not furnish complete name and address of parties to whom you have sold silver, please explain why amount involved should not be taken as unexplained credit entries in your books. 12. reply that each of Assessees gave was that sales were in cash. However, information regarding complete names and addresses of parties from whom cash was received was not furnished. Another ITA 828/2005 & 833/2005 Page 4 of 8 letter dated 22nd March, 2001 was issued to them by AO. Yet another opportunity was given to prove identities, genuineness and creditworthiness of persons from whom Assessees had claimed to receive cash. 13. In case of Assessee in ITA 828 of 2005, of total 2570 bills, details only in respect of 10 bills were furnished where amount involved was very small. Even in these cash memos description of utensils and articles of silver items had not been mentioned. total amount of cash sales was Rs.29,90,06,343/-. 14. As regards Assessee in ITA No. 833/2005, AO found situation to be no different. It was noted that silver which said Assessee had allegedly sold to persons who declared silver in VDIS declarations had been shown as sold entirely in cash. daily cash sales were in range of Rs.85 lakhs. Here again no details were forthcoming. There were as many as 3142 cash memos of such sales for total amount of Rs.40,21,80,331/-. details only in respect of 15 such cash memos were provided. These showed purchase of silver from MMTC and Customs. However, when he was asked to produce evidence of purchases other than those from MMTC and Customs, Assessee was unable to do so. 15. AO noted that in each of cases there was no record to show how such huge amount of silver was transported to Delhi and how buyers contacted Assessee. It was in these circumstances that it was concluded that two Assessees had failed to prove identity of so-called ITA 828/2005 & 833/2005 Page 5 of 8 buyers of silver. It is in these circumstances that AO came to conclusion that each of Assessees had failed to prove identity of persons to whom cash sales had been made, in sum of nearly Rs.30 crores and over Rs.40 crores respectively. 16. conclusion drawn by AO that there was no silver at all and story of purchase and sale of silver is entirely concocted appears to be based on evidence before him. It is matter of concern that this exhaustive evidence has not even been discussed in impugned orders of CIT (A) and ITAT which have set aside AO s orders. 17. Mr. Ved Jain, learned counsel appearing for Assessees placed reliance on decision of this Court in CIT vs. Jindal Dyechem Industries Pvt. Ltd. 2012 (4) TMI 423 to urge that addition made by AO on account of cash sales which was subsequently deleted by CIT (A), which was concurred with by ITAT, was not interfered with. facts of that decision were entirely different and amount involved was Rs.1.20 crores. 18. Court finds that in present case sales of over Rs.30 crores in one case and Rs.40 crores in another being put forth entirely as cash sales had no valid basis in books of accounts. It was obligatory on Assessees to satisfactorily account for creditworthiness, identity and genuineness of transactions of so-called providers of such cash to each of them in such huge sums. Plainly this was not forthcoming and AO rightly therefore disregarded accounts of both Assessees under Section 145 (3). satisfaction recorded by AO in present cases ITA 828/2005 & 833/2005 Page 6 of 8 that books of account maintained by each Assessee deserved to be rejected cannot, in circumstances, be said to be perverse. 19. In Kachwala Gems Jaipur v. Joint Commissioner of Income Tax (2007) 12 SCC 761 it was held that AO can reject assessment under Section 145 (3) of Act if he finds that there are defects in books of accounts and where bogus purchases are shown by Assessee in order to reduce gross profit. It was further held by Supreme Court that: It is well settled that in best judgment assessment there is always certain degree of guess work. No doubt authorities concerned should try to make honest and fair estimate of income even in best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in best judgment assessment, and it is assessee himself who is to blame as he did not submit proper accounts. 20 In present cases, discussion of evidence on record both by CIT (A) and ITAT is found to be cryptic and without adverting properly to facts referred to by AO. 21. For all of aforementioned reasons, this Court answers question framed in negative i.e. in favour of Revenue and against Assessee by holding that ITAT erred in confirming order passed by CIT (A) and in holding that Section 145(3) of Act was not applicable. 22. In considered view of Court, AO rightly rejected books of accounts of both Assessees and additions made by him are required to be ITA 828/2005 & 833/2005 Page 7 of 8 restored. 23. appeals are accordingly allowed. impugned orders of ITAT and CIT (A) in both appeals are hereby set aside. assessment orders of AO for AY in question are restored. S. MURALIDHAR, J. TALWANT SINGH, J. JULY 31, 2019 mw ITA 828/2005 & 833/2005 Page 8 of 8 Commissioner of Income-tax v. Rajiv Gupta