Income Tax Appellate Tribunal - Jaipur
Acit, Jaipur vs M/S Allied Gems Corporation, Jaipur on 15 December, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
BEFORE: SHRI VIJAY PAL RAO, JM & DR. ARJUN LAL SAINI, AM
ITA No. 794/JP/2011
Assessment Year : 2005-06
ACIT, cuke M/s Allied Gems Corporation,
Circle-1, Vs. Bhandia Bhawan, Johari Bazar,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACFA2928D
vihykFkhZ@Appellant izR;FkhZ@Respondent
CO No. 76/JP/2011
(Arsing from ITA No. 794/JP/2011)
Assessment Year : 2005-06
M/s Allied Gems Corporation, cuke ACIT,
Bhandia Bhawan, Johari Bazar, Vs. Circle-1,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACFA2928D
vihykFkhZ@Appellant izR;FkhZ@Respondent
ITA No. 795/JP/2011
Assessment Year : 2007-08
ACIT, cuke M/s Allied Gems Corporation,
Circle-1, Vs. Bhandia Bhawan, Johari Bazar,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACFA2928D
vihykFkhZ@Appellant izR;FkhZ@Respondent
CO No. 77/JP/2011
(Arsing from ITA No. 795/JP/2011)
Assessment Year : 2007-08
ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12
ACIT vs. M/s Allied Gems Corporation
M/s Allied Gems Corporation, cuke ACIT,
Bhandia Bhawan, Johari Bazar, Vs. Circle-1,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACFA2928D
vihykFkhZ@Appellant izR;FkhZ@Respondent
ITA No. 716/JP/2012
Assessment Year : 2008-09
ACIT, cuke M/s Allied Gems Corporation,
Circle-1, Vs. Bhandia Bhawan, Johari Bazar,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACFA2928D
vihykFkhZ@Appellant izR;FkhZ@Respondent
CO No. 60/JP/2012
(Arsing from ITA No. 716/JP/2012)
Assessment Year : 2008-09
M/s Allied Gems Corporation, cuke ACIT,
Bhandia Bhawan, Johari Bazar, Vs. Circle-1,
Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACFA2928D
vihykFkhZ@Appellant izR;FkhZ@Respondent
Assessee by : Shri Rajeev Sogani (CA)
Revenue by : Shri P.P. Meena (JCIT)
Date of Hearing : 08/11/2017
Date of Pronouncement: 15/12/2017
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ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12
ACIT vs. M/s Allied Gems Corporation
vkns'k@ ORDER
PER: VIJAY PAL RAO, J.M.:
These are three appeals by the Revenue and cross objections of the assessee against the orders of the ld. CIT(A), Jaipur for the A.Y. 2005-06, 2007-08- & 2008-09 respectively. The Revenue has raised the common grounds in these appeals. The grounds raised for the assessment years 2005-06 are as under:-
"Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is justified in:-
i) Restricting the trading addition to the extent of Rs. 11.54 lacs as against addition of Rs. 96,69,746/- made by the AO on account of unverifiable purchases, keeping in view the decision of the ld. CIT(A)-1, Jaipur, in the case of M/s Nand Kishore Meghraj in ITa No. 583/08-09 dated 09.03.2009 and confirmed by the Hon'ble ITAT, Jaipur Bench, Jaipur.
ii) relying on past history of the case in spite of the fact that during the year under consideration most of the purchases of the assessee were from persons/ concerns issuing bills without delivery of goods."
2. The assessee is a partnership firm and engaged in the business precious and semi previous stones and silver and gold Jewellery. While completing the assessment for the A.Ys. in question the AO found that the assessee has not maintained stock register and as per the audit report the inventory of closing stock has been valued on estimate basis. 3
ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12 ACIT vs. M/s Allied Gems Corporation The AO further noted that the assessee made purchases from 45 parties which are found to be entry providers for the purpose of issuing bills without actual sales. The AO has made reference to the facts found during the search and survey conducted by the Department on those entrys provider parties. The AO issued summons to these parties but returned un-served and un-complied with. Accordingly the Assessing Officer rejected the books of accounts of the assessee by invoking the provisions of section 143(3) on the ground that the assessee has failed to produce the suppliers in person for examination and consequently failed to discharge the onus to prove the claim of purchases. Thus, the AO held that the purchases in question remained unverifiable and therefore, the AO not satisfied with the correctness and completeness of accounts of the assessee. The AO then proceeded to estimate the income of the assessee on the basis of the profit @ 25% on unverifiable purchases. The AO computed the profit @ 25% on the purchase of Rs. 3,86,78,985/- for the assessment year 2005-06 amounting to Rs. 96,69,746/-. The said amount was added to the income of the assessee. Similar additions were made for the other assessment years. The ld. CIT(A) though upheld the rejection of books of accounts of the assessee however, the ld. CIT(A) restricted the addition while 4 ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12 ACIT vs. M/s Allied Gems Corporation considering the average GP rate of the past assessment years @ 13.60% applied on total sale of Rs. 560.16 lacs and consequently the addition was confirmed to the extent of Rs. 11.54 lacs as against Rs. 96,69,746/- for A.Y. 2005-06. A Similar finding has been given for the other assessment years though the G.P. rate estimated varies as per the average of the past G.P. rate. Aggrieved by the impugned orders of the ld. CIT(A) the Revenue as well as assessee filed these appeals and cross objection respectively.
3 The ld. DR has submitted that the AO rejected the books of account on the ground that the majority of the purchases of the assessee were found to be unverifiable and further the parties from whom the assessee claim the purchases were providing accommodation entries. In all the cases as pointed out by the AO the purchases could not be verified due to non production of necessary details and parties before the AO. Therefore, the AO was justified in making the addition u/s 69C @ 25% of bogus purchases by following decisions of Hon'ble Gujarat High in case of Vijay Proteins Ltd. vs. DCIT 58 taxmann.com 44 ( Guj). The ld. DR has also relied upon the decision of Hon'ble Gujarat High Court in case of Sanjay Oil Cakes Industries vs. CIT 316 ITR 274 and submitted that the Hon'ble High Court upheld the disallowance of 5 ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12 ACIT vs. M/s Allied Gems Corporation bogus purchases. He has contended that the ld. CIT(A) is not justified in restricting the disallowance to the GP rate addition when there are Hon'ble High Court decision confirming the disallowance 25% of bogus purchases. The ld. DR has also referred to the decision of Hon'ble Gujarat High Court in case of N.K. Industries vs. DCIT 72 tamann.com 289/ 142 DTR 962 and the Hon'ble Supreme Court has dismissed the SLP filed against the decision of the Hon'ble Gujarat High Court, therefore, the same has attained the finality.
4. On the other hand, the ld. AR of the assessee has submitted that an identical issue was considered by this Tribunal in assessee's own case for the assessment year 2006-07 vide order dated 10.06.2001 in ITA No. 603 of 2010 wherein though the Tribunal has upheld the rejection of books of accounts u/s 145(3) however, the GP rate addition made by the ld. CIT(A) was also upheld by the Tribunal. The ld. AR has further contended that the Hon'ble jurisdiction High Court in case of CIT vs. Amrapali Jewells (P) Ltd. 65 DTR 196 has upheld the order of this Tribunal whereby the GP rate addition made by the Taxing Authorities was deleted. He has also relied upon the decision dated 15.03.2012 of the Coordinate Benches of this Tribunal in case of M/s Swarnganga Jewellers vs. ACIT ITA No. 833/JP/2011.
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ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12 ACIT vs. M/s Allied Gems Corporation
5. We have considered the rival submissions as well as relevant material on record. The Assessing Officer rejected the books of account by invoking the provisions of section 145(3). The issue of rejection of books of accounts is involved in the cross objection filed by the assessee, therefore, we deal with this issue while deciding the cross objection. Once, the books of accounts are rejected by the AO the only course of action left to the AO is to assess the income of the assessee on the basis of best judgment and GP rate is considered as proper and reasonable basis and guidance for the best judgment. Once, the books result are rejected the Assessing Officer cannot proceed to make an addition to the income offered by the assessee as per books result. However, the AO in the case of the assessee instead of applying the GP rate made on addition@ 25% of the purchases to the book results. This act of the Assessing officer itself contradicts the decision of rejecting the books of accounts and books result. The Tribunal in assessee's own case for the assessment year 2006-07 has considered this issue and upheld the order of the ld. CIT(A) in para 2.20 and 2.30 as under:-
"2.20 Hence, there are certain concerns for which Revenue got evidence in the form of statement recorded in respect of such parties, opening balance is Rs. 37,06,175/- while the closing balance is Rs. 42,81,496/-. It means that there is an accretion of amount of Rs. 5.75/- lacs. It means that to this extent, accretion 7 ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12 ACIT vs. M/s Allied Gems Corporation in purchase is without supporting the correct bills. Of course, total openting balance of all parties is Rs. 1,15,43,782/- and the closing balance is Rs. 1,33,36,193/-. However, looking to the accretion in the closing balance of the concerns for which Revenue has material, the addition confirmed by the ld. CIT(A) is reasonable...................
.....................................................................
2.30 The Hon'ble P & H High Court in the case of Uplakesh Metal Industrial V CIT 177 taxman 298 held that issue decided by this is in the realm of appreciation evidence. The find of Tribunal as mentioned in this judgment is as under:-
"However, in our opinion the observation of the Assessing Officer that the assessee was prima facie required to prove the genuineness of the transaction and identity of the creditors is not misplaced because there is no distinction laid between the trade creditor and the non-trade creditor and we are further of the opinion that in case the assessee claims liability of payment to the trade creditors shown in the balance-sheet, the assessee is definitely required to prima facie prove the identity of the trade creditors as well as the genuineness of the transaction. In this case, admittedly the assessee has neither been able to disclose the complete addresses of the trade creditors nor is able to give the complete addresses of the consignors nor the name has been mentioned on the challan forms, so the verification of the same by the Assessing Officer became totally impracticable on account of lack of this complete information supplied by the assessee. It means that the assessee failed in establishing the genuineness of the so called trade creditors appearing in its books of account. We are further of the opinion that since in the instant case of the assessee, the point under consideration before us is regarding the genuineness of the liability amounting to Rs. 1,75,26,586 shown by the assessee in its balance-sheet as trade creditors, so it was not relevant for us to consider as to whether the purchases made 8 ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12 ACIT vs. M/s Allied Gems Corporation by the assessee were genuine or not or to whether the assessee has inflated those purchases or not. It is also not material to consider whether the GRs from sale-tax department were verified or not, so, the CIT(A) on considering these points was not justified in deleting the impugned addition without discussing as to whether the liability of trade creditors shown by the assessee in the absence of furnishing complete addresses of trade creditors/consignors and the payment vouchers was genuine or not."
While evaluating the material collected by the Revenue on the touch stone on human probability and considering the accretion in the closing balance in respect of parties for which Revenue has material in thejform of statement. We fell that the ld. CIT(A) was reasonable in confirming the addition of Rs. 5.00 lacs. Hence both the grounds of assessee as well as Revenue are dismissed." We further noted that when the corresponding sale is not in dispute then the question is only regarding the correct amount of purchases and verification of the same. The ld. DR has relied upon the various decisions of Hon'ble Gujarat High Court however, we find that in all those decisions there was a finding of facts that the assessee inflated the purchases upto 25% and therefore, it was not a case of non verification of the purchase and rejection of books of accounts but the fact was established in the investigation that the assessee inflated the purchase price and accordingly the addition of 25% being inflated purchases was made and upheld by the Tribunal which was again upheld by the Hon'ble High Court. On the contrary in the case of the 9 ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12 ACIT vs. M/s Allied Gems Corporation assessee the AO not given any finding of inflated purchases by the assessee but doubted the very transaction of purchases due to non production of these parties before the AO. The AO has not given the finding that the prices of the goods was inflated by the assessee but the AO doubted the genuineness of the purchases on the ground that the suppliers were found to be accommodation entries providers. When the AO rejected the book results u/s 145(3) of the Act, then the AO after rejection of the books of account can proceed to make the assessment on the basis of best judgment instead of resorting make the addition to the book results. Accordingly, in the facts and circumstances of the case and in view of the decision of this Tribunal in assessee's own case for A.Y. 2006-07 we do not find any error or illegality in the orders of the ld. CIT(A) in restricting the addition to the average GP rate based on the past history. Hence, the grounds raised in the Revenue appeals are rejected being without any substance or merits.
6. In the cross objection of the assessee has raised the common grounds is as under:-
"1. In the facts and circumstances of the case and in law the ld CIT(A) has erred in confirming the action of the ld. AO in confirming the trading addition of Rs. 11.54 out of the total addition of Rs. 96,69,746/- made by the ld. AO. The action of the 10 ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12 ACIT vs. M/s Allied Gems Corporation ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the rejection of books and deleting the trading addition of Rs. 11.54/-.
2. The assessee craves its rights to add, amend or alter any of t he grounds on or before the hearing."
7. The assessee has challenged the order of the ld. CIT(A) in confirming the addition to the extent of GP rate.
8. We have heard the ld. AR as well as ld. DR and considered the relevant material on record. We find that the assessee failed to substantiate the purchases recorded in the books of accounts and to that extent the purchases were not verifiable. The Assessing officer has also pointed that the inventory of closing stock has been valued on estimated basis as pointed out and specifically mentioned in the audit report and therefore, the assessee was not maintaining the stock register showing the quantity and qualitative details including the purity of the previous matters. Therefore, the valuation of the closing stock was also found to be estimated and not the actual and correct value. The AO issued summons to the parties from whom the assessee made the purchases however, there was no response and no compliance of the notice issued by the AO to these parties. Thus, the Assessing officer has rightly pointed out that the sale to the extent of more than 60% of 11 ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12 ACIT vs. M/s Allied Gems Corporation the assessee was not verifiable. Therefore, in these facts and circumstances of the case when the sales of the assessee to the extent of more than 60% is not verifiable due to the failure of the assessee to produce the relevant evidence and the supplier then the book results of the assessee would not reflected true picture and consequently it was a sufficient and proper ground for rejection of books of accounts by the AO. The ld. CIT(A) has dealt with this issue in para 4.3 as under"-
"4.3 I have carefully perused the order of the AO and the extensive submissions of the AR. The most pertinent point in the case of the assessee is that the Hon'ble ITAT, Jaipur Bench has already adjudicated in identical facts in the case of the assessee for A.Y. 2006-07 vide its order ITA No. 603/JP/2010 dated 10.06.2011. Similar disallowances were made by the AO under similar facts and circumstances as are involved in the appellant's present appeal for A.Y. 2005-06. On perusal of the same I find that the Hon'ble ITAT Jaipur in the appellant's case for A.Y. 2006- 07 based on a detailed discussion from pages 2 to 9 has upheld the rejection of books of account by invoking the provisions of S. 145(3) in the case of the assessee due to unverifiable purchases. Therefore, as the facts and circumstances are the same in this year I uphold the decision of the AO to reject the books of accounts of the assessee and estimate his income."
Thus, the ld. CIT(A) has decided this issue by following decision of this Tribunal in assessee's own case for the assessment year 2006-07. Hence, we do not find any error or illegality in the orders of the ld. CIT(A) qua this issue.
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ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12 ACIT vs. M/s Allied Gems Corporation In the result the appeals of the Revenue and CO of the assessee for all three assessment years are dismissed.
Order pronounced in the open court on 15/12/2017.
Sd/- Sd/- (Dr. Arjun Lal Saini) (Vijay Pal Rao) Accountant Member Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 15/12/2017. *Santosh.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- ACIT, Circle-1, Jaipur.
2. izR;FkhZ@ The Respondent- M/s Allied Gems Corporation, Bhandia Bhawan, Johari Bazar, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. 794 &795/JP/2011, 716/JP/12 CO No. 76&77/JP/11 CO 60/JP/12} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 13