Income Tax Appellate Tribunal - Jaipur
M/S. Sunny Gems India Pvt. Ltd, Jaipur vs Income Tax Officer, Jaipur on 4 November, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH 'A' JAIPUR
BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM
ITA No. 445/JP/2018
Assessment Year : 2009-10
M/s Sunny Gems India Pvt. Ltd., cuke Income- Tax Officer
Jaipur Vs. Ward 5(2), Jaipur
PAN/GIR No.: AALCS4308P
Appellant Respondent
Assessee by : Shri Rajnikant (CA) &
Shri S. R. Sharma (CA)
Revenue by : Shri Rajendra Singh (JCIT)
Date of Hearing : 03/10/2019
Date of Pronouncement: 04/11/2019
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)-2, Udaipur dated 18.01.2018 wherein the assessee has taken the following grounds of appeal:-
"1. That on the facts and in the circumstances of the case the Ld. CIT(A) is wrong, unjust and has erred in law in confirming rejection of books of accounts of the appellant by the assessing officer u/s 145(3) of the I.T. Act, 1961 on the ground that purchase to the extent of Rs. 1,83,68,232/- are allegedly not genuine and not verifiable.
2. The ld. CIT(A) is further wrong and has erred in law in confirming addition to the extent of Rs. 45,92,058/- being 15% of alleged unverifiable purchases referred to in ground No. (1) above."
2. Briefly stated, the facts of the case are that the assessee is engaged in trading (export & domestic) of semi-precious stones and silver jewellery. Notice u/s 148 of the Act was issued to the assessee on 22.03.2016 and in response, ITA No. 445/JP/2018 M/s Sunny Gems India Pvt. Ltd., Jaipur Vs. ITO, Jaipur the assessee submitted its return of income on 20.04.2016 showing total income of Rs. 16,50,850/-. The assessment was completed u/s 143(3) read with 147 at an assessed income of Rs. 62,42,900/-. As per the Assessing Officer, the assessee has made bogus purchases amounting to Rs. 1,83,68,232/- from five concerns which are controlled and operated by Rajendra Jain Group in respect of which search operations were carried out on 03.10.2013 and statement of the key person of the group has been recorded and it has been established that these concerns were involved in providing accommodation entries and not doing any genuine business activities. The AO thereafter enhanced the trading profits declared by the assessee by amount of Rs. 49,92,058/- which was computed @ 25% of the total unverifiable purchase amounting to Rs. 1,83,68,232/-. On appeal, the ld. CIT(A) upheld the rejection of book of accounts by the Assessing Officer. However, the addition was reduced to 15% of the unverifiable purchases. Now, the assessee is in appeal against the said finding of the ld. CIT(A).
3. During the course of hearing, the ld. AR submitted that the assessee company submitted complete details of purchases from the five concerns in terms of purchase invoices, VAT Registration, PAN number, confirmation of the party from whom the purchases were made and the fact that the payments have been made by account payee cheque which stood debited in the bank account of the assessee company. It was further submitted that the assessee is not aware of any enquiries and investigation which have been carried out by the Investigation wing of the department and the statement made on behalf of the said concerns cannot be relied upon as the said statement nowhere mention the name the assessee. It was further submitted that the assessee was not provided an opportunity of cross-examination of the person whose statements were recorded and relying on the Hon'ble Supreme Court decision in case of Andaman Timbers, it was submitted that the assessment was made 2 ITA No. 445/JP/2018 M/s Sunny Gems India Pvt. Ltd., Jaipur Vs. ITO, Jaipur by the Assessing Officer without giving an opportunity of cross-examination which is a nullity in the eyes of law and therefore, the same should be quashed. It was further submitted that the Assessing Officer has not disbelieved the purchases made by the assessee but only disbelieved the purchase vouchers. The trading account as such has not been disturbed as opening stock, closing stock and sales as declared have been accepted and the Assessing Officer has only doubted the sellers from whom the purchases have been made by the assessee company. Reliance was placed on the Hon'ble Gujarat High Court decision in case of CIT vs. Sathya Narayan P. Rathi (2013) 351 ITR 350 and it was submitted that books of account produced clearly indicate the purchase of goods and subsequently used in manufacturing of goods which were sold and exported out of India which could not be if there are no purchases and so the ratio of above judgment is fully applicable to the case of appellant. Further, reliance was placed on the Co-ordinate Bench decision in case of Bhuramal Raj Mal Surana vs. DCIT in ITA No. 4091/JP/2012 dated 15.12.2012 wherein it was held that where the Assessing officer doubted the genuineness of the purchases on the ground that the suppliers were found to be accommodation entries providers and 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 to making the addition to the book results. Similarly, the Co-ordinate Bench in case of ACIT vs. M/s Allied Gems Corporation (794/JP/11, 795/JP/2011 and 716/JP/2012 dated 15.12.2017 has held that where the books of accounts have been rejected, the ld. CIT(A) was correct in restricting the addition to the average G.P rate based on the past history. It was submitted that in the instant case, the assessee has declared the GP rate of 11.41% on the total sales of Rs. 4,55,26,235/- and being the first year operations, there is no previous history of the assessee and therefore, comparable case of M/s Kedia Exports Pvt. Ltd. which is engaged in trading (Export & domestic) in 3 ITA No. 445/JP/2018 M/s Sunny Gems India Pvt. Ltd., Jaipur Vs. ITO, Jaipur semi-precious stones and silver jewellery and which has declared GP rate of 10.04% for A.Y 2009-10 may be considered. It was accordingly submitted that the GP rate so declared by the assessee is better than the comparable GP rate disclosed by M/s Kedia Exports Pvt. Ltd., and even where the book of accounts are rejected u/s 145(3), no additions should be made in the hands of the assessee.
5. Per contra, ld. DR is heard who has relied on the finding of the lower authorities. It was submitted that it is a clear case of accommodation entries which has been obtained by the assessee as clear from the report of the Investigation wing and the ld CIT(A) has already reduced the addition to the extent of 15% of the purchases and the same should be confirmed.
6. We have heard the rival contentions and perused the material available on record. We find that it is a case where the AO based on investigation carried out during the course of search in case of Rajendra Jain Group has come to be conclusion that the assessee has taken accommodation entry of bogus purchases from five concerns to the extent of Rs. 1,83,68,232/- and the books of account have been rejected u/s 145(3) and the additions have been made to the extent of 25% of the unverifiable bogus purchases which have been restricted to 15% by the ld. CIT(A). No specific arguments have been taken against the rejection of books of accounts u/s 145(3) and hence, the rejection of books of accounts and results so declared therein is confirmed. Given that the books of accounts have been rejected, the Assessing Officer is required to make the assessment on the basis of best judgment instead of resorting to making the addition to the book results. The Assessing officer while exercising his jurisdiction cannot act arbitrarily or capriciously. The assessment must proceed on judicial considerations in light of relevant material available on record. In other words, in any case of best judgment, though the element of 4 ITA No. 445/JP/2018 M/s Sunny Gems India Pvt. Ltd., Jaipur Vs. ITO, Jaipur guess work is involved, however the guess work should have nexus with the material on record and discretion must not be exercised arbitrarily or capriciously. For the purposes of making the best judgment assessment, past history of the assessee has been held as reliable and reasonable basis for estimation of profits. Alternatively, comparable cases in the similar line of business should be considered. In the instant case, being the first year of operations, past history is not relevant and hence, considering the comparable case of M/s Kedia Exports Pvt. Ltd., which has declared the GP rate of 10.04% as against 11.41% declared by the assessee, we are of the considered view that no addition should be made in the hands of the assessee company.
7. Further, the decision in case of ACIT vs. M/s Allied Gems Corporation (supra) wherein similar view has been taken by the Co-ordinate Bench supports the case of the assessee:
"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 5 ITA No. 445/JP/2018 M/s Sunny Gems India Pvt. Ltd., Jaipur Vs. ITO, Jaipur 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 ITA No.794& 795/JP/11, 716/JP/12 CO 76& 77/JP/11, 60/JP/12 ACIT vs. M/s Allied Gems Corporation 8 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 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 the form 6 ITA No. 445/JP/2018 M/s Sunny Gems India Pvt. Ltd., Jaipur Vs. ITO, Jaipur 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 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."
In the result, the additions so made and sustained by the ld. CIT(A) is hereby directed to be deleted and the appeal of the assessee is allowed.
Order pronounced in the Open Court on 04/11/2019.
Sd/- Sd/-
(Sandeep Gosain) (Vikram Singh Yadav)
Judicial Member Accountant Member
Jaipur
Dated:- 04/11/2019
7
ITA No. 445/JP/2018
M/s Sunny Gems India Pvt. Ltd., Jaipur Vs. ITO, Jaipur
*Ganesh Kr.
Copy of the order forwarded to:
1. The Appellant- M/s Sunny Gems India Pvt. Ltd, Jaipur
2. The Respondent- The ITO, Ward-5(2), Jaipur
3. CIT
4. CIT(A)
5. DR, ITAT, Jaipur.
6. Guard File {ITA No. 445/JP/2018}
By order,
Asst.Registrar
8