Income Tax Appellate Tribunal - Jaipur
Five Star Corporation, Jaipur vs Department Of Income Tax on 24 July, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,
JAIPUR
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BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM
vk;dj vihy la-@ITA No. 325/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2002-03
Income Tax Officer, cuke M/s Five Star Corporation
Ward 2(1), Jaipur. Vs. 3044, Kardiyon Ka Mohalla, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAAFF 4696 B
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 336/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2002-03
M/s Five Star Corporation, cuke Income Tax Officer,
3044, Kardiyon Ka Mohalla, Jaipur. Vs. Ward 2(1), Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAAFF 4696 B
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri Raj Mehra (JCIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rajiv Sogani &
Shri Rohan Sogani (C.A.)
lquokbZ dh rkjh[k@ Date of Hearing : 16/07/2015
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 24/07/2015
vkns'k@ ORDER
PER: T.R. MEENA, A.M. These are cross appeals, one by the revenue and another by the assessee arise against the order dated 17/01/2013 passed by the 2 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
learned C.I.T.(A)-I, Jaipur for the A.Y. 2002-03. The grounds of revenue's as well as assessee's are as under:-
Ground of ITA No. 325/JP/2013 "Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) is justified in giving credit of Rs. 33,73,226/- of unverifiable purchases when only a few items of purchases bill were tallying with the items of export invoices."
Ground of ITA No. 336/JP/2013 "1 In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the addition of Rs.
23,76,774/- against the disallowance of purchases of Rs. 57,50,000/- and addition of Rs. 57,50,000/- U/s 69C made by the ld A.O.. The action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition of Rs. 23,76,774/-.
2. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in not allowing the deduction U/s 80HHC on the addition of Rs. 23,76,774/- confirmed by her. The action of the ld CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by allowing the deduction U/s 80HHC on Rs. 23,76,774/-."
2. Ground No. 1 of the revenue's appeal and assessee's appeal is against the addition made by the Assessing Officer on account of 3 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
unverifiable purchases at Rs. 57,50,000/-, which was partly deleted by the ld CIT(A) at Rs. 33,73,226/-. The revenue was in appeal against deletion and the assessee is against partly confirmed by the ld CIT(A) at Rs. 23,76,774/-. The assessee is in the business of export of precious and semi precious stones. The firm has filed return on 31/3/2003 declaring income of Rs. 3,92,950/-. The ld Assessing Officer observed that the assessment U/s 143(3) of the Income Tax Act, 1961 (in short the Act) was completed vide order dated 30/03/2005 wherein it was observed by then Assessing Officer that purchases of Rs.
47,50,000/- claimed to have been made from M/s Anmol Ratal and purchases of Rs. 10,00,000/- claimed to have been made from M/s Shruti Gems (Totaling to Rs. 57,50,000/-) were bogus purchases and hence made additions as under:-
:- Addition of Rs. 57,50,000/- by disallowing purchases of goods in view of proviso to Section 69C.
:- Addition of Rs. 57,50,000/- as income from other sources by treating the purchases of goods being unaccounted expenditure and deemed income of the assessee u/s 69 of the I.T. Act, 1961 and alternate addition by applying the provisions of Section 68 of the I.T. Act and thereby treating the export sale of Rs. 57,50,000/- being income from undisclosed sources.
4 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
The assessee preferred an appeal before the ld CIT(A), who vide order in appeal No. 145/05-06 dated 25/1/2006 granted certain relief's to the assessee as under:-
(1) Directed to calculated profit by applying G.P. rate of 15% on turnover of Rs. 16512669/- and to allow deduction U/s 80HHC of the I.T. Act by treating Rs. 255950/- as income from other sources on account of deflation of cost of goods purchased thereby deleting the addition to the extent of Rs. 5494050/- (5750000-255950) holding that the provisions of section 69C are not attracted. (2) Deleted the addition of Rs. 57,50,000/- made by the A.O. U/s 69C of the I.T. Act, (as income from other sources made on account of purchases of goods as being unaccounted expenditure and considering it as deemed income U/s 69C) and further deleting the addition of similar amount alternatively made U/s 68 of the I.T. Act (thereby treating the amount of export sale as income from undisclosed sources.).
The department preferred appeal before the Hon'ble ITAT, Jaipur Bench, Jaipur in ITA No. 306/JP/2006 dated 31/01/2008. The Hon'ble ITAT set aside the assessment to the file of the Assessing Officer by observing as under:-
5 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
"We thus in the interest of justice remand the matter to the file of the A.O. to afford adequate opportunity of being heard to the assessee to establish that the same goods worth Rs. 57,50,000/- stated to have been purchased from M/s Anmol Ratna and M/s Shruti Gems were exported to claim the benefit thereon U/s 80HHC of the Act and decide the issue afresh as per the law. The issue raised in grounds No. 1 and 2 hereinabove are inter connected and need fresh consideration in view of finding of the A.O. on the above question that the same goods worth Rs. 57,50,000/- claimed to have been purchased from M/s Anmol Ratna and M/s Shruti Gems were exported. The first appellate order on the issues is accordingly set aside to the file of the A.O. to consider the same afresh as per above direction."
As per direction of the Hon'ble ITAT, the ld Assessing Officer issued notice U/s 143(2) and 142(1) alongwith show cause notices etc. but the assessee did not make any compliance to those notices. Since the assessee did not make any compliance even after providing adequate opportunities to the assessee, assessment was completed U/s 144 vide order dated 30/12/2008. Complete details of notices issued u/s 142(1) and U/s 143(2) before completing the assessment U/s 144, were given in the assessment order dated 30/12/2008, hence not required to 6 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
repeat the same here again. The assessee again filed appeal against the assessment order before CIT(A) who vide order in appeal in ITA No. 900/08-09 dated 28/10/2009, directed the Assessing Officer to apply GP rate of 15% on export sales turnover of Rs. 1,65,12,669/-
against declared G.P. rate of 16.50%. The department filed second appeal against the order of CIT(A)-I, Jaipur dated 28/10/2009 for A.Y. 2002-03 on the following grounds:-
(i) in directing to calculate profit by applying a G.P. rate of 15% on turnover of Rs. 1,65,12,669/- and to allow reduction U/s 80HHC of the I.T. Act by treating Rs.
2,55,950/- as income from other sources on account of deflation of cost of goods purchases thereby deleting the addition to the extent of Rs. 54,94,050/- (5750,000/- 2,55,950/-) holding that the provisions of Section 69C are not attracted in his case.
(ii) Deleting the addition of Rs. 57,50,000/- treating it as income from other sources made on account of purchases of goods as being unaccounted expenditure and considering it as deemed income of the assessee U/s 69C and further deleting the addition of similar amount alternatively made U/s 68 thereby treating the amount of export sales as income from undisclosed sources."
7 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
The Hon'ble ITAT had set aside second ground of appeal in ITA No. 916/JP/2009 dated 16/07/2010 and had again set aside the order to the file of Assessing Officer with an observation as under:-
"We feel that the issues are required to be reconsidered by the A.O. in view of the direction given by the Tribunal vide order dated 31/01/2008. In the order dated 31/01/2008 the Hon'ble ITAT has held that A.O. was not justified in making addition merely on the basis of statement of the parties taken by the investigation wing. We thus in the interest of the justice remand the matter to the file of the A.O. to afford adequate opportunity of being heard to the assessee to establish that the same goods worth Rs. 57,50,000/- stated to have been purchases from M/s Anmol Ratan and M/s Shruti Gems were exported to claim the benefit thereon U/s 80HHC of the I.T. Act and the decided the issue afresh as per the law."
The ld Assessing Officer further observed that in view of the direction given by the Hon'ble ITAT, notice U/s 143(2) dated 24/09/2010 was issued and served upon the assessee through registered post and hearing was fixed for 08/10/2010 but the assessee did not make any compliance. Again notice U/s 143(2) dated 31/12/2010 was issued and served through registered post, hearing was fixed on 17/01/2011 but again on the given date of hearing, none appeared nor asked for 8 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
adjournment. Again notice U/s 142(1) dated 10/06/2011 was given whereby hearing was fixed for 23/06/2011 which was adjourned to 02/07/2011 on the request of the assessee but again none appeared nor asked for adjournment. Thereafter notice U/s 142(1) dated 05/07/2011 was issued whereby hearing was fixed on 15/07/2011 but like in past, the assessee did not make any compliance this time also.
In view of these facts, a final show cause notice alongwith notice U/s 142(1) dated 21/09/2011 was given and the case was fixed for hearing on 07/10/2011. No one appeared on the given date of hearing but on 13/10/2011 Shri Krishan Natiya, C.A. appeared on behalf of the assessee and filed his power of attorney, no compliance of earlier notice was made. Since it was time barring matter, assessment proceedings cannot be prolonged for indefinite period hence a final show cause notice u/s 142(1) was given on 18/11/2011. The notice U/s 142(1) has been reproduced by the Assessing Officer on pages 3-4 of the assessment order and the case was fixed for 25/11/2011. In compliance to the show cause notice, Shri Ikram Ahmed, partner of the assessee firm appeared alongwith Shri Krishan Natiya, C.A. and his A.R., filed copies of purchase bills of M/s Anmol Ratan and M/s Shruti 9 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
Gems and also produced invoices of export which were produced by the assessee during the original assessment proceedings and were not considered to be genuine for the reasons which were discussed in details in assessment order passed U/s 143(3) dated 30/03/2005 by the then Assessing Officer and the reasons have been reproduced by him on page Nos. 5-6 of the assessment order. The ld Assessing Officer concluded as under:-
"F. From the above investigations it was clear that the assessee has not purchased good from M/s Anmol Ratan and m/s Shruti Gems. Thus, the very source of goods which were purported to have been traded by above concerns was not proved.
G. It was in the light of the above facts the assessee was show cause as to why the purchases. Shown of Rs. 57,50,000/- from these parties may not be treated as bogus and provisions of section 69C be not attracted the entries of this expenditure on purchases of goods in its books of account remained unexplained.
H. For claiming the purchases from M/s Anmol Ratan and M/s Shruti Gems as genuine, the assessee file a reply before the then Assessing Officer on 21/3/2005 wherein it was stated that:-
a. Payments were made through cheques.
10 ITA 325 and 336/JP/2013_
ITO Vs. Five Star Corp.
b. On the purchases bills, quantity of goods. Value
etc. were mentioned.
c. Provisions of section 69C are not applicable.
I. The then A.O. considered the reply filed by the assessee and observed as under:-
a) That the purchases vouchers produced before him do not show the name of the broker. It is general practice in the traded of gems and jewellery that if the purchases are made through the brokers, then the name of broker is written on the voucher itself.
But in the case of assessee, it was not so. No name of broker was written on voucher. Even no expenses for brokerage were debited to the P&L a/c.
b) The plea of the assessee that quantity of goods purchased was mentioned on the bills is also incorrect. On perusal of bills issued, it was found that there was no mention about the unit of qty. that whether it was Gms. Or Carat. Only qty. was mentioned and no specification of the unit was mentioned against the goods sold.
c) No satisfactory explanation about the two contradictory statements given by the so called proprietors of this concerns and other three named persons was given by the assessee to rebut the same. Also a copy of affidavit dated 08/2/2005 of 11 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
Shri O.P. Ghiya received through Dak admitting the fact of sale of goods is of no help inasmuch as to change the nature on the non genuine transaction into genuine transaction. Mere change of opinion, later on without producing himself and by way of simply filing an affidavit is not sufficient material evidence to substantiate the claim of purchases which has been held bogus on the basis of corroborative material evidences as discussed.
d) As far as the claim of the assessee that these parties have RST/CST number and amount was paid by cheques does not make the transaction genuine. Mere furnishing of particular is not enough, moreover the payment of cheques is not sacrosanct nor can it make a non genuine transaction as genuine for which reliance was placed on the judgment of the Cit Vs. Precision Finance (P) Ltd. 208 ITR 465 (Cal) wherein it was held that the payment made by account payee cheques would not make it sacrosanct. The facts of this case were what there were credit in the books of accounts in the names of various persons but the assessee could not prove the identity of the creditors, credit worthiness and genuineness of the transactions though the payment were made by account payee cheques.
12 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
e) Beside reliance was also placed on the judgment in the case of M/s Kanchwala Gems Vs. JCIT, ITD NO. 134, ITAT, Jaipur Bench (Dec. 2003) wherein it was held that the A.O. is entitled to act on material which may not even be accepted as on evidence as the A.O. is not bound by the Technical rules of evidence and pleadings. The Hon'ble ITAT has also held that the declaration of sales under sales Tax Act and non production of books of accounts by the seller will not lead to the conclusion that the sales were genuine in a case where the A.O. comes to the conclusion that the relevant purchases are not genuine. The Hon'ble ITAT also held that the payment by account payee cheque is not sufficient to establish the genuineness of the purchaser.
f) The onus was upon the assessee to prove the genuineness of the purchase. This view was supported by the decisions of the Hon'ble Rajasthan High Court in the case of M/s Woolen Carpet Factor Vs. ITAT & others (2002) 178 CTR 420 and M.P. High Court in the case of VISP (P) Ltd. Vs. CIT and Anr 186 CTR 718.
g) Under Section 101, 102 and 106 of the Evidence Act, onus lies upon the assessee to prove all the expenses including purchases to the satisfaction of the Assessing Officer, which was not discharged by 13 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
the assessee as if failed to produce the owners of M/s Anmol Ratna and M/s Shruti Gems.
h) In the case of Chuhar Mal Vs. CIT 172 ITR 250 (SC) the Hon'ble Supreme Court held that the Evidence Act did not apply to the proceedings under I.T. Act, 1961 and that the rigiours of the rules of evidence contained in the Evidence Act was not applicable but, this did not mean that when taxing authorities were desirous of invoking the principles of the Evidence Act in proceedings before them, they were prevented from doing so. In the present case, the alleged sellers do not exists and from the enquiries it was found that they were not carrying on the genuine business of selling goods but issuing only accommodation bills. These facts clearly prove that the purchases by the assessee in the name of nonexistent parties were not genuine and other evidence regarding sales tax registration numbers, PAN and making payment by cheque etc. are irrelevant with reference to nonexistent parties and hence are not genuine. The Hon'ble Rajasthan High Court has also decided in the case of CIT Vs. Golcha Properties (PVT) Ltd. 227 ITR 391 that the genuineness of the transaction could be decided on the basis of primary facts on record and in the present case, the fact of nonexistent/non 14 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
cooperative parties leads to the non-genuine transaction of sale to the assessee. Other aspects as claimed by the assessee relating to sales tax registration No., PAN and payments by cheque may be relevant to the existence of these parties on papers only.
i) The Hon'ble Delhi High Court in the case of CIT Vs. La. Medica, 250 ITR 575, the purchases were claimed to have been ade from "K" but the party "K" was not found in existence at the Calcutta address and Sh. Chandi Lal who was operating the bank account at New Delhi through which the alleged payments were made to "K" was also not found in existence. The introducer to Shri Chandi Lal was Shri Satpal Jain one of the partners of the sister concern of the assessee M/s La Medica. Shri Chandi Lal and Shri Chunni Lal were not produced before the A.O. and the Hon'ble High Court held that the purchases were in fact not made from "K" and the whole thing is fictitious arrangement and the payments were alleged to have been made to "K" were treated as income from other sources. In the present case the facts were more or less similar as that of the case referred herein above.
j) The onus was on the assessee to prove the purchases made by it were genuine but the 15 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
assessee failed to discharge its onus. There was no onus on the department to produce these persons for examination, but it was obligatory on the part of the assessee to get all expenses including purchases verified to the utmost satisfaction of the Assessing Officer, but the assessee failed to do so. J. Since the assessee failed to prove the genuineness of the purchases, the then A.O. observed that purchases claimed to have been made from the above named paper concerns were bogus and the books of accounts of the assessee were in-genuine and therefore applied......
i. Provisions of section 69C
ii. Proviso to section 69C
iii. Provisions of section 68
In view of the decision of the Hon'ble ITAT, Jaipur Bench, Jaipur in order No. ITA No. 916/JP/2009 dated 16/07/2010, the assessee was provided ample opportunities as discussed in the beginning of this assessment order and assessee attended the assessment proceedings once and produced same purchase bills which were produced during the original assessment proceedings and for the reasons as mentioned above, purchases claimed to have been made from M/s Anmol Ratan and M/s Shruti Gems were not considered genuine. The assessee was required to produce the partner/proprietor of both above mentioned concerns for verification of the 16 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
purchases claimed to have been made from them but assessee failed to produce Shri Umesh Saboo and Shri O.P. Ghiya the partners/proprietors of above mentioned concerns hence purchases claimed to have been made from both these concerns are not found subject to verification.
K. On the basis of various facts as discussed in the above order, there is no doubt that the purchases of Rs. 57,50,000/- claimed to have been made from M/s Anmol Ratna and M/s Shruti Gems were not genuine. The assessee was provided more than adequate opportunities vide notices issue U/s 142(1) to prove the genuineness of these purchases and to establish that the same goods worth Rs. 57,50,000/- were exported but assessee failed to prove the genuineness of above mentioned purchases. The assessee has failed to produce Shri Umesh Saboo as proprietor of M/s Shruti Gems and Shri O.P. Ghiya as proprietor of M/s Anmol Ratan hence genuineness of purchases claimed to have been made from these two concerns could not established. Under these circumstances, on the detailed reasons as discussed in the original assessment order U/s 143(3) and as shown above, the purchases of Rs. 57,50,000/- claimed by the assessee from above mentioned two concerns are held to be non genuine. Alos the assessee could not furnish any evidence in support of the fact that the goods purchased 17 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
by it were exported to claim the benefit U/s 80HHC of the Act.
L. In view of the facts, since the purchases are held as non genuine, it could lead to only the following two inferences:-
a. If on the strength of evidence in support of sales recorded in the books of accounts of the assessee, the sales are accepted as genuine, then assessee ought to have made purchases from parties other than those from whom purchases have been shown in the books of assessee they are already proved non genuine. The sources of such purchases remain unexplained within the meaning of Section 69C. b. Alternatively, since there are no purchases from the parties, as shown in the books of accounts of the assessee, there can be no sale and thus the sales to that extent shown by the assessee on the basis of goods shown to have been purchased from such nonexistent parties is bogus and deserves to be added as unexplained income within the meaning of section 68.
Application of provisions of section 69C. M. As per the first inference if on the strength of evidences in support of sales recorded in the books of accounts of assessee, the sale are accepted as genuine, then assessee ought to have made purchases from parties other than
18 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
those from whom purchases have been shown in the books of accounts because they have already proved non- genuine. Thus, if the export is considered as genuine by appellate authorities at any stage, alternatiely it is to be held that since assessee has not made purchases from the parties in whose name purchases have been debited, to make sales, it was necessary for it to purchases equal quantity of goods from some other persons without which it was not possible for the assessee to export. Naturally, the source of such parties from other persons remains unexplained. If it is assumed that that cost of goods was same as debited in assessee's book then to make purchase of goods, for exporting them, assessee had to incur an expenditure of Rs. 57,50,000/-. The source of such expenditure on purchases corresponding to export have not been recorded in the assessee's book. Therefore, an amount of Rs. 57,50,000/- is treated as unaccounted expenditure and deemed income of assessee U/s 69C of the I.T. Act and the same is added to the income of the assessee under the head "income from other sources".
The ld. Assessing Officer has reproduced Section 69C of the Income Tax Act, 1961 on page No. 10 of the assessment order.
N. The assessee has disclosed its profit after debiting the purchases of Rs. 57,50,000/- which has been held as 19 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
unexplained expenditure as above and the proviso of Section 69C prohibits the assessee to claim the deduction of any unexplained expenditure U/s 69C against any income. Hence, the purchases amounting to Rs. 57,50,000/- debited in the trading account is treated as bogus purchases hence not an allowable direct expenses in view of proviso to section 69C of the I.T. Act and disallowed accordingly.
Unexplained income u/s 68 (Second Inference):-
O. Alternatively, it is a fact that no sales could be effected without purchases and purchases, recorded in the books of accounts are proved non genuine, following evidence and material also goes on to prove that the export of the assessee was bogus and therefore the amount of corresponding sale consideration credited in the books of accounts of assessee remains unexplained and need to be added U/s 68 of the I.T. Act or income from undisclosed sources. Therefore, explanation to the source of amount of Rs. 57,50,000/- credited in the books of accounts of the assessee as sale proceeds of export consignment is unsatisfactory and same is to be added alternatively to the total income of the assessee U/s 68 of the I.T. Act. It is also felt necessary to explain the reasons for application for provisions of Section 68 which are reproduced as below:-
20 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
"Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not him is not in the opinion of A.O. satisfactory, the sum so credited may be charged to income-tax as the time of the assessee of that previous year."
P. The explanation of the above referred sums credited in the books of account of assessee is though sale proceeds of an export consignment. Thus, the sums credited in the books of the assessee are in the garb of sale proceeds of gems stones exported out of India, since the assessee has not made any purchases to the tune of Rs. 57,50,000/- from the party as reflected in its books, it is clearly proved that export business was used as a colorable devide by the assessee. In view of all these evidences, the source of above sum credited in the books of account of the assessee is not actually sale proceeds of export consignments. Thus, in this case, the provisions of section 68 are squarely applicable on the above sum credited in the books of accounts of the assessee as sale proceeds." Accordingly, the Assessing Officer made addition under the head disallowance of bogus purchases in view of proviso to Section 69C as discussed at Rs. 57,50,000/- and income from other sources on account of addition U/s 69C being unexplained expenditure as discussed above at Rs. 57,50,000/-.
21 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the learned CIT(A), who had allowed the appeal partly by observing as under:-
"The A.O. has himself mentioned in assessment order that certain export invoices were available and were submitted by the assessee. Thus, even though the parties from whom the alleged purchases were made may have been bogus the assessee acquired these precious/semi precious stones and exported them to the extent verifiable from these export invoices. On verification done by the A.O. while submission of the remand report, part of these purchases were correlated with the export invoices in the case of M/s Anmol Ratan and in the case of M/s Shruti Gems the entire purchases could be correlated with the export invoice.
On examination of the trading a/c filed by the appellant it is seen that during the year it has shown total export sales of Rs. 1,65,12,669/- and closing stock of Rs. 2,32,00,000/-. No local sales have been shown during this A.Y. On further verification of the submissions filed by the AR it is seen that out of the total purchases of Rs. 47,50,000/- made from M/s Anmol Ratan export sales of Rs. 23,73,226/- can be correlated with details mentioned on purchase bills while the purchases of Rs. 23,76,774/- could not be correlated with the export invoices as follows:
22 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
Bill Date Description Amount
31/05/2001 Emerald rough Rs. 4,00,000/-
31/05/2001 Emerald cut & polish Rs. 15,00,011/-
21/05/2001 Tanzanite Rs. 39,161/-
(only part of Rs. 1,92,483/-
the bill could Rs. 2,45,130/-
be co-related
to export
invoice)
Total Rs. 23,76,774/-
The A.O. may have strong views regarding the addition required to be made on account of unverified purchases on the basis of the evidence gathered by the Investigation Wing of the Dept., but while finalizing the assessment order in the set aside case these views cannot supersede the specific directions given by a higher judicial authority as a matter of judicial discipline.
To summarize, these two parties are merely entry providers and the purchase bills furnished were manipulated, as per evidence on record. On the other hand, it is also a fact that some of the purchases shown to have been made from these parties as per these manipulated purchase bills were exported by the appellant as per the export invoices filed. The fact of the matter is that these export invoices are the only reliable evidence in the case of the appellant because they have to be verified/cleared by another Govt. Dept. that is the Custom Authorities. Thus sales as per these export invoices could 23 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
be correlated to these manipulated purchase bills to the extent of Rs. 10,00,000/- (alleged purchases from M/s Shruti Gems) and Rs. 23,73,226/- (alleged purchases from M/s Anmol Ratan) and the appellant can avail of the benefit of section 80HHC on these exports. For the balance of the alleged purchases of Rs. 23,76,774/- the appellant was not able to correlate the bogus purchases with the exports. Payments vide cheques were shown in the books of accounts for bogus purchases. Since the funds of the firm were diverted for purposes not related to the business of the appellant the entire amount of Rs. 23,76,774/- is required to be added to the income of the appellant and there is no question of availing exemption U/s 80HHC on this amount.
I also do not agree with the submission of the AR that the books of accounts of the assessee should be rejected and a GP rate should be estimated as per the finding of the jurisdictional High Court in the case of Amarpali Gems and the other cases passed by the Hon'ble ITAT, Jaipur Bench, because the facts of the case of the appellant are completely different from the facts of the cases relied on by the AR. In the case of the appellant in spite of repeated opportunity the appellant was not able to correlate the payments made for alleged purchases with any exports unlike the other cases. Once the unverified purchases cannot be linked to the exports the payments to 24 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
these bogus parties/entry providers are held to have been made for non business purpose. On the basis of the detailed discussion above the amount of Rs. 23,76,774/- is to be added to the income of the appellant as expenditure for non-business purpose.
4. Now both i.e. revenue as well as the assessee are in appeals before us. The ld DR has vehemently supported the order of the Assessing Officer and also argued that this issue has been decided by this Bench in the case of Shri Anuj Kumar Varshney Vs. I.T.O. and other gems and jewellery cases in ITA No. 187/JP/2012 order dated 22/10/2014 wherein this identical issue has been considered by the Hon'ble Bench and detailed findings have been given in it.
5. At the outset, the learned A.R. of the assessee has submitted that the Hon'ble ITAT in the first round of assessment proceedings, set aside the order of the ld CIT(A) to the file of the Assessing Officer with specific direction to correlate the purchases made by the assessee firm amounting to Rs. 57,50,000/- from both the parties with its export invoices for claiming deduction U/s 80HHC of the Act. During the course of set aside proceedings, complete bills and vouchers were produced before the Assessing Officer, which fact is being 25 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
acknowledged by the ld Assessing Officer in his order at page 5 top paragraph. However, the ld Assessing Officer was influenced by the earlier two assessment orders and instead of making enquiries and verifying the facts in accordance with the directions of the Hon'ble ITAT the ld Assessing Officer ignoring the directions proceeded to complete the assessment in the manner as earlier. The purchases from the above two parties can be correlated with the exports. The ld AR has drawn our attention on paper book page No. 1 and page No. 2 to 15 and argued that the purchases from both the parties are verifiable from the export bills. Out of total alleged bogus purchases, amounting to Rs. 57,50,000/- correlation of purchases amounting to Rs.
33,73,226/- with the export sales were established one-on-one basis and hence was accepted by the ld CIT(A) and thus disallowance to the extent of such correlated purchases was deleted by the ld CIT(A). In view of this, there is no force in the departmental appeal and therefore the same deserves to be dismissed. The ld AR further argued that the ld CIT(A) failed to appreciate the correlation for the rest of purchases of Tanzanite and Emerald in such quantities involves large amount of tiny pieces and can be sold in different quantities without necessarily 26 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
being always directly correlated. Thus, the co-relationship was established with very small variation in quantity. The ld CIT(A) had not accepted this co-relationship. He has further drawn our attention on submission at page Nos. 9, 10 and 11 and tried to convince the Bench that purchases made from both the parties are verifiable from the export invoices. He further argued that purchases amounting to Rs.
6,84,291/- cannot be directly correlated on account of various reasons.
In view of the above, the action of the ld CIT(A) in confirming the disallowance to the extent of Rs. 23,76,774/- is bad in law and deserves to be quashed.
6. We have heard the rival contentions of both the parties and perused the material available on record. The matter has been set aside by the ITAT twice and the assessee was not able to correlate the purchases made from M/s Anmol Ratan and M/s Shruti Gems to the tune of Rs. 57,50,000/- with export bills. The ld CIT(A) partly accepted the correlation between the purchases made from both the parties and export bills but she confirmed that the purchases made from both the parties are bogus and the assessee might have purchased these items from the grey market but the purchase bills were taken from both 27 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
these parties. The assessee himself has also accepted that it was not able to correlate the purchases made from these two parties partially.
Similar line of cases, this Bench has decided in the case of Shri Anuj Kumar Varshney Vs. I.T.O. and other gems and jewellery cases in ITA No. 187/JP/2012 order dated 22/10/2014 where on unverifiable/bogus purchases 15% disallowances has been decided and we have also applied the same percentage as net profit on unverifiable purchases of Rs. 57,50,000/-, which comes to Rs. 8,62,500/-. Thus we confirm addition of Rs. 8,62,500/-. The burden lies on the assessee, which has not been discharged rightly that purchases were made are genuine and same has been exported.
7. The second ground of assessee's appeal is against not allowing the deduction U/s 80HHC of the Act on the addition of Rs. 23,76,774/-
by the ld CIT(A). As the detailed discussion has been made by the Assessing Officer, CIT(A) as well as submissions made by the assessee before us. After considering both the parties, we are of the considered view that the ld AR has not been able established connection between the purchases made from both the parties and export made by it.
When the items purchased and items exported could not be correlated, 28 ITA 325 and 336/JP/2013_ ITO Vs. Five Star Corp.
in absence of correlation no deduction U/s 80HHC can be allowed.
Therefore, we dismiss the second ground of appeal of the assessee.
8. In the result, revenue's appeal is dismissed and the appeal of the assessee is partly allowed.
Order pronounced in the open court on 24/07/2015.
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vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The ITO, Ward 2(1), Jaipur, Jaipur
2. izR;FkhZ@ The Respondent- M/s Five Star Corporation, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 325 & 336/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar