DAKSH JEWELLERY PVT. LTD.,JAIPUR vs. INCOME TAX OFFICER, WARD-5-2, JAIPUR

The hearing of the matter was scheduled through video conferencing in view of the ongoing Covid-19 pandemic situation prevailing in the country. None has appeared on behalf of the assessee, however, a letter dated 29.08.2020 was filed with the Registry wherein the ld. A/R Shri S.C Jain has stated that the written submission filed on behalf of the assessee may be considered and matter may be decided. It was accordingly decided to hear the matter considering the written submissions and other material available on record.

Briefly stated, the facts of the case are that the assessee is engaged in the business of manufacturing and trading of jewellery studded with diamond and other precious stones items. During the course of assessment proceedings, the Assessing Officer issued a show- cause notice dated 13.01.2016 stating that purchases made by the assessee from M/s Surya Diam and M/s Maximus Gems are in the nature of bogus purchases being made from concerns which are related to M/s Bhanwar Lal Jain Group on whom the Investigation Wing of the 3 Daksh Jewellery Pvt. Ltd., Jaipur Vs. ITO, Jaipur Department has carried out search operations on 03.10.2013 and his statements were recorded wherein he has admitted that he is not selling the goods but providing the bills and after receipt of the payment of the bill, the same is refunded back in cash. Therefore, to show-cause why purchases so made by the assessee from these two concerns should not be considered as non-genuine purchases. In response, the assessee filed its submissions which were considered but not accepted by the Assessing Officer and he proceeded to make addition by disallowing 25% of such purchases amounting to Rs 33,69,498/-. On appeal, the ld CIT(A) held that the trading results are not acceptable and the books of accounts were rejected u/s 145(3) and net loss of Rs. 18,02,566/- claimed by the assessee was reduced and assessed at Nil and part relief of Rs. 15,81,582/- was allowed and remaining addition of Rs 17,87,916/- was sustained. Against the said findings, the assessee is now in appeal before us.

In its written submission, the assessee has submitted that the books of accounts were duly maintained and audited u/s 44AB and the Assessing Officer has not pointed out any defects in the books of accounts so maintained by the assessee except that the Assessing Officer was influenced from the findings of the search operations on M/s Bhanwar Lal Jain Group with whom M/s Surya Diam and Maximus Gems were having relationship. It was submitted that the Assessing Officer has not invoked the provisions of section 145(3) for rejecting the book results but have arbitrarily applied his own opinion for making the trading addition. It was submitted that complete details of the parties and transactions consisting of the firm’s account, purchase bill copies and bank accounts vide which the payments of purchases were made

It was further submitted that action of the ld. CIT(A) in rejection of books of accounts is against the provisions of law as all the components of trading account i.e. opening stock, purchases, sales and closing stock are accepted and no specific defect has been pointed out by the ld. CIT(A). Further, reliance was placed on the Hon’ble Rajasthan High Court’s decision in case of Gotan Lime Khanij Udyog vs. CIT (2002) 256 ITR 243 and Malani Ramjivan Jagannath vs. ACIT (2009) 316 ITR 120. It was accordingly submitted that the action of rejecting the books of accounts and invoking the provisions of section 145(3) simply for the two purchases by the ld. CIT(A) thus may be quashed and trading addition so confirmed be ordered to be deleted.

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 which has carried out

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 Bhanwar lal Jain Group has come to be conclusion that the assessee has taken accommodation entry of bogus purchases from two concerns to the extent of Rs. 1,34,77,995/- and the additions have been made to the extent of 25% of the unverifiable bogus purchases. The ld CIT(A) has given a finding that the assessee filed copies of purchase bills and bank statement reflecting the payment through cheque, however, failed to controvert the specific admission made by the seller entities that they have given bogus bills through their paper concerns and no confirmation was filed from these concerns in support of actual delivery of goods. We therefore find that where the purchases so made constitute almost 40% of total purchases made by the assessee which remain unverified and unsubstantiated in the sense that the actual purchases were made from these concerns or not is not conclusively established and the assessee has thus failed to discharge the initial onus cast on it, the 6 Daksh Jewellery Pvt. Ltd., Jaipur Vs. ITO, Jaipur results so declared by the assessee cannot be held to represent true and fair results and thus, the books results so declared and the books of account so maintained cannot be held reliable and have been rightly rejected u/s 145(3) by ld. CIT(A) and we donot find any infirmity in the said decision of the ld CIT(A) and to that extent, the findings of the ld CIT(A) are sustained. However, once the books of accounts have been rejected, the Assessing Officer is required to make the assessment on the basis of his best judgment and a fair estimate of income has to be made instead of resorting to making the addition to the book results which already stand rejected or any alteration in the book results as in the instant case, where the loss claimed has been disallowed by the ld CIT(A) exercising its co-terminus powers with that of the Assessing officer. 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 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. In the instant case, though the assessee was incorporated on 15.12.2011, no business was carried out in the said year and the current financial year 2011-12 is the effective first year of operations and the question of applying assessee’s past history therefore doesn’t arise for consideration as not relevant. Alternatively, comparable cases in the similar line of business should be considered by the authorities. However, we find that there is nothing on record in respect of any comparable third party data and therefore,