SHRI HARI PRASAD VIJAY,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5, JAIPUR

PER VIJAY PAL RAO, JM : These two appeals by the assessee are directed against two separate orders of ld. CIT (Appeals)-2, Jaipur both dated 20th June, 2018 for the assessment years 2009-10 & 10-11 respectively. The assessee has raised common grounds in both the appeals except the quantum of addition. The grounds raised for the assessment year 2009-10 are as under :-

2. The assessee is an Individual, carrying on the business of export of precious and semi precious gems and stones in his proprietorship concern M/s. Sunny Jewels Corporation. The assessee filed his return of income under section 139(1) on 30.09.2009 declaring total income of Rs. 15,15,250/- which was processed under section 143(1) on 05.10.2010. Subsequently, the AO reopened the assessment by issuing notice under section 148 on 30th March, 2016 and completed the reassessment on 14.12.2016. In the reassessment proceedings, the AO after rejection of books of account made addition of 25% of alleged unverifiable purchases amounting to Rs. 9,03,121/-. On appeal, the ld. CIT (A) has restricted the addition by applying GP rate at 19% for both the assessment years. Aggrieved by the impugned order of ld. CIT (A), the assessee filed these appeals.

3. Before the Tribunal, the ld. A/R of the assessee has submitted that the ld. CIT (Appeals) has applied GP rate at 19% without giving any basis whereas the assessee’s own past history was not considered while estimating the income of the assessee. He has further contended that the assessee is an exporter and once the export of goods are not denied, then the corresponding purchases cannot be held as bogus. The AO has not made out a case of inflation of purchase price but has doubted the purchase itself which is not possible when the assessee is in the 100% export sale. Thus the ld. A/R has contended that after rejection of books of account, the AO was required to estimate the income of the assessee on the basis of some reasonable and proper basis. He has referred to various decisions of this Tribunal including the decision dated 15.12.2017 in case of ACIT vs. M/s. Allied Gems Corporation in as well as decision dated 29.01.2018 in case of Vijay Kedia (HUF) vs. ACIT in ITA Nos. 197 & 248/JP/2016. The ld. A/R has submitted that when the GP declared by the assessee is in line with the past history as well as the GP prevailing in this trade, then no addition is justified.

4. On the other hand, the ld. D/R has submitted that it is a case of bogus purchase and even in the preceding years the cases of the assessee were reopened on the similar grounds and the assessee approached to the Settlement Commission.

Therefore, the GP declared even in the previous year cannot be considered as reasonable or proper basis for estimation of income for the year under consideration. He has relied upon the orders of the authorities below.

Sun Diam and consequently an addition of Rs. 9,03,121/- was made for the assessment year 2009-10 and similarly 25% of the purchases made from two concerns managed by the same group of persons was disallowed for the assessment year 2010-11 and consequently an addition of Rs. 10,33,021/- was made. On appeal, the ld. CIT (A) found that after rejection of books of account, the income of the assessee is required to be estimated by considering GP rate. The ld. CIT (A) has applied the GP rate at 19% after rejecting the contention of the assessee regarding the past history of GP declared by the assessee. The ld. CIT (A) has specifically observed that even for the assessment years 2007-08 and 08-09 the assessments were reopened on the similar grounds and the assessee approached to Settlement Commission for settlement of the matter. Thus the ld. CIT (A) has rejected the GP declared by the assessee of preceding years.

A.Y. Turnover Gross Profit Gross Profit rate 2006-07 1,78,11,666/- 28,20,480.00 15.83% 2007-08 1,51,41,518/- 20,69,175.00 13.66% 2008-09 1,06,59,507/- 17,33,545.56 16.26% Though the GP declared for the assessment years 2007-08 and 08-09 was not accepted by the revenue and even the matter was settled before the Settlement Commission, therefore, in such circumstances the GP declared by the assessee for those assessment years i.e. 2007-08 and 08-09 cannot be considered as a proper basis for estimation of the current year’s income. However, when there is no dispute regarding GP declared by the assessee for the assessment year 2006-07, then the GP for that year should have been taken as a reasonable and proper basis for estimation of income of the assessee for the year under consideration. The assessee has declared the GP for the year under consideration at 16.11% which is more than the GP declared for the assessment year 2006-07. Similarly the GP declared by the assessment year 2010-11 is 16.03% which is also in line with the GP declared for the assessment year 2006-07 at 15.83%. Thus despite the rejection of books of account as the GP declared by the assessee for the year under consideration is in line with or more than the normal GP declared in the preceding years or the profit prevailing in the trade, then no addition is called for. Rejection of books of account would not ipso facto lead to the addition if the GP declared by the assessee is higher or in line with the reasonable basis to be applied for estimation of income. Hence, in view of the facts and circumstances of the case, the addition sustained by the ld. CIT (A) is not justified and the same is deleted.