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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 479/JP/2015
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; ikWy jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 479/JP/2015 fu/kZkj.k o"kZ@Assessment Years : 2010-11 cuke M/s Clarity Gold Pvt Ltd. Assistant Commissioner of Vs. 4, Ganga Vihar, Sardar Patel Income Tax, Marg, C-Scheme, Jaipur Central Circle-1, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACCC3671Q vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri S.L. Poddar & Miss. Isha Kanoongo (Adv.) jktLo dh vksj ls@ Revenue by: Shri Varindar Mehta (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 25/01/2018 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 16/02/2018 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A), Alwar dated 24.03.2015 for Assessment Year 2010-11 wherein the assessee has taken the following grounds of appeal:- “1. That the order passed by the Learned Assessing Officer u/s 143(3)/153(b) is void ab-initio deserves to be quashed.
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In the facts and circumstances of the case the learned Assessing Officer as well as Learned CIT(A) has erred in rejecting the books of accounts u/s 145(3) of the Income Tax Act, 1961.
In the facts and circumstances of the case the Learned CIT(A) has erred in sustain the trading addition of Rs. 72,12,185/- out of total addition of Rs. 1,02,92,954/-.
In the facts and circumstances of the case the Learned CIT(A) has erred in enhancing the addition of Rs. 2,25,51,448/- by applying GP rate of 15% on alleged unaccounted turnover of Rs. 15,03,42,985/- which are only book entries for purchase and not reconciled with stock.”
The facts of the case are that assessee company derives income from business of manufacturing of jewellery and trading of gem stones. A search & seizure operation under section 132(1) of the I.T. Act, 1961 was carried out on 20.5.2009 at the business and residence premises of the assessee group. The background of search action on the Clarity group was survey u/s 133(A) conducted in FY 2007-08 by BCTT wing of Investigation Directorate at Jaipur which revealed that the assessee company and its sister concern had obtained bogus purchase bills from various entry providers who provided bogus sales bills without supplying the goods mentioned in the bills.
During the course of search, statement of Sh. Khushi Kumar Ameriya, one of the directors of the assessee company was recorded u/s 132(4) of the Act. Further, the statement of Sh. Raghu Dutt Tiwari, the Accountant who was responsible for maintaining and supervising the accounts of the assessee were also recorded. Various documents
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loose papers and pen drive were found relating to unaccounted sales, purchase and expenses of the assessee company and all these documents were confronted to these persons and the statement of Sh. Khushi Kumar Ameriya, the director and Sh. Raghu Dutt Tiwari, the accountant were recorded.
The case of the assessee company was thereafter centralized with ACIT, Central Circle-1, Jaipur who issued notice u/s 153A and thereafter, assessment for AY 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 were completed u/s 143(3) read with section 153A wherein the books of accounts were rejected and the trading addition were made by the estimating the gross profit rate for each of these years. The matter has since reached the Hon’ble Rajasthan High Court and the assessment so made by the Assessing Officer has been confirmed except to the fact that as against the GP rate estimated by the Assessing Officer, the Hon’ble High Court, taking into account the average GP rate, had directed to apply GP rate of 12% for the said years.
For the year under consideration, the return of income has been filed by the assessee company, subsequent to the search operation, on 15.10.2010 wherein it has declared turnover of Rs. 15,40,38,479/- and gross profit of Rs 1,58,93,587 @ GP rate of 10.31%. The Assessing Officer, following the earlier years, for the fact that there is unreconciled stock at the time of search which happened during the year under consideration and also for other detailed reasons given in the assessment order, stated that the accounts of the assessee company are not correct and complete within the meaning of section 145(3) of the Act and he accordingly rejected the trading results of the
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assessee company and estimated the GP rate of 17% as estimated in the earlier years as against GP rate declared by the assessee company @ 10.31%. Even though there was unreconcilied stock at the time of search which happened at the beginning of the year under consideration and the assessee failed to reconcile and provide any explanation, the AO accepted the declared turnover and applied the GP rate of 17% on the declared turnover of Rs. 15,40,38,479/- and trading addition of Rs. 1,02,92,954/- was made in the hands of the assessee company.
Being aggrieved, the assessee carried the matter in appeal before the ld CIT(A) who sustained the rejection of books of accounts u/s 145(3). However, GP rate was directed to be brought down to 15% as against 17% applied by the Assessing Officer. Further, ld. CIT(A) taking into account the past history of unaccounted sales and unreconcilied stock at the time of search determined unaccounted sales of Rs. 15,03,42,985 over and above declared turnover of Rs. 15,40,38,479/-. Applying the GP rate of 15% on declared turnover, the addition of Rs. 1,02,92,954/- made by the AO was brought down to Rs. 72,12,185/- and at the same time, the income of the assessee was enhanced by Rs. 2,25,51,448 applying GP rate of 15% on unaccounted sales of Rs. 15,03,42,985. Against the said findings of the ld. CIT(A), the assessee is now in appeal before us.
During the course of hearing, ld. AR submitted that issue is fairly covered by the decision of Hon’ble Rajasthan High Court in assessee’s own case in DB Appeal No. 125/2014 and others dated 19.09.2017 wherein the Hon’ble High Court has confirmed the addition in the hands of the assessee company for all these years by applying GP rate of 12%
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as against GP rate of 17% applied by the AO. He accordingly submitted that for the year under consideration, GP rate of 12% may be directed to be applied on the declared turnover as against the GP rate of 15% as directed to be applied by the ld. CIT(A). Further, regarding the enhancement of income as done by the ld. CIT(A), he submitted that the same is merely based on the difference between the value of stock found at the time of search and value of the stock statement as submitted by the assessee company with the State Bank of Indore. It was submitted that the same cannot be taken as a basis for enhancement of income in the hands of the assessee company as in the statement so submitted to the bank, the turnover was inflated to show improve book results to avail higher banking credit. It was further submitted that the said difference in the stock has already been considered by the Assessing Officer while rejecting the book results of the assessee company and there cannot be any separate addition on that account.
Per contra, the ld. DR fairly submitted that regarding rejection of books of accounts and estimation of GP rate, the matter stands covered by the decision of Hon’ble Rajasthan High Court in assessee’s own case. Regarding enhancement of income as done by the ld. CIT(A), he took us through the findings of the Assessing Officer as well as of the ld. CIT(A) and submitted that even though the Assessing Officer has given a detail finding regarding the unreconciled and unaccounted stock found at time of search and as per the stock statement furnished with the State Bank of Indore, however, the AO failed to consider the same while applying the GP rate. It was submitted that ld. CIT(A) has rightly appreciated the said fact of unreconciled stock which has resulted in unaccounted sale by the assessee company and the same has been
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rightly brought to tax in the hands of the assessee company by applying the GP rate of 15% which may now be reduced to 12% as decided by the Hon’ble Rajasthan High Court.
We have heard the rival contentions and perused the material available on record.
Firstly, ground no. 1 challenging the order passed by the Learned Assessing Officer u/s 143(3)/153B(b) as void ab-initio was not pressed during the course of hearing. Hence, the same is dismissed as not pressed.
In ground no. 2 and 3 regarding the rejection of books of accounts u/s 145(3) of the Act and estimating of GP rate, we find that the matter is covered by the decision of Hon’ble Rajasthan High Court in DB Appeal No. 125/2014 dated 19.09.2017.
The questions of law framed for its consideration by the Hon’ble High Court while admitting the appeals are as under:- “3. This court while admitting the appeals framed the following question of law:- 1. D.B. Income Tax Appeal No. 125/2014 “Whether the ITAT order is perverse in deleting the entire trading addition of Rs. 7,15,57,073/- ignoring admitted facts in the statement of Shri Khushi Kumar Ameriya (Director) u/s 132(4) of the IT Act as well as the evidences gathered during search confirming bogus purchase bills obtained?”
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D.B. Income Tax Appeal No. 126/2014 “Whether the ITAT order is perverse in deleting the entire trading addition of Rs. 60,94,433/- ignoring admitted facts in the statement of Shri Khushi Kumar Ameriya (Director) u/s 132(4) of the IT Act as well as the evidences gathered during search confirming bogus purchase bills obtained?”
D.B. Income Tax Appeal No. 127/2014 “Whether the ITAT order is perverse in deleting the entire trading addition of Rs. 5,12,77,217/- ignoring admitted facts in the statement of Shri Khushi Kumar Ameriya (Director) u/s 132(4) of the IT Act as well as the evidences gathered during search confirming bogus purchase bills obtained?”
D.B. Income Tax Appeal No. 128/2014 “Whether the ITAT order is perverse in deleting the entire trading addition of Rs. 4,21,16,555/- ignoring admitted facts in the statement of Shri Khushi Kumar Ameriya (Director) u/s 132(4) of the Act as well as the evidences gathered during search confirming bogus purchase bills obtained?”
The decision of the Hon’ble High Court while disposing off the above questions is as under:
“6. Taking into consideration the evidence on record, the Tribunal while considering the matter has totally deleted the amount of addition. In our considered opinion, taking into account the industry which is running the business, the addition which has been made on
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the bases of GP which has been shown of the identical industry whose case is also heard together. The GP rate of previous years reads as under:- A.Y 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2009-10 2010-11 unaudite Sales 19849007 142690358 546642847 68749794 977758373 1030628721 1072033904 154038479 Stock Dif. 1446572 51478681 0 71450573 67692676 83951400 83334242 57500950 Total 21295579 194169039 546642847 75894851 1045451049 1114580121 1155368146 211539429 Purchases 18102351 169887836 496228344 686702353 937668274 965843795 991030519 187482439 Direct Cost 0 6118276 9962436 14097721 13120925 8607118 10319346 8163403 Total 18102351 176006112 506190780 700800074 950789199 974450913 1001349865 195645842 Grow 3193228 18162927 40452067 58148440 94661850 140129208 154018281 15893587 G.P.rate 16.08% 12.72% 7.40% 8.45% 9.68% 13.59% 14.36% 10.31
Taking into account the average GP rate which will be applied in the present case will be 12 per cent. It is made clear that where ever the profit is more than 12 per cent, the same will not be refunded to the assessee but where it is less than 12 per cent, the income will be assessed on the basis of 12 per cent GP. 8. In view of above, all the appeals stand allowed to the aforesaid extent.”
Admittedly, there are no changes in the facts and circumstances of the case except the matter relating to unreconciled stock which we shall be discussing subsequently while adjudicating ground no. 4 of the assessee’s appeal. Respectively following the decision of the Hon’ble Rajasthan High Court in assessee’s own case for the earlier years, we upheld the rejection of books of accounts u/s 145(3) of the Act and the AO is directed to apply G.P. rate of 12% as against 10.31% disclosed by the assessee on the declared turnover of Rs. 15,40,38,479/-.
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Now, we refer to ground no. 4 of the assessee’s appeal wherein the assessee has challenged the action of the ld CIT(A) in enhancing the income by an amount of Rs. 2,25,51,448/- by applying GP rate of 15% on alleged unaccounted turnover of Rs. 15,03,42,985/-.
Firstly, we refer to the findings of the ld CIT(A) which are reproduced as under:-
“5.7 I have gone through the assessment order as well as submissions made by the appellant and find that an addition of Rs. 1,02,92,954 has been made by the AO after applying a GP rate of 17% on the declared turnover of Rs. 15,40,38,479/-. AO has rejected the books of accounts as during the course of a search action undertaken by the BCTT wing of Investigation Directorate, the appellant company was found to be the major beneficiary of having obtained the largest number of bogus purchase bills alongwith its sister concerns. The directors of the company were confronted with the enquiries conducted by the Investigation Directorate and details of the same have already discussed by the AO in the assessment order reproduced above.
5.8 During the course of search conducted at the premises of the appellant a number of incriminating documents in the form of papers, pen drive and other documents were found pertaining to the unaccounted sales, purchases and expenses of the business. The appellant has admitted (para 21.1, page 31 of the order) in the course of statement recorded that total sales of all the units during FY 2008-09 was around Rs. 107 crores and the declared turnover was only around Rs. 10.36 crores. Further, it was found that the appellant has
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suppressed the turnover of the business substantially as may be seen from para 22 (page 32) of the assessment order.
5.9 AO has accordingly rejected the book results declared by the appellant and relied upon a number of other comparable cases applying a GP rate of 17% on the declared turnover. It was noted from the order of the AO that books of account were found to be not complete on the date of search and as per the stock statement as on 30.04.2009 filed by the appellant company with the State Bank of Indore, the value of stock as on 30.04.2009 was Rs. 29,55,67,819 and as against this the actual stock found at the time of search was Rs. 14,52,24,834/-
5.10 The appellant was asked to show cause as to why not the GP rate of 15% as held by the Hon’ble ITAT Jaipur Bench in the case of Anuj Kumar Varshney and others, be applied on this account of undisclosed turnover of Rs. 15,03,42,985 (Rs. 29,55,67,819-14,52,24,834).
5.11 The appellant has reiterated the submissions filed before the AO and has justified the GP rate declared. It is submitted that books of accounts have been regularly maintained and are duly audited. It is further stated that no addition has been sustained by the Hon’ble ITAT in the case of the appellant on account of GP rate in the earlier years. A copy of the order passed by the Hon’ble ITAT Jaipur dated 05.03.2014 has been filed on record. It is further stated that difference in the stock valuation is on account of higher valuation taken by the search party. It is also stated that no addition be made on account of undisclosed turnover.
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5.12 Having carefully perused the material available on record, I find that an opportunity had been duly given to the appellant at the stage of assessment to reconcile the differences in the value of stock found at the time of search and the value of stock as per the books, a copy of which had been filed in the bank. The appellant has clearly failed to justify the differences in the value of stock even in the course of appellate proceedings and has merely reiterated the submissions filed earlier and justified the results declared in the return of income.
5.13 I find that in the absence of any credible evidence being filed by the appellant, the only logical and rational course of action available would be to treat the difference in the value of stock of Rs. 15,03,42,985 as the turnover, which has not been accounted for in the regular books of accounts. This explanation is also in sync with the statement given by the appellant at the time of search and with the documents (in the form of unaudited financial statements found along with the audited financial statement of the company) found at the time of search relating to concealment of turnover, purchases, expenses, etc.
5.14 In case, the explanation of the appellant is accepted that the stock found at the time of search was correct and was in accordance with the books of accounts, than it means that the statement of stock filed with the bank was not correct. It also leads to the belief that the value of stock shown in the statement was inflated and appellant than becomes liable for perpetrating a financial fraud on the bank. Therefore, the only conclusion which emerges out of the above discussion is that unaccounted turnover of Rs. 15,03,42,985 has been made by the appellant during the period under consideration.
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5.15 Thus, the next course of action would be to estimate the profit earned on the unaccounted turnover of Rs. 15,03,42,985. Further, I find that AO has applied a GP rate of 17% on the declared turnover of Rs. 15,40,38,479/-, on which the appellant has declared a GP rate of 10.32%. The appellant has justified the rate declared on the ground that similar additions made by the AO in the preceding years have been deleted by the ITAT.
5.16 I have carefully considered the submissions made and find that Hon’ble ITAT Jaipur Bench has consistently held that the fact of unverifiable purchase sales is a sufficient ground for invoking the provisions of section 145 (3) of the IT Act to reject the books of accounts of the appellant. In this case Department had specifically gathered information and during the course of search incriminating documents, computer, pen drives, etc. were found and it was admitted that sales/purchases have been understand in the return of income filed.
5.17 This issue has been recently considered by the Hon’ble ITAT, Jaipur in a comprehensive and combined order dated 22-10-2014, in the case of Sh. Anuj Kumar Varshney, M/s Bhansali Trading Corporation, Deepak Dalela, G.B. Impex, M/s Jewel Emporium, Sh. Hemant Shrivastava, M/s H.K. Impex, M/s Kinu Baba Jewellery Pvt. Ltd., M/s Lakhi Gems, Kumud Chand Jain HUF, Sh. Ravi Sancheti, Sh. Rajendra Kumar Agarwal, Smt. Sharmila Jain, M/s Silver Images, wherein it has upheld the rejection of books of accounts and invoking the provisions of section 145(3) in cases of bogus purchases and sales.
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5.18 …….
5.19 In view of the above, I hold that AO was justified in invoking the provisions of section 145 of the IT Act. Further, I hold that GP rate of 15% may also be applied on the turnover declared by the appellant as against the GP rate of 17% applied by the AO. As a result of this, the total gross profit would be Rs. 2,31,05,772 as against the gross profit of Rs. 1,58,93,587 declared by the appellant. Therefore, an addition of Rs. 72,12,185 stands confirmed out of the total addition of Rs. 1,02,92,954 made by the AO under this head.
5.20 Besides, I hold that rate of profit of 15% should also be applied on unaccounted sales of Rs. 15,03,42,985/- as computed above. Thus, the income as stated above would stand enhanced by Rs. 2,25,51,448 (15% of Rs. 15,03,42,985) on account of unaccounted profit on sales which has not been recorded in the books of accounts.”
We now refer to findings of the AO which are contained at para 24 and 25 of the assessment order which are reproduced as under:- “24. Another specific issue resulting to conclusion of incomplete and incorrect accounts is the value of stock found during the course of search. At the time of search no stock details as per books, were made available and therefore the stock physically found could not be verified in correct manner. Assessee is not maintaining any quantitative stock register as is observed by the auditors who have commented that at the time of audit assessee did not produce stock register. Non maintenance of quantitative stock details definitely leads to conclusion of application of section 145(3) of the I.T Act. It may further be seen that in jewellery
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unit, nizami unit and partly in Silver Star unit, the assessee is manufacturing gold and silver jewellery but no regular manufacturing records or consumption records are maintained so as to verify the consumption of raw material vis a vis production of finished goods. The asessee uses substantial quantity of other alloys such as copper, zinc, cadmium etc for manufacturing of jewellery but there are no records to verify the proportionate part of alloys and how the same was considered in valuation of the finished goods. As such not only the trading activities of gem unit are unverifiable but the trading and manufacturing activities of other units are also not subject to proper verification. During the course of search physical stock found was counted, quantified and valued in the presence of the managers and other persons of the assessee. Since the items of different quality and specification were found expert valuation was got done. From all the premises total stock found was of Rs. 145224834 as detailed below:-
S. No. Premises Total stock actually found & inventorised 1 Gems Unit of M/s Clarity Gold Pvt. Ltd. at 4, 2886120 Sardar Patel Marg, C-Scheme Silver Star Unit of M/s Clarity Gold Pvt. Ltd., at 3rd 2 12360470 Floor, Nawab Sahib Ki Haveli, Tripoliya Bazar, Jaipur 3 Jewellery Division of M/s Clarity Gold Pvt. Ltd at 70791196 G-1-33, Gems & Jewellery Zone, EPIP, Sitapura Industrial Area, Jaipur
15 ITA No. 479/JP/2015 M/s Clarity Gold Pvt Ltd., Jaipur vs. ACIT, Jaipur Nizami Division of M/s Clarity Gold Pvt. Ltd., at 3rd 4 37866444 & 4th Floor, Star Mansion, C-82, Shyam Marg, Jaipur Mumbai office of M/s Clarity Gold Pvt. Ltd. at 2nd 5 18634757 Floor, Metro House, Metro Cinema Building, M.G. Road, Mumbai 6 Stock found at office of Clarity Gold Pvt. Ltd., at 2685847 First Floor, Dilli Walon Ki Building, Gopalji Ka Rasta, Jaipur Total 145224834
Since books of accounts were not complete on the date of search exact stock as per books on the date of search could not be worked out neither in terms of value nor quantitatively. However, it was seen that assessee furnished details of stock statement as on 30.4.2009 to State Bank Indore. This stock statement was obtained and it was found that on 30.4.2009 the company was having stock of Rs. 295567819. Thus as on 30.04.2009 the book stock was of Rs. 29.55 crores. Taking this stock in to consideration there was a deficiency of stock of more than Rs. 15.03 crores as on the date of search. The difference in stock has not been explained by the assessee. In post search proceedings the assessee was specifically asked vide letter dated 16.7.2009 to reconcile the difference in stock found and submitted to bankers but it has totally failed to reconcile the same. Even in the present asstt proceedings it has not been satisfactorily explained. A very general and vague reply has been filed by the AR vide letter dated 5.8.2011. Contentions raised in para 2 of letter dated 5.8.2011 reproduced above are not tenable as the valuation was done by the experts, in the presence of assessee’s
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employees dealing/managing the affairs on the date of search/seizure, no objection of any nature were raised by the employees at the time of search or just after the search. Now challenging the valuation on frivolous grounds is only an afterthought and just too devoid the investigation. Even the assessee has not been able to produce correct quantification and valuation after search, if it was of the view that valuation made by the search party was faulty or incorrect. It may further be seen that assessee itself admits that there is vast difference in rate of items of one category and under such circumstances if assessee itself was not possible to quantify and value the goods, the figures of stock and sale/purchases in trading accounts are admittedly not subject to proper verification. Deficient stock found clearly proves that either fake purchase bills are introduced so as to increase the stock or the sales are reduced. The submission of Shri K. K. Ameriya again comes in to the picture the stock or the sales are reduced. The submission of Shri K.K. Ameriya again comes in to the picture that stock statements are inflated by way of showing bogus purchases, debtors and turnover. This fact is a conclusive proof of incorrectness of books of accounts and trading results of the company.”
The ld. AR submitted that the ld. CIT(A) has enhanced the addition of Rs. 2,25,51,448/- on the basis of decision of the Co-ordinate Bench of the Tribunal in the case of Anuj Kumar Varshney and others on 22.10.2014. It was submitted that the ratio of the said decision is not applicable to the facts of the case. It was submitted that in the aforesaid decision, the Hon’ble ITAT has made disallowance @ 15% of the bogus purchases. In the case of the assessee, the issue involved is not only of bogus purchases but also of bogus sales. In the statement
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of Shri K.K. Ameriya this fact was obvious. The Learned Assessing Officer has mentioned this fact in para 7 of the assessment order which is quoted below:- “In his statement recorded during search Sh. Khushi Kumar Ameriya admitted that most of the turnover appearing in the books of various concerns of this ground were bogus and were arranged through brokers by paying commission to inflate the stock in trading and turnover of the company to obtain higher credit limits from the banks.”
Thus it is clear that it is not as simple a case as is taken. In this case it is not only the purchases which are bogus but the sales too. The turnover was inflated by arranging bogus vouchers of purchases and issuing bogus vouchers of sales. The purpose of inflating the turnover was to better and improve the book records before the banking authorities to avail higher credits. These facts were also submitted in detail in our submission made before the Learned CIT(A) on 09.10.2014. The same is reproduced for the sake of convenience:-
“3. In turnover of bogus purchase and sales the margin is Nil- In the entire assessment order the main thrust of the Learned Assessing Officer is on the issue of bogus voucher of purchase and sale. In this regard statements of Shri K.K.Ameria, has been quoted at length. The assessee has already challenged the veracity of these statements in as much as these were recorded under that bills of purchases (bogus) were obtained after making payment of commission). Similarly the assessee also got a similar commission on issuing such bogus sale bill. In other words the assessee was not earning anything in the process of obtaining bogus purchase vouchers
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and issuing sale vouchers. The only benefit which the assessee derived was banking credit facility on the basis of increase turnover. This finds support from the statement of Shri K.K. Ameriya relied upon by the learned Assessing Officer. The assessee could increase his turnover in the process of alleged bogus purchase vouchers and bogus sale vouchers. Therefore the entire exercise of the learned Assessing Officer is of no avail. There is no iota of evidence or any material brought on record by the aforesaid process of bogus vouchers. The learned Assessing Officer has not conducted any post search inquiries which may also support the finding of the Learned Assessing Officer of earning higher profits by the assessee by way of obtaining bogus purchase vouchers and issuing bogus sale vouchers. Thus there was no justification of the learned Assessing Officer for taking action u/s 153 in the case and subsequently completing the assessment by making addition.”
It is further submitted that we are enclosing herewith copy of the statement of Shri K.K. Ameriya in support of our aforesaid facts. Now these facts settle that the facts of the case are different from those case where the issue was only of bogus purchases which from part of the order of the Hon’ble ITAT dated 22.10.2014. The Hon’ble CIT(A) was not justified in applying the ratio of the decision dated 22.10.2014 of the Hon’ble ITAT by rule of thumb when the facts are at variance.
Even otherwise the GP rate applied by the learned CIT(A) at the rate of 15% covers the issue as on total purchase plus profit, the learned Assessing Officer has applied 15% GP rate which is more than 15% of
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unverifiable purchases because unverifiable purchases are part of total purchases.”
The ld DR has vehemently argued the matter and relied upon the order of the lower authorities. The ld DR submitted that even though the AO has given a detail finding regarding the unreconciled and unaccounted stock found at time of search and as per the stock statement furnished with the State Bank of Indore, however, the AO failed to consider the same while applying the GP rate where he has estimated gross profits on declared turnover only instead of declared as well as unaccounted turnover. It was submitted that ld. CIT(A) has rightly appreciated the said fact of unreconciled stock which has resulted in unaccounted sale by the assessee company and the same has been rightly brought to tax in the hands of the assessee company wherein he has estimated gross profit on declared as well as unaccounted turnover. As far as GP rate is concerned, the ld DR fairly submitted that the GP rate of 12% as decided by the Hon’ble Rajasthan High Court may be considered.
We have heard the rival contentions and perused the material available on record. The ld. CIT(A) noted that during the course of search conducted at the premises of the assessee company, a number of incriminating documents were found pertaining to unaccounted sales, purchases and expenses of the business. It was further noted by the ld. CIT(A) that the assessee has admitted in the course of statement recorded during the course of search that total sales of all the units during FY 2008-09 was around Rs. 107 crores and the declared turnover was only around Rs. 10.36 crores. Further, ld. CIT(A) refers to the order of the AO and stated that the appellant has suppressed the
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turnover of the business substantially as may be seen from para 22 of the assessment order. It was further noted by the ld. CIT(A) that AO has accordingly rejected the book results declared by the appellant. It was further noted from the order of the AO that books of accounts were found to be not complete on the date of search and as per the stock statement as on 30.04.2009 filed by the appellant with the State Bank of Indore, the value of stock as on 30.04.2009 was Rs. 29,55,67,819/- and as against this, the actual stock found at the time of search on 20.05.2009 was Rs. 14,52,24,834/-. A specific show cause notice was issued to the assessee as to why the GP rate of 15% as held by the Tribunal in case of Anuj Kumar Varshney and others should not be applied on the above undisclosed turnover of Rs. 15,03,42,985/-. It was held by the ld. CIT(A) that inspite of appropriate opportunity given to the assessee at the stage of assessment and even during the course of appellate proceedings, the assessee has failed to reconcile the differences in the value of stock found at the time of search and the stock as per books a copy of which had been filed with the bank. It was further held by the ld. CIT(A) in the absence of any tangible evidence being filed by the assessee, the only logical and rational course of action available would be to treat the differences in the value of stock of Rs. 15,03,42,985/- as turnover which has not been accounted for in the regular books of accounts. It was held by the ld. CIT(A) that the said position would be consistent with the statement given by the appellant at the time of search and also with the documents found at the time of search relating to concealment of turnover, purchases etc. It was further held by the ld. CIT(A) that where the explanation of the assessee is accepted that the stock found at the time of search was correct and was in accordance with the books of accounts, then it
21 ITA No. 479/JP/2015 M/s Clarity Gold Pvt Ltd., Jaipur vs. ACIT, Jaipur
means that the statement of stock filed with the bank was not correct. It also leads to believe the value of stock shown in the statement was inflated and the appellant become liable for perpetrating a financial fraud on the bank. Accordingly, it was held by the ld CIT(A) that the only conclusion which emerges out of the above discussion is that the unaccounted turnover of Rs. 15,03,42,985/- has been made by the assessee during the period under consideration. The ld. CIT(A) thereafter applied GP rate of 15% on such unaccounted turnover following the decision of the Co-ordinate Bench in case of Anuj Kumar Varshney and others.
It is not in dispute that the assessee is found involved in accounting for both bogus purchases and bogus sales as well as there are unaccounted purchases and unaccounted sales as per the documents found and seized during the course of search. In the statement recorded during the course of search, the director of the assessee company has admitted that during the FY 2008-09, total sales are of Rs. 107/- crores as against recorded sales of Rs. 10.36 crores in its books of accounts and the fact that the said amount of Rs. 107/- crores has been brought to tax during the FY 2008-09 relevant to assessment year 2009-10. For the year under consideration, the quantification of undisclosed turnover has been determined by comparing the value of the physical stock as on the date of search i.e, 20.05.2009 and as per the stock statement submitted by the assessee with the State Bank of Indore on 30.04.2009. Given that the books of accounts were not complete as on the date of search, exact stock as per books on the date of search could not be worked out neither in terms of value nor quantitative tally. In post search proceedings and
22 ITA No. 479/JP/2015 M/s Clarity Gold Pvt Ltd., Jaipur vs. ACIT, Jaipur
during the assessment and appellate proceedings as well, the assessee has failed to reconcile the same and offer any satisfactory explanation. Regarding valuation of such stock at the time of search, the AO has held that “the valuation was done by the experts, in the presence of assessee’s employees dealing/managing the affairs on the date of search/seizure and no objection of any nature were raised by the employees at the time of search or just after the search. Now challenging the valuation on frivolous grounds is only an afterthought and just too devoid the investigation. Even the assessee has not been able to produce correct quantification and valuation after search, if it was of the view that valuation made by the search party was faulty or incorrect.” The said findings of the AO remain uncontroverted before us and we donot see any justifiable reason to interfere with the same. Hence, it was held by the AO that there was deficiency of stock of Rs. 15.03 crores. As per Assessing Officer, deficiency of stock so found clearly proved that either fake purchase bills are introduced so as to increase stock or the sales are reduced. The AO also referred to the statement of Shri K. K. Ameriya wherein he has stated that stock statements are inflated by way of showing bogus purchases, debtors and turnover. As per the Assessing Officer, it is conclusive proof of incorrectness of books of accounts and trading results of company. Hence the books of accounts and trading results were rejected by the AO. The AO thereafter applied G.P rate of 17% on declared turnover of Rs 15,40,38,479. It is here that the ld CIT(A) has stepped in and in our view, rightly so, where he figured out a seemingly apparent mistake in the final determination of quantum of turnover by the AO for the purposes of estimating the gross profits. As per ld. CIT(A), in absence of necessary reconciliation and any credible evidence filed by the
23 ITA No. 479/JP/2015 M/s Clarity Gold Pvt Ltd., Jaipur vs. ACIT, Jaipur
assessee, the only logical and rational course of action would be treat the difference in the value of stock as unaccounted turnover which has not been accounted in the regular books of accounts. Based on material available on record, we agree with the findings of the ld CIT(A) that there is an unaccounted turnover which has not been disclosed by the assessee. However, we find that the ld CIT(A) has determined the unaccounted turnover by comparing the stock statement as on 30.04.2009 filed by the appellant company with the State Bank of Indore which discloses the value of Rs. 29,55,67,819 and the actual stock of Rs. 14,52,24,834/- found at the time of search on 20.05.2009. For the period April 2009 to March 2010 which includes the period starting 30.04.2009 and ending 20.5.2009, the assessee has disclosed a turnover of Rs 15,40,38,479. Accordingly, the assessee shall be eligible for credit of disclosed turnover for the period starting 30.04.2009 and ending 20.5.2009 which comes to Rs 88,62,487 by evenly distributing the declared turnover over a period of 12 months. Accordingly, the undisclosed turnover in the hands of the assessee company comes to Rs 14,14,80,498 (Rs 15,03,42,985 less 88,62,487).
Regarding the estimation of GP rate, the matter stand covered by the decision of Hon’ble Rajasthan High Court in assessee’s own case in earlier years wherein GP rate of 12% has been upheld by the Hon’ble High Court. Hence, the same will apply with the equal force in the present case.
Regarding the contention of the ld AR that the difference in the stock has already been considered by the Assessing Officer while rejecting the book results of the assessee company and there cannot be
24 ITA No. 479/JP/2015 M/s Clarity Gold Pvt Ltd., Jaipur vs. ACIT, Jaipur
any separate addition on that account. It was submitted that G.P rate so determined should be applied only the declared turnover only and not on unaccounted turnover as so determined. In our view, once the books of accounts have been rejected by giving cogent reasons, the AO has to make best judgement assessment. It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and such guess work should have link with tangible evidence which in the present case is the stock statements which is prepared and submitted by the assessee itself to its bankers. If the stock statement shows certain value of stock which is at variance to physical stock, it is clearly a tangible piece of evidence which belongs to the assessee and found from the possession of the assessee during the course of search. Unless the assessee come forward and explain why the said stock statement is not correct and should not be relied upon, the Revenue cannot be precluded in taking the same into consideration or expected to shut its eyes ignoring the same. It is the assessee itself who is to blame as he did not submit proper accounts and there are unaccounted turnover which is so determined and which should be taking into consideration while estimating the profits in the hands of the assessee company. In our view, there was no arbitrariness in the present case where the AO has determined the unaccounted turnover of Rs 15,03,42,985/-, but failed to take the same into consideration while estimating the profits in the hands of the assessee company and which the ld CIT(A) has rightly appreciated and considered the same along
25 ITA No. 479/JP/2015 M/s Clarity Gold Pvt Ltd., Jaipur vs. ACIT, Jaipur with the declared turnover. We accordingly upheld the action of the ld CIT(A) of determining the unaccounted turnover which we have reduced to Rs 14,14,80,498 and the profit on such unaccounted turnover of Rs 14,14,80,498 should be determined by applying G.P rate of 12% as against 15% applied by the ld CIT(A). The ground no. 4 of the assessee’s appeal is thus partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 16/02/2018.
Sd/- Sd/- ¼fot; ikWy jko½ ¼foØe flag ;kno½ (Vijay Pal Rao) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 16/02/2018. *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s Clarity Gold Pvt Ltd., Jaipur 2. izR;FkhZ@ The Respondent- ACIT, Central Circle-1, Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File { ITA No. 479/JP/2015} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत