DCIT, JAIPUR vs. AMRAPALI JEWELS PVT. LTD., JAIPUR

PER SHRI KUL BHARAT, JM.

The appeal by the Revenue and cross objection by the assessee is directed against the order of ld. CIT (A), Bikaner, dated 14.05.2013 pertaining to assessment

year 2008-09. The Revenue has raised the following grounds of appeal :-

2 ITA No. 670/JP/2013 & C.O. 53/JP/2013 M/s Amrapali Jewels Pvt. Ltd., Jaipur.

the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as

the Act) vide order dated 22/12/2010, while framing the assessment, the Assessing

Officer observed that the closing stock of the assessee is not unverifiable for want of

item wise, day to day qualitative cum quantitative inventory of stock. Therefore, he

proceeded to estimate the profit by rejecting books of accounts. The Assessing

Officer applied 25% for disallowance of unverifiable purchase, thereby; he made

trading addition of Rs. 17,25,190/- apart from this, the Assessing Officer also made

disallowance of general expenses of Rs. 58,925/-. Against this the assessee

preferred an appeal before Ld. CIT(A), who reduced the trading addition thereby he

made a lump-sum addition of Rs. 50,000/- and also reduced the disallowance made

on account of general expenses to the extent of Rs. 20,000/- However, the ld.

CIT(A) confirmed the rejection of books of accounts. Aggrieved by this, both

revenue and assesse have assailed the order of ld. CIT(A) by filing appeal and cross

objection

only effective ground is against restricting the trading addition to Rs. 50,000/-.

Ld. Departmental Representatives submitted that the ld. CIT (A) was not justified in

restricting the addition, he submitted that the Assessing Officer has given specific

3 ITA No. 670/JP/2013 & C.O. 53/JP/2013 M/s Amrapali Jewels Pvt. Ltd., Jaipur.

finding with regard to unverifiable purchases. He submitted that upon enquiry it

was found that the parties from whom the assessee has claimed purchase were not

existing. He drew our attention to assessment order page no. 5 in support of this

contention. He submitted that under these facts the ld. CIT (A) was not justified in

deleting the addition. Per contra ld. Counsel for the assessee submitted that firstly,

rejection of books of account was not justified. The Investigation Wing had carried

out survey at the third party, premises on that basis the AO has made addition, he

submitted that books of accounts which is subject to audit. These books are duly

supported with bills & vouchers. There is complete linkage of goods purchased with

items manufactured and sold. All the purchases and sales are duly recorded in the

stock register. The Assessing Officer has accepted the sales declared by the

assessee. The AO has also verified the books of accounts on test check basis. It is

contended that in the assessment year 2005-06, also the Assessing Officer had

doubted the purchase made from 7 parties and accordingly made trading addition by

applying GP rate of 17.27% on declared turn-over instead of 16.06% declared by

the assessee. However, the ld. CIT(A) after considering the reasons for all GP Rate

and the facts are that the alleged bogus purchases were less than 2% of the total

turn-over directed to AO apply GP Rate of 17.27% only on sales corresponding to

bogus purchase as rate apply on entire declared turn-over. This resulted into the

addition of Rs. 31,460/- as against Rs. 15,87,450/- has made by the Assessing

Officer. Against this the Department has filed an appeal before Hon’ble ITAT which

was dismissed vide order dated 25/02/2009 in ITA No. 1469/JP/2008 in support of

this contention, he drew our attention to Paper Book Page No. 69 to 75.

4 ITA No. 670/JP/2013 & C.O. 53/JP/2013 M/s Amrapali Jewels Pvt. Ltd., Jaipur.

and gone through the order of the authorities below. The Assessing Officer made

addition by observing as under:-

“3.2.1 The assessee has shown purchase of Rs. /- during the year under consideration. On

examination of the details of purchase, it is found that the assessee has made purchase from the

following party:-

S. No. Name of parties from whom purchase made Amount

3.2.2 In order to verify the genuineness of the above purchases claimed by the assessee, various

investigations were conducted by this office and the results of such investigation in respect of these

parties are discussed below;-

(a) Information was received from the Director of Income-tax (Inv.) Jaipur vide letter No.

4224 dated 26/07/2007 stating that a search and seizure action was carried out at

residential and business premises of M/s Haldia Group on 20/04/2007 engaged in the

business of trading of precious an semi precious stones. During the course of search, certain

incriminating documents related to purchase of goods were found. On confronting with the

assessee Shri Ravi Haldia, it was admitted by him that to regularize the purchases made in

cash, he has obtained bogus bills from different parties. He mentioned that payments made

to all these parties were shown though cheques but immediately whole amount was received

5 ITA No. 670/JP/2013 & C.O. 53/JP/2013 M/s Amrapali Jewels Pvt. Ltd., Jaipur.

back in cash. The list of parties detected during the course of search who are engaged in

supplying bogus bills without actual delivery of goods is enclosed with this letter. You are

requested to kindly inform the assessing officer to utilize this information in case of jewelers,

selected for scrutiny. This information may held to detect the bogus purchases introduced in

books of accounts to reduce the profit.

(b) The facts relating to these parties are that the BCIT Wing of the Income-tax Department

conducted surveys in various cases in the year 2007-08 and it was found that the various

persons were indulged in the practice of issuing bogus bills in the trade of gems and

jewellery. They categorically admitted in their respective statements recorded on oath that

they were issuing bills only and no real trade was ever conducted by them. It was found that

actually no physical delivery of goods was being given against these bills and after receiving

the cheques of equal amount from the interested parties, cash was being remitted to them

after making cash withdrawals from the bank accounts where these cheques were deposited.

These person were chagrining commission @ 0.20% to 0.25% of the quantum, for issuing

these bogus sale bills. In some cases the commission was higher as much as 0.50% to 0.60%

of the bill amount.

3.2.3. The assessee was asked to produce all these parties for verification. Show cause letters dated

02-11-2010 were also issued to all these parties to produced details. The notices send to these

parties were returned back as not delivered with the remark “no such party is available on the

address and / or the address is not correct”. The assessee also failed to produce the above

mentioned parties for the verification of purchase made by him during the year.”

However, the ld. CIT(A) reduced the trading addition has read as under:-

“As regards the addition of Rs. 17,25,190/- is concerned, it is seen that the trading addition

was made relying upon the decision of Gujarat High Court in the case of M/s Sanjay Oil Cake

6 ITA No. 670/JP/2013 & C.O. 53/JP/2013 M/s Amrapali Jewels Pvt. Ltd., Jaipur.

Industries and the decision of Hon’ble ITAT, Ahmedabad in the case of Vijay Proteins Ltd. the

facts of both the cases are clearly distinguishable. The ITAT, Jaipur in a recent decision in the

case of DCIT, Circle-2, Jaipur V/s M/s Gems Paradise in ITA No. 700/JP/2009 for A.Y. 2006-

2007 dated 18.12.2009 had held that in the case of Sanjay Oil Cake a specific finding was

given by the AO that purchases were made from the alleged bogus suppliers at a higher rate

as compared to other parties. Further in the case of M/s Vijay proteins Ltd. after examining

the bank account it was established that the cheques issued to various parties were

deposited in one of the accounts which was found to be owned by the assessee himself. Both

the situations i.e. purchases at a higher rate and payment of cheques having being deposited

in account of the assessee are not existent in the instant case. Thus, the addition made on

the basis of reliance on the two above said cases cannot be held to be justified. It is also

noteworthy that for applying GP rate past history of the case is the best guide as held in

several case laws. In the appellant’s case the declared sales and GP rate for last two years

are as under:-

A.Y. Sales Gross Profit G.P. Rate(%) (Amt. in lacs) (Amt. in lacs)

2008-09 2711.33 510.80 18.83 2007-08 2464.14 384.30 15.59

Thus there is an increase in GP rate. In the preceding years, i.e. in AY 2005-06 trading

addition of Rs. 31460/- and in AY 2006-07 trading addition of Rs. 1 lac only was confirmed by

the ld. ITAT, Jaipur Bench, Jaipur even there was a slightly fall in GP in AY 2006-07.

Considering these facts including considerable increase in Sales as well as increase in GP rate

the unverifiable purchases stands explained because the GP rate has increased from 15.59 to

18.83 and it can’t be treated that that unverifiable purchases has been used by the assessee

to reduce the profits. However, as the appellant has been found involved in unverifiable

7 ITA No. 670/JP/2013 & C.O. 53/JP/2013 M/s Amrapali Jewels Pvt. Ltd., Jaipur.

purchases, a lump sum addition of Rs. 50,000/- is hereby confirmed. The appellant party

succeeds on this ground.”

The above finding on fact is not controverted by the Revenue. Further, in assessee’s

own case, the Co-ordinate Bench under the identical facts in ITA No. 1469/JP/2008

has decided the issue by observing as under:-

“9. Considering the above submissions, we find substance in the contention of the ld. D/R that the defects pointed out in the books of account by the AO that there was no basis for valuation of stock at the end o the year and closing stock was valued on estimated basis hence stock was not subject to verification remained unexplained by the assessee even before the Tribunal. Thus on the basis of unexplained defects in the books of account, the AO was also justified in rejecting the book of account. We thus upheld the application of the provision of section 145(3) of the Act in the present case. So far as restriction of the application of reduced GP rate on Rs. 26 lacs (i.e. round figure of alleged bogus purchased worth Rs. 25,00,556/-) is concerned, we do not find substance in the argument of the ld. D/R especially when sales declared by the assessee have not been doubted and interfered. For ready reference the relevant finding of the ld. CIT(A) at page 5 in this regard is being reproduced hereunder:-

“ So far as GP addition is concerned the GO rate of 16.06% declared in the year under consideration is certainly less than GP rate of 21% in the immediate preceding year as well as less than 17.45% and 17.22% in AY 2003-04 and AY 2002-03. Once books of accounts are rejected the only option left with the AO is to estimate GP rate. The AO has taken weighted average of 5 years. However, the contention of the A/R is considered that fall in GP rate was unexplained to the AO vide their letter dt. 18.12.2007 which is at page no. 64 of the paper book. It was explained that sales; have increased substantially from Rs. 7.79 crore to Rs.13.07 crore and thus there is a growth of 68% in sales. This increase in sale was attributed to the opening of new outlet at New Delhi. To boost sale in Delhi special discount was given which resulted in deduction in GP ratio. Also that there wa steep competition in the jewellery trade and there was heavy fluctuation in gold bullion rates in the year under consideration. Also that the alleged bogus purchases of Rs. 25,00,556/- out o total purchases of Rs. 1326 16 lacs comes to only 1.89%. Thus the alleged bogus purchases has not pointed out any specific defect in maintenance of books of accounts and therefore whatever addition is to made it should be with reference of the alleged bogus purchases only. The fact that there is a quantum jump in turnover and in the years except immediate preceding year the GP rates were 13.70% , 17.22% and 17.455 and only because the GP; rate of the immediate preceding year is also taken into account then the weighted average comes to 17.27%. After considering the reasons for fall in GP rate and the facts that the alleged bogus purchases is less than 2% of the total turnover the AO is directed to apply the GP rate of 17.27% only on

8 ITA No. 670/JP/2013 & C.O. 53/JP/2013 M/s Amrapali Jewels Pvt. Ltd., Jaipur.

the sales corresponding to the bogus purchases. As the bogus purchases is 1.89% of the total purchases considering the corresponding sales at 2% of the turnover which comes around Rs. 26 lacs and therefore AO is directed to apply higher GP rate of 17.27% on sales of Rs. 26 lacs corresponding purchases. As a result, trading addition is made by applying the difference of GP rates which comes 1.21 on sales of Rs. 26 lacs. The trading additional is thus reduced to Rs. 31,460/- as against Rs. 15,87,450/-. As a result, the appellant gets relief of Rs. 15,55,990/-. The ground of appeal are partly decided in favour of the appellant.”

The first appellant order on the issue as discussed above is comprehensive and reasoned one hence we are not inclined to interfere therewith. The same is upheld. The ground and objection are rejected.”

In the present case also the Assessing Officer has not doubted the sales. Therefore,

taking a consistent view, we do not see any reason to interfere into the order of the

ld. CIT(A), same is hereby affirm.

assessee has raised following grounds of Cross Objection.

1.1 The ld. CIT (A) has further erred on facts and in law in confirming ad hoc trading addition of Rs. 50,000/-

CIT (A) was not justified in confirming the rejection of books of accounts. He

submitted that the books of accounts are duly audited the Assessing Officer has not

given any specific instances with regard to the defects into the books of accounts.

9 ITA No. 670/JP/2013 & C.O. 53/JP/2013 M/s Amrapali Jewels Pvt. Ltd., Jaipur.

He submitted that under these facts, the books of accounts ought not to have been

rejected.

6.1 On the contrary, the ld. Departmental Representatives supported the orders

of the authorities below and submitted that the Assessing Officer has given specific

instances.

6.2 We have heard the rival contentions, perused the material available on record

and gone though the order of the authorities below. We find that the Assessing

Officer has stated in the assessment order that notices to the seller of the good were

issued to furnish the details. However, such notices were return back with remark

no party is available on the address or the address is not correct. Under these facts,

the AO was justified in rejecting the books of account, as purchase could not be

verified. Therefore, we do not see any reason to interfere into the order of the ld.

CIT(A), same is hereby affirmed. The ground raised in this appeal is dismissed.

ld. CIT(A) was not justified in confirming ad hoc trading addition.

7.1 On the contrary, the ld. Departmental Representatives supported the order of

the Assessing Officer.

7.2 We have heard the rival contentions, and we have confirmed the finding of ld.

CIT(A) in ITA No. 670/JP/2013 qua the issue of trading addition therefore, for the

same reasoning, this ground of the Cross Objection of the assessee is dismissed.

Cross Objection of the assessee in No. 53/JP/2013 are dismissed.

10 ITA No. 670/JP/2013 & C.O. 53/JP/2013 M/s Amrapali Jewels Pvt. Ltd., Jaipur.

Order pronounced in the open court on Thursday, the 23rd day of March 2017.

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