RAVI HALDIA,HALDIA MULTIPOINT HOUSE vs. DCIT, CIRCLE-1, JAIPUR, JAIPUR

4. Before moving towards the facts of the case we would like to mention that the assessee has assailed the appeal in on the following grounds;

“1 That the learned CIT (Appeals) erred in sustaining the application of G.P. rate of 30 percent (as against declared G.P. rate of 11.36 percent) applied by the A.O. on the declared sales of Rs. 1,91,32,770/- on the pretext that the hon'ble Jurisdictional High Court has held so in assessee's own case vide appellate order bearing ITA number 214/2012 dated 24/8 / 2017 and thereby sustaining the trading addition of Rs. 35,66,906/- (G.P. determined Rs. 57,39,831/- minus G.P. declared Rs.21,72,925/-) made by the A.O., which sustaining of G.P. rate of 30 percent as against declared GP rate of 11.36 percent and consequential trading addition of Rs. 35,66,906/- are most arbitrary, unjust and untenable in fact and in law and in the alternative excessive w.r.t. facts and circumstance of the case.

2 That the appellant craves leave to add, alter, amend or substitute one or more grounds of appeal as and when necessary.”

5. Succinctly, the fact as culled out from the records is that the assessee Shri Ravi Haldia filed his return of income on 26.10.2005 declaring total income of Rs. 92,03,506/-. Further, survey proceedings u/s 133A & search proceedings u/s 132(1) of the IT.

Act, 1961 were carried out on 24.04.2007 at the residential and business premises of the assessee. Stock, Cash, other valuables, books of account, incriminating documents/loose papers etc. were found, inventoried and seized as per annexure prepared. The assessee mainly derives income from Salary, Rent, Brokerage, Trading of Gems stones under the name and style of M/s R.H.

Exports. The assessee had also derived income from trading of commodity exchange under the name and style of M/s Raghav Trading Co. since 2003-04 and share related business in M/s Ravi Haldia since 2004-05. On the basis of Search/Survey action, notices u/s 153A r.w.s 153B of the Act were issued to the assessee. In response, the assessee filed return of income for the AY 2005-06 on 24.01.2008 declaring total income of Rs. 93,81,730/-. Accordingly, after making complete inquiry, the assessment order u/s 153A of the Act was passed on 24.12.2009 making certain addition of Rs. 1,30,67,878/- on account of unexplained trading addition and some other additions. Against the original assessment order the matter travelled to the Hon’ble jurisdictional high court wherein the court held as under :

“the issue regarding unverifiable purchase is required to be answered in favour of the Department. The issue allowed in favour of the Department against the assessee. On the question of bogus purchases, the matter is remitted back to the AO. It will be open for the parties to lead their evidence including the cross-examination of the witnesses. It will also be open for both the sides to produce documents which are relevant for deciding the issue”

5.1 In pursuance to the appellate order of Hon’ble High Court, the set-aside assessment proceedings has been initiating and accordingly, notice u/s 142(1) of the Act has been issued to the assessee on 30.08.2018, 06.10.2018 & 10.10.2018 requiring the details/information. In response, the AR of the assessee filed his submission dated 15.10.2018 and main content of the same is as under:-

As regards the issue of alleged bogus/un-verifiable purchases it is respectfully submitted that in assessee's case there is no issue of bogus purchases but the issue is in regard to purchases made in the regular course of business but some of the purchases could not be got verified mainly on account of non availability of correct postal address of few sellers at that point of time, i.e. in AY 2004-05. However confirmed copy of statement of account of the seller party together with copy of purchase invoice and seller's PAN, TIN etc and also bank statement of the assessee purchaser confirming the payment for the purchases by way of account payee cheque were duly filed. The assessee is enclosing herewith a common write-up for the previous years relevant to assessment years 2005-06, 2007-08 and 2008-09 in relation to application of higher GP rate with reference to issue of unverifiable purchases for your kind perusal and consideration.

5.2 The Hon'ble High Court sustaining the ground of the appeal and confirming the rejection of books of account and trading addition. Since the books of account was rejected, therefore, the Trading Addition is made @30% on total turnover of Rs. 1,91,32,770/-. Since, the assessee merely declared G.P. rate @ 11.60%, therefore, remaining percentage of GP will be applicable in this case. Accordingly, summarized chart is as under:-

(Amount in Rs.) Particulars AY 2008-09 Sales declared 1,91,32,770/- G.P. rate declared 11.60%

G.P rate applied 30% G.P. determined 57,39,831/- G.P declared 21,72,925/- Trading Addition 35,66,906/- Thus, the Trading addition of Rs. 35,66,906/- is hereby added back to the income of the assessee.

6. Aggrieved from the order of Assessing Officer, the assessee preferred an appeal before the ld. CIT(A). Apropos to the grounds so raised the relevant finding of the ld. CIT(A) is reiterated here in below:

“4.4 I have considered the argument of A.R and have perused the assessment order and relevant record. It is noticed that during the year under consideration, the appellant has traded mainly in one item namely Tanzanite cut and has also purchased Tanzanite rough. The rate of purchase of Tanzanite cut from unverifiable parties (judicially noticed by the Hon'ble ITAT also in the case of appellant in regular assessment appeal of A.Y 2004-05),during the year, asnoticed by the undersigned, is shown at a very high rate of Rs. 8,000/- per carat. (Ms D.J Impex 2.L.2004), Rs. 4000/- and Rs. 4,800/- per carat (M/s Gaurav Exports), Rs. 4,500/- per carat (M/s Nikki Enterprises), Rs. 4100/- andRs 3099/- per carat (M/s Rahul Exports), Rs.4000/- per carat (M/s S.V.Enterprises), whereas from other registered dealers the tanzanite cut hasbeen purchased at quite a low rate e.g @ Rs. 460/- per ct. (M/sShriGaneshan), Rs. 8,00/- per ct. (M/s. Star Gems). 4..5 The appellant has squarely failed to file confirmation from the URD parties as well as the parties from whom purchases were held unverifiable by Hon'ble Tribunal or from the persons from whom cash purchases was stated to have been made, in spite of specific requirement made by the A.O. and in spite of show cause notice by the A.O. for making addition of these purchases, if the appellant failed to do so. Now coming to the argument of the appellant that he has maintained the stock register as well as quantitative details. This argument is of no avail if the appellant is making/showing such heavy cash purchases or purchases from URD as well as from unverifiable registered dealer, whereas "tanzanite cut" and other precious and semi-precious gems purchased by appellant is available not only in other parts of the country but even in Jaipur itself with the reputed and well known registered dealers. The other contention of the appellant that it has furnished complete address of the parties is incorrect in as much as that in cash purchases even the names are not given, what to talk of address. In URD purchases also complete current addresses were not given. In the case of various unverifiable registered dealers, it was already on record in the original assessment proceedings for A.Y 2004-05 that notices sent u/s 133(6) were returned back from the postal authorities and could not be served on the given address.” 4.6 The other argument taken by the appellant that the sales have not been doubted by the A.O., then the purchases must have been made and purchase cannot be disbelieved. I have considered this argument. It is seen by the undersigned that during the year the appellant was engaged in trading as well as manufacturing. In the year under consideration, the appellant has shown yield of tanzanite cut from tanzanite rough at the rate of 8.25%, which is quite low. Accordingly, in the case like that of appellant, where there is no direct linking of the quantity or the lot of purchase with the quantity of sale and where the manufacturing activity is also involved, this argument of the appellant does not carry any weight that if the soles have not been doubted, the quantity of purchase cannot be disbelieved, because sale could be made out of own manufactured finished goods (and in place of that unverifiable/bogus purchases can be shown), as yield of manufactured item varies widely and is not subjected to verification. Now coming to the another argument which is applicable in case of trading, it is quite evident that the quantity may not be disbelieved but certainly the rates at which purchases have been shown by the appellant from these unverifiable parties, which too at a very high rate, certainly is not believable. As already mentioned the rates of tanzanite cut purchased from theses unverifiable parties was very high and is obviously inflated. Sim.lar is the position of other items of purchases. 4.7 It is pertinent to mention that during the course of search, various documents were seized which reflect that purchase were made in cashfrom the actual supplier of the goods. In exhibit A-6, purchases from 1.5.04 to7.9.04 are mentioned from page 1 to page 46. On page 49, 50 and 51, there areentries of purchases from 4.5.05 to 25.8.05. The appellant himself hasadmitted in answer no. 16 to 20 of his statement dated 20.4.2007 that thesepurchases have been made in cash. He has further admitted that details ofcash payment for these purchases have also been mentioned and these arewritten by removing two zeros. Appellant also admitted that he hasmanaged to procure the bills from registered dealers and has shownpayment by cheque to them from various group concerns, which has beenreturned in cash. It was also admitted that purchases made during theperiod relevant to A.Y 2005-06 in the group is totaling Rs. 10,40,89,658/-. 4.8 Considering the overall facts and circumstances of the case, more particularly the facts revealed during the course of search of cash purchases made by the appellant and bills being procured from registered dealers in lieu of that, the purchase rate so shown by the appellant in these procured bills is not at all reasonable, as has also been noted by the undersigned in the earlier Para and are certainly inflated. However, A.O. has not considered the purchases shown to be made from unverifiable registered dealers for the purpose of disallowance, show cause notice was given to the appellant videorder sheet entry dated 20.10.10 that why should the purchases shown to bemade from unverifiable registered dealers referred in the original assessmentorders for A.Y 2004-05 be also considered for part disallowance and appellantwas asked to furnish the details of purchases shown from these parties. Theappellant has furnished its reply stating that the purchases were made fromregistered dealers, payment were made through cheques, these dealers have sale tax numbers and PAN etc. Accordingly, these may not be doubted. In any case,the entire purchase can not be disallowed, as sales have not been doubted. 4.9 As already discussed, the seized document found during the course of search indicated heavy cash purchases made by the appellant during the year under consideration and the appellant admitted the same and has also admitted to have procured the bills from various other parties (though actual purchase was not made from them) and accordingly, the argument/contention so taken by the A.R. of the appellant in this regard of making purchases from registered dealers etc is of no avail and is rejected. 4.10 Considering overall facts and circumstances of the case, it is clear that purchases from URD and cash purchases remained totally unverifiable. Moreover, even the purchases from registered dealers have been from those parties from whom the purchases were found to be unverifiable in the case of appellant in regular assessment proceedings for AY 2004-05. However, as A.O. has not doubted the sales and the nt has mainly traded during the year, whole of the cash purchases and purchases from URD and unverifiable registered dealers cannot be disallowed 100%. On the other hand merely because sales have no- been doubted, whole of the purchases including cash purchases and purchases from URD and unverifiable registered dealers which are totally unverifiable with reference to rates or the price, cannot be allowed as deduction. 4.11 Considering these facts, it will be appropriate to rely upon the decision of Hon'ble Ahmedabad ITAT in the case of M/s. Vijay Protein Ltd vs. ACIT 58 ITD 428 and also the case of Hon'ble Gujarat High Court in the case of M/s Sanjay Oil Cake Industries vsCIT 316 ITR 274 and to confirm the disallowance to the extent of 25% of the unverifiable purchase which will include in the instant case as cash and URD purchase totaling to Rs. 15,903/- and other unverifiable purchases from registered dealer totaling to Rs. 1,23,76,232/- (s per the list and details submitted by the appellant) on account of inflated expenses by way of inflated rates of purchases shown by the appellant. Accordingly, disallowance on account of inflated expenses in respect of cash, URD and other unverifiable purchases of Rs. 30,98,034/- is held to be justified and accordingly directed to be done. 4.12 The reliance placed by the appellant on the decision of Hon'ble ITAT in the case of M/s Sambhav Gems, M/s Vaibhav Gems is misplaced, as the facts of the instant case are quite distinguishable from the facts of those referred cases. In the case of M/s Sambhav Gems, the assessee has furnished sales tax registration number, PAN, confirmation letter etc from the purchasers before the A.0.. whereas in the instant case no such details was furnished by the appellant. In other referred cases, the assessee had furnished copies of bills, payments were made by cheque, the cheques were debited from the account of assessee, the purchasers were having sales tax no. All these facts are miserably missing in the instant case of appellant, in view of the facts noticed and evidence found during the course of search, that from these registered dealers the appellant has only obtained bills and not the goods (payment shown to be made through cheque were returned as cash, which was also admitted by the appellant in his statement recorded on 20.4.2007) and goods were purchased in cash from some other parties. Accordingly, cases relied upon by the A.R of the appellant is of no help to the appellant in the peculiar facts of the appellant's case. 4.13 In view of the aforesaid facts and circumstances andpeculiar nature of business shown by the appellant, trading results shown by theappellant are also rightly rejected and provisions of sections 145 has beenrightly invoked by the A.O. 4.14 In view of the seized documents found during the course ofsearch reflecting unaccounted purchases as well as purchases made in cash andadmission of appellant of procuring bills from various registered dealers, in lieuof purchases made in cash, the A.O. was justified in invoking provision ofsection 145(3) and rejecting the trading results. Now coming to the estimationof g.p., the Hon'ble ITAT in the case of appellant himself has held the g.p @ 30% being reasonable, as against 35% applied by the A.O. in A.Y 2004-05 and facts of the case during the year and other years noticed during search and seizure action, being further adverse to the facts of the case of A.Y 2004-05, as noticed by the A.O., before search action in regular assessment proceedings, the A.O. is justified in applying g.p rate of 30% in the year under consideration and in other years. Thereby trading addition ofRs 35,66,906/- so made by the A.O. is hereby confirmed. 4.15 As disallowance out of the purchases held justified in the above paragraphs is Rs. 30,98,034/- and same is less than the trading addition of Rs. 35,66,906/- so confirmed, finally addition ofRs. 35,66,906/- so madeby theA.O. is confirmed." In principle order of the ld. CIT(A) in this regard regarding rejection of books of accounts and applying profitability rate on the turnover etc. was upheld by the honorable ITAT. There was only variation in rate of profitability in this regard. The same was accepted by the appellant as no appeal was filed challenging the same and thus the findings of the honorable Tribunal which were against the appellant stand accepted and final. Once the books of accounts are rejected the same books or the results there from cannot be relied upon and in such a scenario one of the accepted principles is that the average of the gross profit ratio of the earlier three years is to be applied in the current year irrespective of the disclosed profitability shown in the current year as the books of accounts have already been rejected. For the immediately preceding year i.e. A.Y. 2004-05 the honorable ITAT upheld a gross profit ratio of 30% in the case of the appellant himself and the gross profit ratio of the further earlier years was also apparently higher. Be that as it may, it is important to note that the issue was not completely allowed by honorable Tribunal against the initial assessment order and first appeal order and only the rate of gross profit was reduced by honourable Tribunal which was challenged by the revenue before the honorable High Court and honorable High Court has allowed this issue of rate of gross profit in favor of the revenue. The issue has been decided by the honourable High Court in the favor of the revenue and nothing further remains in this regard. In the order passed by the assessing officer as per the directions of the honourableHigh Court the learned assessing officer has considered gross profit rate of 30%.The issue has been discussed in detail in the above paragraphs. Accordingly, the order of the Learned assessing officer is upheld on the issue and the ground of Appeal raised by the appellant is dismissed.

7. As the assessee did not find any relief from the order of the ld. CIT(A) and feeling dissatisfied with the order of the ld. CIT(A) the assessee has preferred the present appeal on the grounds as raised by the assessee as reiterated here in above. To support the various grounds so raised by the assessee, the ld. AR appearing on behalf of the assessee has placed their written submission which is reiterated here in below;

With reference to above and in continuation to grounds of appeal taken while filing the above appeal it is respectfully submitted as under:- A. That before making submissions in regard to grounds of appeal the appellant craves leave to give the facts of the case at page no. 6 of the paper book. B. After giving the facts of the case in brief the humble appellant craves leave to make following respectful submissions in regard to grounds of appeal for the kind consideration of the hon’ble Bench:- GROUND OF APPEAL NO.1 This ground of appeal is against the trading addition of Rs. 35,66,906/- (GP determined by the AO Rs. 57,39,831/- minus GP declared Rs. 21,72,925/-) made by the AO in the relevant Set Aside assessment order by way of application of higher GP rate of 30% as against declared GP rate of 11.60% on sales of Rs. 1,91,32,770/- and later on sustained by the ld. CIT(A) vide the impugned order. In support of this ground of appeal it is humbly submitted as under:-

1. The assessee has kept and maintained full record in terms of weight of the rough purchased, rough put to manufacturing, finished goods manufactured out of manufacturing operations, and/or purchased, labour charges paid to various karigars and all this record was produced before the A.O. more than once.

2. That the assessee has kept and maintained individual trading and manufacturing accounts of different precious and semi precious stones in terms of weight in cts. Quantitative details of manufacturing and trading activities of different commodities stood filed.

3. That the assessee has kept and maintained full receipts and vouchers for payments made to Karigars in respect of labour charges and there is no leakage of any kind at any stage so much so there is a full proof record maintained at the end of the assessee.

4. That detailed exhaustive stock register has been maintained for each and every item traded and manufactured and the same was duly produced before the A.O.

5. Full record of purchase/sales has duly been maintained by the assessee and the same was produced before the A.O. from time to time. 6. The assessee has regularly kept and maintained books of accounts consisting of Cash Book, ledger, Journal, stock registers, manufacturing record, purchase and sales bills, subsidiary books and expenses vouchers and other relevant records. 7. The books of accounts of the assessee are audited by a Chartered Accountant. Tax Audit Report on form No.3CB & 3CD stands filed. 8. There is no change in the method of accounting nor in method of valuation of closing stock. 9. The A.O. has not pointed out any inherent defects in the system of accounting. Not a single item of suppression of sales nor inflation of purchases has been pin pointed by learned A.O. 10. Moreover it is a fact that neither during the course of survey/search nor otherwise there are any evidences of any unaccounted purchase/sale by the appellant. 11. Quantitative details of opening and closing stock as well as purchase/sale kept and maintained by assessee stand already filed in the course of assessment proceedings. 12. The identity of the recipients of the payments was not doubted by the AO nor was it observed by the A.O. that they are fabricated and false. 13. That complete quantitative details are available on the file of AO. No defect in the same was pointed out by AO. In any case, the rejection of books of accounts is also not justified especially when no significant defect has been pointed out by the AO. 14. In this line of business various qualities of precious and semi precious stones are required and at the same time the assessee also requires different shapes and sizes of the stones and these are never available at one single place. Further the big dealers normally do not sell the goods in little volume. In these circumstances and to fulfill the commitments with the customers, the assessee had to some time purchase goods in cash. This is not a peculiar feature of this business, but it is a regular practice in this trade. So the cash purchase should not be viewed otherwise. 15. That as regards payment made in cash the assessee’s explanation is that the unregistered dealers as well as other persons related to this trade are almost illiterate or little educated. Most of the same did not have Bank A/c and in order to maintain regularity of business the appellant was compelled to make the payment in cash.

23. That there is a consensus of judicial opinion that every year is a separate assessment year under I.T. Act and accordingly trading results including G.P. rate in a preceding assessment year cannot always become a good basis for making additions in subsequent assessment years.

are disposed off.

31. That the facts and issues involved in regard to the present appeal having appeal reference number ITA 64/JPR/2024 for A.Y. 2005-06 in appellant Ravi Haldia’s case before the hon’ble Bench and the three appeals of above named Mamta Haldia bearing ITA No. 1349, 1350 & 1351/JP/2019 for AY 2003-04, 2004-05 and 2008-09 respectively decided by The Hon’ble Income Tax Appellate Tribunal, Jaipur Bench, Jaipur vide consolidated order dated 27/10/2020 have arisen from the same set of facts and identical issues. The humble appellant Ravi Haldia craves leave to refer to and rely upon the above mentioned consolidated order dated 27/10/2020 passed by The Hon’ble Jurisdictional Tribunal, namely The Income Tax Appellate Tribunal, Jaipur Bench, Jaipur in the case of above named Mamta Haldia forming part of the paper book and page no. 7 to 23 and very humbly prays that in view of the above mentioned facts and circumstances of the case and also in view of above mentioned judgment dated 19/12/2011 of The Hon’ble Income Tax Appellate Tribunal, Jaipur Bench, Jaipur in first round of appellate proceedings in assessee’s own case and also in view of above referred Judgment dated 27/10/2020 emanating from set aside assessment order dated 17/10/2018 of the Hon’ble ITAT Jaipur Bench, Jaipur in the case of Mamta Haldia in ITA No. 1349, 1350 & 1351/JP/2019 for AY 2003-04,

2004-05 and 2008-09 respectively, the appellant Ravi Haldia’s present appeal for AY 2005-06 before your honor may please be allowed.

GROUND OF APPEAL NO. 2 This ground of appeal is consequential in nature and may please be decided accordingly.”

8. To support the contention so recorded in the submission the ld. AR of the assessee he also argued that there is no basis for estimating the profit @ 30 %. But as stated herein above in other case the tribunal has reduced the rate of G.P. The ld. AR of the assessee submitted that recently the jurisdictional high court in the case of Clairty Gold the Rajasthan High Court held that “In our considered opinion, taking into account the industry which is running the business, the addition which has been made on the bases of GP which has been shown of the identical industry whose case is also heard together.

9. The ld DR is heard who relied on the findings of the lower authorities and more particularly advanced the similar contentions as stated in the order of the ld. CIT(A).

A.Y. 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2009-10 2010-11 unaudited Sales 198490 1426903 5466428 68749794 97777586 10306287 1072033 1540384 Stock Dif. 144657 5147868 0 71450573 6769267 83951400 83334242 5750095 Total 2129557 1941690 5466428 75894851 1054510 11145801 11553681 2115394 Purchases 181023 1698878 4962283 68670235 9376682 96584379 99103051 1S74824 Direct Cost 0 6118276 9962436 1409772 1312092 8607118 10319346 8163403 Total 181023 1760061 5061907 70080007 9507891 97445091 10013498 1956458 Grow 3193228 1816292 4045206 5S14844 9466185 14012920 15401828 1589358 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.

Since, in these the average rate of gross profit was directed to apply and the assessee has submitted the details of the gross profit of the last four year before the ld. CIT(A) by way of chart and said chart reads as under :

A.Y Sales Purchase Stock G.P G.P % Net Profit 05-06 19132770/- 42740333/- 36301125/- 2172925/- 11.36% 9987110/- 06-07 142135/- 11159105/- 48001224/- 23879/- 16.80% (-)1430019 07-08 3644240 13541232/- 58606809/- 401922/- 11.02% (-)776631 08-09 1299794 3095168/- 60558903/- 156720 12.06% 19,16,671/- The average of gross profit from the above chart comes to 12.81 % and therefore, the same is directed to be applied as against the 30 % applied by the lower authority which will end the justice on the issue. Based on these observations the appeal of the assessee is partly allowed.

In terms of these observations, the appeal of the assessee in ITA no. 64/JP/2023 is partly allowed. case in and we have heard both the parties and persuaded the materials available on record. The bench has noticed that the issues raised by the assessee in this appeal No. 65/JP/2024 is equally similar on set of facts and grounds.

Therefore, it is not imperative to repeat the facts and various grounds raised by both the parties. Hence, the bench feels that the decision taken by us in for the Assessment Year 2005-06 shall apply mutatis mutandis in the case of Ravi Haldia in ITA No. 65-JP-2024 for the Assessment Year 2007-08.

In the result, both appeals of the assessee are partly allowed.

Order pronounced in the open Court on 15/04/2024.

Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBkSM+ deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 15/04/2024 *Ganesh Kumar, PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Shri Ravi Haldia, Jaipur 1. izR;FkhZ@ The Respondent-DCIT, Circle-1, Jaipur. 2. 3. vk;dj vk;qDr@ CIT vk;dj vk;qDr@ CIT(A) 4.