Anil Ghatiwala , Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 780/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2004-05

Asstt. Commissioner of cuke Anil Ghatiwala, Income Tax, Vs. Ghatiwala Complex, Jadiyo Ka Circle-1, Jaipur. Rasta, Chaura Rasta, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACQPG 5049 K vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri G.G. Mundra (CA)

lquokbZ dh rkjh[k@ Date of Hearing : 10/06/2015 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 17/07/2015

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

This is an appeal filed by the revenue against the order dated

25/07/2012 passed by the learned CIT (A)-I, Jaipur for A.Y. 2004-05.

The sole ground of appeal is as under:-

"Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) is justified in restricting

2 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

the addition of Rs. 46,69,047/- to 1,75,237/- by applying G.P. rate of 16% on bogus/unverifiable purchases whereas the A.O. has made the addition of entire amount of purchase for which bogus bills were arranged to inflate the purchases and reduce the G.P. rate?"

2. The ld Assessing Officer observed that the assessee had

income from the jewellery business. He filed his return of income for

A.Y. 2004-05 dated 02/11/2004. The case was selected for scrutiny

by issuing notice U/s 148 of the Income Tax Act, 1961 (in short the

Act) for reassessing the income of the assessee as he had made

purchases from a person who had admitted that he had made the

sales by issuing the bills only no actual sale purchases were made.

The assessee filed the objection to the issuing of the notice U/s 148

of the Act stating therein that the notice U/s 148 of the Act had

become time barred by 31/3/2009, as it was issued on 31/3/2011. He

further observed that the assessee had made submission and

submitted the following documents to support this contention that

the purchases were not bogus:

(i) Certified copy of the copy of account of the party M/s Laxmi Dia Gold Jewellers showing all the transactions relating to purchases made; payments made etc.

3 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

(ii) Certified copy of the certificate of export of the items issued by the State Govt.

(iii) Copy of account of the bank statements where in the debit entries have been made of the payments made to the above concern;

(iv) Certified copy of the bills raised by the said concern of having made the sales to the assessee;

(v) certified copy of the sales bills raised, shipping bill for export; airfare bill of the export.

The assessee made submissions before him and on perusal of same,

the contention of the assessee was not found tenable. He further

observed that during the recording of statement of Mr. Sandeep

Chhabra, s/o (Late) Mr. Moti Lal Jain u/s 132(4) of the Act on

11/5/2006, it was admitted by Mr. Sandeep as under:-

"That the firm M/s Laxmi Diagold jewellers, that the said firm had made very few exports and otherwise no actual sale/purchases were made by this firm. He further clarified that this firm was floated to convert the money, being generated from the other business of the partners and not being recorded in actual books of account of those firms and not offered for taxation, into while money and the profits as reflected in the said firm wee not actual profits. The main purpose of the firm was to give entries to any firm/person by issuing the bogus sale bills to them

4 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

at a certain commission and no actual sales were made to them. All the payments, received through cheques were given back to the persons in cash, to whom sales were made and we would deduct our commission and balance money would be returned to them by cash."

The ld Assessing Officer further observed that in view of the above

the assessee's contention that they actually purchased and sold the

jewellery purchases from the above said party is not tenable. The

assessee had himself admitted that he is purchasing the goods

through certain persons and was not concerned with fact that the

transactions being made are genuine or not. He only verified the PAN

and registration with the Commercial Tax Department. Therefore, he

add the amount of Rs. 46,69,047/- the amount for which the bogus

bills were arranged to inflate the purchases and reduce the G.P. rate.

3. Being aggrieved by the order of the learned Assessing Officer,

the assessee carried the matter before the learned CIT(A), who had

partly allowed the appeal by observing as under:-

"I have carefully perused the order of the A.O. and the submissions of the AR. The A.O. has added the entire amount of purchases made from Laxmi Dia Gold Jewelers on the basis of the statement of the partner Shri Sandeep 5 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

Chabra. On the other hand the assessee had furnished the evidence of purchase by way of purchases bills, Sales tax registration No., PAN, payment made by account payee cheque, confirmation by the party. During the course of assessment proceedings an order of the Hon'ble ITAT Jaipur Bench in the case of M/s Modi Export House Vs. DCIT for A.Y. 2004-05 ITA No. 1560/JP/2008 was also furnished wherein it was held by the ITAT that the entry of purchases from M/s Laxmi Dia Gold jewelers in the books of accounts of the assessee merits rejection of the books of account u/s 145(3), given the evidence gathered by the department against the concern. As regards of estimation of the income reliance was placed by them on the decision of Hon'ble Jurisdictional High Court in the case of CIT Vs. Gotan Lime Khanij Udyog 256 ITR 243 and held that the past history of the assessee was the best guide for estimating the income of the assessee. Since the facts of the case are similar to those adjudicated upon by the Hon'ble ITAT supra it is held that since the purchases made from M/s Laxmi Dia Gold Jewlers are not subject to verification the books of accounts of the assessee are to be rejected by invoking the provisions of section 145(3). However, given the fact that the sales made by the export have not been doubted the entire purchases from M/s Laxmi Dia Gold Jewelers cannot be added to the income of the assessee. Given the 6 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

consistent view taking by the Hon'ble ITAT, Jaipur in such cases the past history is held to be the best guide for estimating the income. However, it is observed that this was the first year of business of the concern, and the assessee had shown a G.P. rate of 13.02%. The GP rate is estimated at 16% which resulted in the confirmation of the trading addition to the extent of Rs. 1,75,237/-."

4. Now the revenue is in appeal before us. The Ld. DR supported

the order of the ld. Assessing Officer. At the outset, the ld AR

supported the order of the ld CIT(A) and reiterated the arguments

made before him. He further argued that the assessee had

discharged the initial burden casted upon assessee to prove the

genuineness of purchases from M/s Laxmi Dia Gold Jewellers as has

been held by the Hon'ble ITAT, Jaipur Bench in its decision in the

case of Sagar Mal Daga & Co. vs. ITO (2004) XXXII Tax World 40 and

Radha Mohan Lal Agarwal Vs. ITO (2003) XXX Tax World 190. The

production of sellers before A.O. is beyond the control of assessee

moreso after gap of long time. He further submitted that the Hon'ble

ITAT, Jaipur Bench in the case of Shiv Trading Co. Vs. ITO (XXX) TW

117 has held that A.O. cannot treat the purchases as bogus without

conducting independent enquiry in the case. In this case neither 7 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

Laxmi Dia Gold Jewellers named the assessee to whom bogus bills

issued not Ld. Assessing Officer made by independent enquiry rather

M/s Laxmi Dia Gold Jewellers gave confirmation of transactions of

purchases made by assessee. The ld AR has further submitted as

under:-

The assessee made purchases of 18 Kt. Gold jewellery through purchase bills. The assessee firm made purchases from Laxmi Dia gold jewellers, 388A, Vasundhara Colony, Tonk Road, Jaipur (Purchase bill has no reference to any factory at Niwai (Tonk) nor shows that goods which it sold were manufactured at Niwai). It will be clear and evident from what is narrated in assessment order by Ld. A.O. and what transpires from the statements recorded from said persons that: -

(i) The said firm was genuinely constituted and its partners were existing persons and were persons of means and were in the same trade from years.

(ii) The said firm made purchases of gold from various persons including Govt. Agencies and made purchases of diamonds and Gems & Stones from local concerns through cheques duly debited in its Bank A/c(s).

(iii) The said firm made huge sales in F.Y. 2003-04 and issued sale bills & received cheques against sale price shown in bills from purchaser parties duly credited in Bank A/c(s) of said firm.

8 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

(iv) In the Bank account of said firm there are negligible cash transactions.

(v) The said firm filed its return of income for A.Y. 2004-05 showing huge income but falsely claiming it as derived from the sale of goods manufactured in the industrial undertaking set up in backward area (Niwai - Dist. Tonk Rajasthan) and thereby claiming false deduction u/s 80IB(5) for the entire income shown in the return of income.

In course of search proceedings of the said firm from enquiries the department contends that there had been no manufacturing unit of said firm at Niwai and huge deduction u/s 80IB(5) was falsely claimed. It appears that the partners of said firm on realizing the consequences of filing of false return of firm i.e. of huge penalties and prosecution under the Act made such statements as an attempt to save the said firm from penalties and prosecutions. The partners of the firm declared exactly the same income as that was declared by firm in its return filed as per their respective share in the firm as their own undisclosed income and agreed to pay due tax thereon. This itself shows that what is stated in their respective statements is only self serving without any evidence for what is stated in statement. The partners did not even specify in statement(s) the source of or manner of earning undisclosed income (black-money) which was admitted by them in statement. This only points out that the income declared by partners individually was in fact the income from the business of said firm carried on by it but falsely claiming the same as exempt.

9 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

However in none of statements of various persons referred in assessment order there is any mention about Laxmi Dia Gold Jewellers, 368A, Vasundhara Colony, Tonk Road, Jaipur and, therefore, the purchases made by assessee firm vide bills under reference cannot be held bogus on the basis adopted by Ld. A.O. Without prejudice to above contention of assessee firm, it is submitted that in the statements given by partners of said firm (Copy of which not provided to assessee) in which they had generally denied of having made any purchases and sales by them and stating that the purchases & sales of the firm are of bogus transactions, cannot be relied in case of assessee for the reasons that

(a) as stated above the statement of partners of the said firm are only self serving statements.

(b) That the statements are vague on purchases made by the said firm of Gold etc from govt. agencies and is without any evidence or material that how and from whom cash was received in lieu of cheque(s) given for purchases and similarly there is no evidence or material that how and to whom cash was given back in lieu of cheque(s) received for sales

(c) There is no specific mention of this assessee firm in the said statements nor there is any material or evidence on record that sales made to assessee firm by the said firm vide said bill is bogus nor there is any material or evidence on record that cash was paid back to assessee in lieu of cheque issued to that firm for the purchases 10 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

made by the assessee and therefore, such general statements cannot be applied in law in case of assessee.

(d) There is no mention in statements about how sales were shown in sales tax returns and whether sales tax paid or not which has been separately charged in the sale bills by firm and recovered alongwith sale price from purchasers as is evident from purchase bill issued to assessee firm. The business of firm cannot be treated differently in two tax departments.

Thus we submit that alleged statement made by partners on behalf of M/s Laxmi Dia Gold Jewellers cannot be relied and used in case of assessee and there is no material on record to treat the purchases made by assessee from M/s Laxmi Dia gold vide purchase bills produced before Ld. A.O. as not genuine or bogus and the Ld. A.O. is wrong and has erred in law in treating the same so and disallowing the entire purchases as inflated purchases to suppress profits.

He relied on the following case laws:-

i. Antiquariat vs. DCIT 2008 order dated 30-4-2009 (JP TR) ii. M/s Modi Export House vs. DCIT (ITA No. 1638/JP/1560/JP 2008) order dated 23-10-2009.

In all the cases the ITAT, Jaipur Bench, Jaipur has in effect held that entry of purchases made by assessee in his/its books of account from Laxmi Dia Gold Jewellers cannot be accepted as bogus beyond doubt. In case of Modi Export House the Hon'ble ITAT, Jaipur Bench, Jaipur held that "Under such circumstances, the books of 11 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

account of the assessee wherein the entry of purchases from M/s Laxmi Diagold Jewellers is established as bogus beyond doubt cannot be accepted as correct. Therefore, the rejection of books of account u/s 145(3) of the Act is quite justified and the same is confirmed." Thus the Ld. A.O. is wrong in holding that purchases made by assessee from Laxmi Dia Gold Jewellers are bogus.

The assessee maintained complete stock - register. The assessee exported each item of jewellery purchased by it from M/s Laxmi Dia Gold Jewellers as it is and same is fully verifiable. The export sales have not been doubted by A.O. If disallowed purchases are considered vis a vis export sales it will result in computation of gross profit of Rs. 54,35,028/- on export sales of Rs. 58,80,453/- (G.P. rate 92.42%) which is unheared and unimaginable. Thus the action of Ld. A.O. in disallowing whole of purchases of Rs. 46,69,047/- is arbitrary and unjust. It is submitted that there is no op. stock (this is first year of business of assessee) and no closing stock and export sales are fully verifiable and declared G.P. of 13.02% is reasonable in business of gold jewellery viewing G.P. rate in general being declared by assessee in this trade and so no disallowance of purchases was warranted even if considering that provisions of Section 145(3) are attracted on account of unverifiable nature of purchases. The Ld. A.O. having accepted export sales and declared G.P. rate is also very good and so declared results deserves to be accepted and addition of Rs. 46,69,047/- made by Ld. A.O. by disallowing whole of purchases may kindly be deleted.

He further relied on the following case laws:-

12 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

(i) CIT Vs. Gotan Lime Khanij Udyog.

(ii) CIT Vs. Inani Marbles P. Ltd. (2008) 175 Taxman 56 (Raj.)

(iii) CIT Vs. Suresh Marbles P. Ltd. (2009)18 DTR (Raj.) 118 Recently the Gujrat High Court in Judgement reported at (2013) 356 ITR 451 CIT Vs. Simit P. Seth held as under: -

"In the present case, the Commissioner of Income-tax (Appeals) believed that when as a trader in steel the assessee sold certain quantity of steel, he would have purchased the same quantity from some source. When the total sale is accepted by the Assessing Officer, he could not have questioned the very basis of the purchases. In essence, therefore, the Commissioner (Appeals) believed the assessee's theory that the purchases were not bogus but were made from the parties other than those mentioned in the books of account."

That being the position, not the entire purchase price but only the profit element embedded in such purchases can be added to the income of the assessee. So much is clear by the decision of this court. In particular, the court has also taken a similar view in the case of CIT v. Vijay M. Mistry Construction Ltd. vide order dated January 10, 2011 passed in Tax Appeal No. 1090 of 2009-since reported in [2013] 355 ITR 498 (Guj) and in the case of CIT v. Bholanath Poly Fab P. Ltd. vide order dated October 23, 2012, passed in Tax Appeal No. 63 of 2012 - since reported in [2013] 355 ITR 290 (Guj)."

It is thus submitted that appeal order of CIT (A) is detailed giving reasons for decision in appeal. The appeal order is correct in law and supported with judicial decisions.

13 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

He, therefore, prayed to confirm the order of the ld CIT(A).

5. We have heard the rival contentions of both the parties and

perused the material available on the record. Similar line of cases,

this Bench has decided in the case of Shri Anuj Kumar Varshney Vs.

I.T.O. and other cases in ITA No. 187/JP/2012 order dated

22/10/2014 wherein 15% disallowances has been held reasonable on

considering the detail discussion on facts and legal position on

unverifiable purchases/bogus purchases. Therefore, we also apply

15% disallowances on unverifiable purchases in this case also. The

Assessing Officer is directed to calculate the amount as per above

direction. Accordingly, the revenue's appeal is partly allowed.

Order pronounced in the open court on 17/07/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 17th July, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- The ACIT, Circle-1, Jaipur

2. izR;FkhZ@ The Respondent- Shri Anil Ghatiwala, Jaipur.

14 ITA 780/JP/2012_ ACIT Vs. Anil Ghatiwala

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 780/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar