Bhansali Trading Corporation , 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. 735/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2005-06

I.T.O. cuke M/s Bhansali Trading Ward 2(1), Jaipur. Vs. Corporation, Shah Bhawan, Ghee Walon Ka Rasta, Johari Bazar, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFB 8849 N vihykFkhZ@Appellant izR;FkhZ@Respondent

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

lquokbZ dh rkjh[k@ Date of Hearing : 06/05/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 05/06/2015

vkns'k@ ORDER

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

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

01/06/2012 passed by the learned CIT(A)-I, Jaipur for A.Y. 2005-06

The effective grounds of appeal are as under:-

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

2 ITA 735/JP/2012_ ITO Vs. Bhansali Trading Corp.

1. Deleting the penalty of Rs. 4,10,923/- imposed u/s 271(1)(c) when CIT(A) has confirmed the additions made on account of unverifiable purchases amounting to Rs. 4,96,970/- in Unit-I and Rs. 62,600/- in Unit-II.

2. Deleting the penalty of Rs. 4,10,923/- imposed u/s 271(1)(c) ignoring explanation-I(B) of Section 271(1)(c).

2. Both the grounds are revolving around deleting the penalty of Rs.

4,10,923/- imposed by the Assessing Officer. The return of income in

this case was filed on 31/10/2005 declaring income of Rs. 1,40,475/-.

The case of scrutinized U/s 143(3) of the Income Tax Act, 1961 (in

short the Act). The assessee deals in the business of manufacturer,

exporter and dealer of precious and semi precious stones and gems

stones. The assessee was doing business in the name and style of M/s

Bhansali Trading Corporation having two units i.e. Unit-1 and unit-II.

The unit-II is 100% Export Oriented Unit (EOU) and the assessee had

claimed exemption U/s 10B of the Act. As per book result, the unit-I

was showing loss whereas Unit-II was showing substantial profit. The ld

Assessing Officer in assessment proceedings found that there were

purchases from the following parties.

3 ITA 735/JP/2012_ ITO Vs. Bhansali Trading Corp.

UNIT-I

a) M/s G.R. Enterprises Rs. 663240/-

b) M/s Nisha Exports Rs. 50528/-

c) M/s Jodhpur Gems Rs. 451839/-

d) M/s Pragya Gems Rs. 494241/-

e) M/s Sapna Gems Rs. 1308633/- f) M/s Welcome Gems Rs. 823331/- Rs. 3791812/-

UNIT-II

a) M/s Jodhpur Gems Rs. 116473/-

b) M/s Nisha Exports Rs. 1060362/-

c) M/s Sapna Gems Rs. 450000/-

d) M/s Abhay International Rs. 3959276/-

e) M/s Girish Diam Rs. 1952445/-

f) M/s Creative Gems Rs. 1068936/-

g) M/s Raj Shree Gems Rs. 2029117/-

h) M/s S.P. Jewellers Rs. 1567985/-

i) M/s Welcome gems Rs. 1266300/- j) M/s G.R. Enterprises Rs. 700000/- Rs. 14170894/-

Total of unit-I & unit-II Rs. 17962706/- 4 ITA 735/JP/2012_ ITO Vs. Bhansali Trading Corp.

The Assessing Officer asked the assessee to produce M/s G.R.

Enterprises, M/s Jodhpur Gems, M/s Nisha Exports, M/s Pragya Gems,

M/s Sapna Gems and M/s Welcome Gems vide ordersheet entry dated

01/11/2007. The assessee was not able to produce these parties.

Summons were issued to these parties but summons were returned

back by the postal authority with remark either "left" or "not known". In

case of M/s Abhay International, M/s Girish Diam. M/s Raj Shree Gems,

M/s Creative Gems and M/s S.P. Jewellers, summons were issued,

which were also returned back by the postal authority with the remark

either "left" or "not known". After detailed discussion made by the

Assessing Officer regarding investigation in case of bogus purchases

made by the assessee from page 3 to 28, the Assessing Officer applied

25% G.P. rate on unverifiable purchases at Rs. 1,79,62,706/- and

addition in Unit-I was made by the Assessing Officer at Rs. 41,14,423/-

and in Unit-II at Rs. 1,26,490/- after giving deduction U/s 10B @ 90%.

The penalty proceeding U/s 271(1)(c) of the Act has been initiated for

concealment of income and furnishing inaccurate particulars of income.

The Assessing Officer before imposing penalty U/s 271(1)(c), he again

had given reasonable opportunity of being heard, which was not availed

by the assessee. The assessee challenged the quantum addition before 5 ITA 735/JP/2012_ ITO Vs. Bhansali Trading Corp.

the ld CIT(A) and finally addition for unit-1 was confirmed at Rs.

4,96,970/- and in unit-II Rs. 62,600/-. The Assessing Officer in absence

of assessee's reply had decided the penalty ex parte by considering the

following decisions:-

(i) CIT Vs. Swaroop Cold Storage 136 ITR 435 (All)

(ii) AK Bashu Sahib Vs. CIT 108 ITR 736 (Mad)

(iii) CIT Vs. KD Arora 162 ITR 481 (Pat)

(iv) CIT vs. Warden & Company India (P) Ltd. 171 ITR 405 (Pat).

(v) CIT Vs. Balkrishna Textiles 193 ITR 361.

It has been held by the Assessing Officer that the assessee's

explanation was not bonafide and its case is covered under Expl-1 to

Section 271(1)(c) of the Act. The assessee had claimed bogus

deductions and there was clear cut concealment and as per Hon'ble

Karnataka High Court decision in the case of Basavappa & Sons 159

CTR 198 (Kar) lays down the principle in regard to bogus deductions.

The assessee was found guilty of furnishing inaccurate particulars of

income to the extent of Rs. 4,96,970/- in unit-I and Rs. 62,600/- in unit-

II within the meaning of Section 271(1)(c) of the Act. Therefore, he

imposed 100% penalty of tax sought to be evaded at Rs. 4,10,923/-.

6 ITA 735/JP/2012_ ITO Vs. Bhansali Trading Corp.

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

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

the appeal by observing as under:-

"4.3 I have carefully perused the assessment and penalty orders of the A.O., ld. CIT(A), Hon'ble ITAT, Jaipur Bench and the submissions of the AR, I concur with the submissions of the AR on the following grounds:

(a) The Hon'ble ITAT, Jaipur Bench vide his order in the quantum appeal of the assessee for assessment year 2005-06, ITA No. 69/JP/2009 dated 18/12/2009 has confirmed the findings of the ld CIT(A) in toto. The ld. CIT(A) vide his order ITA No. 686/07-08 dated 19/11/2008 has observed on page 5 that by producing the confirmation of the suppliers their PAN, RST/CST Nos. etc. the existence of the suppliers was proved on paper but the existence of the business could not be proved conclusively. Since the appellant failed to discharge its onus he confirmed the rejection of the books of accounts. He further observed on page 6 of his order that the fact of the rejection of books of accounts on account of unverified purchases coupled with fall in g.p. rate justified the trading addition. "However, the fact remains that except unverified purchases no other defect was noticed by the A.O. No suppression/inflation of sales/purchases has come to the notice of the A.O. and, therefore, it will be more reasonable if trading addition is made in respect of unverified purchases only and not on the entire 7 ITA 735/JP/2012_ ITO Vs. Bhansali Trading Corp.

turnover." He observed that it may be presumed that the intention of the appellant in indulging into unverified purchases may be to reduce its profits. Thereafter the trading addition was reduced to Rs. 4,96,970/- and Rs. 62,600/- in Unit-I and Unit-II respectively. With these observations the first two grounds of appeal wee being decided partly in favour of the appellant.

b) Similar matter came up for adjudication before the Hon'ble ITAT, Jaipur Bench 'B', Jaipur in the case of Kamlesh Dangayach Prop. Green Fire wherein on same facts the Hon'ble ITAT has reversed the order of the CIT(A) confirming the penalty vide its order ITA No. 18 & 19/JP/2012 assessment years 2004-05 and 2005-06 dated 16/5/2012. The Hon'ble ITAT in para 3.3 of its order summarized the facts of the case wherein there was decline in the g.p. rate and unreliability of the assessee's books of accounts due to unverified purchases. As against disclosed g.p. rate of 3.83% and 4.10% (for A.Y. 2004-05 and 2005-06), the assessment though initially made at 11% in view of the past history, stood finalized only at g.p. rate of 4.50%. The Hon'ble ITAT observed that what is paramount, and of essence, is the finding of the fact supporting the higher estimate. If there is none, it is only a matter of one person's estimate against the other. For both the years, the clear finding by the Tribunal for sustaining a higher g.p. rate is to plug a possible leakage of revenue on account of unverifiable purchases; the assessee having exhibited the 8 ITA 735/JP/2012_ ITO Vs. Bhansali Trading Corp.

purchase of goods against its unverifiable purchases. The assessee can under the circumstances only be considered as having substantiated its explanation, if not to the hilt, substantially so, with all the facts material to the computation of income being on record. Once it is accepted as a fact that the goods had indeed been purchased, an addition on account of a possibility of having incurred a higher expenditure than claimed, though definitely valid for effecting a disallowance of the claimed expenditure; the assessee having failed to prove their actual cost as incurred, cannot lead to the inference of a wrong claim, justifying the levy of penalty. "That is, the very fact of the Tribunal sustaining a higher g.p. rate only to plug a possible leakage of revenue on account of unverifiable purchases, proves the assessee's claim of absence of any charge of having not disclosed its correct income, and of having a plausible explanation in support of the returned income." With these observations the Hon'ble ITAT held that no penalty was exigible in the instant case.

It is seen that the facts of the case of the appellant are same as the facts adjudicated upon by the Hon'ble ITAT in the case of Kamlesh Dangayach Prop. Green Fire vide its order supra. Therefore, the observations of the Hon'ble ITAT are applicable to the facts of the appellant, in so far that the books of accounts were rejected on account of unverifiable purchases; there was no fact or evidence to support the higher estimate of income apart from the past history of the case of 9 ITA 735/JP/2012_ ITO Vs. Bhansali Trading Corp.

the appellant. In fact the ld CIT(A) has categorically mentioned that no suppression/inflation of sales/purchases came to the notice of the A.O. and it can only be presumed that unverified purchases may have been made to reduce profits. A penalty u/s 271(1)(c) cannot be levied on presumptions regarding the intentions of the assessee. There has to be conclusive evidence regarding an act of commission or omission. Therefore, the penalty imposed by the A.O. for furnishing of inaccurate particulars of income u/s 271(1)(c) of Rs. 4.10,923/- is deleted."

4. Now the revenue is in appeal before us. The learned D.R.

vehemently supported the order of the Assessing Officer and argued

that the department has established that in gems and jewellery

business in Jaipur, the parties are involved in accepting accommodation

entry from various parties. In this case also, the total unverifiable

purchases were Rs. 1,79,62,706/- on which the G.P. has been

confirmed by the ld CIT(A). Therefore, the addition made by the

Assessing Officer was specific and there was a definite concealment of

income and furnishing inaccurate particulars of income. Therefore, she

prayed reverse the order of the ld CIT(A).

5. At the outset, the ld AR for the assessee submitted that the

assessee had filed confirmation giving PAN number, sales tax number 10 ITA 735/JP/2012_ ITO Vs. Bhansali Trading Corp.

and payments were made by account payee cheques. The ld Assessing

Officer has not pointed out that the cash was received back. The

Assessing Officer after rejecting the books of account of the assessee

made addition on account of unverifiable purchases. The ld CIT(A) had

confirmed the applicability of the provisions of Section 145(3) of the Act

but reduced the addition to Rs. 4,96,970/- in unit-I and Rs. 62,600/- in

unit-II. After applying the G.P. @ 12%against the g.p. rate of 9.22%

declared by the assessee and in unit-II, the CIT(A) applied G.P. rate of

21.36% as against 17.72% declared by the assessee. The ld Assessing

Officer himself admitted in para No. 6 and para No. 3 of penalty order

that addition was on estimate basis. The ld Assessing Officer accepted

the opening stock, purchase, sale and closing stock. He had not pointed

out that which purchases and sales had not been recorded in the books

of account. Hence the assessee has neither concealed any income nor

filed any wrong particulars of income. The various courts held that on

estimated income, no penalty can be imposed. The Hon'ble ITAT, Jaipur

Bench in order dated 28/4/2011 in the appeal of Dwarka Gems ITA No.

549/JP/2010 has deleted the penalty U/s 271(1)(c) on the same facts

on estimated addition relying on the Hon'ble Rajasthan High Court

decision in the case of Shiv Lal Tak 251 ITR 733. He also relied upon 11 ITA 735/JP/2012_ ITO Vs. Bhansali Trading Corp.

the decision in the case of CIT Vs. Reliance Petroproducts (P) Ltd. 322

ITR 158 (SC) and prayed to confirm the order of the ld CIT(A).

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

perused the material available on the record. The addition made by the

Assessing Officer was specific on account of unverifiable purchases on

which G.P. @ 25% was applied and added in the income. However, the

same was reduced by the ld CIT(A) and applied different G.P. rate.

However, the additions were specific. The assessee has not been able

to produce these parties for verification and also summons were

returned back to the officer unserved. This Bench recently decided this

issue in detail 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 and gave

detail findings on unverifiable purchases in number of cases. The

department has been able to prove that in gems and jewellery business,

some of the parties were giving accommodation entry and some of

them accepting the accommodation bill to reduce the profit. The parties

names figured in this case also were similar to those cases, therefore,

we hold that the addition made by the Assessing Officer was specific

and assessee had concealed the income and furnished inaccurate 12 ITA 735/JP/2012_ ITO Vs. Bhansali Trading Corp.

particulars of income. Further the assessee's explanation is not

bonafide. The case laws referred by the assessee are not squarely

applicable. In this case, the addition was specific with reference to

unverifiable purchases. Therefore, we reverse the order of the ld

CIT(A).

7. In the result, the revenue's appeal is allowed.

Order pronounced in the open court on 05/06/2015.

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:- 05th June , 2015 *Ranjan

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

1. vihykFkhZ@The Appellant- ITO, Ward 2(1), Jaipur.

2. izR;FkhZ@ The Respondent- M/s Bhansali Trading Corporation, Jaipur.

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. 735/JP/2012) vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar