Gupta Jewel Corporation , Jaipur vs Assessee

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. 170/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2008-09

M/s Gupta Jewel Corporation, cuke Dy. Commissioner of Bukhmaria Building, Tripolia Vs. Income Tax Bazar, Jaipur. Central Circle-2, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACFG 5916 F vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (CA) & Shri Javed Khan (Adv) jktLo dh vksj ls@ Revenue by : Shri Kailash Mangal (JCIT)

lquokbZ dh rkjh[k@ Date of Hearing : 16/06/2015 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 19/06/2015

vkns'k@ ORDER

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

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

02/12/2011 passed by the learned CIT(A), Central, Jaipur for A.Y. 2008-

09. The effective grounds of appeal are as under:-

"1 That on the facts and in the circumstances of the case the Ld. CIT(A) is wrong, unjust and has erred in law 2 ITA 170/JP/2012_ M/s Gupta Jewels Corp. Vs. DCIT

in confirming finding recorded by the Assessing Officer that purchase of Rs. 10040088/- made by the appellant are not verifiable.

2. The Ld CIT(A) is further wrong and has erred in law in upholding rejection of books of accounts of the appellant by the Assessing Officer U/s 145(3) of the IT Act, 1961 and in further confirming trading addition to the extent of Rs. 2510022/- made by the Assessing Officer by upholding disallowance of 25% of above alleged unverifiable purchase.

3. That the Ld. CIT(A) is wrong and has erred in law in confirming addition of Rs. 25100/- to the income of the appellant on account of alleged commission paid on purchases of Rs. 10040088/- referred to in ground No. (1) above.

4. That the Ld. CIT(A) is further wrong and has erred in law in confirming disallowance of Rs. 93347/- being 1/5 of depreciation and insurance of car on account of alleged personal use.

5. That the appellant craves the permission to add or to amend to any of ground of appeal or to withdraw any of them."

2. All the grounds of appeal are interlinked and against confirming

the trading addition of Rs. 25,10,022/- made by the A.O. by disallowing

@ 25% unverifiable purchases of Rs1,00,40,088/- though the rejection

of books of accounts U/s 145(3) of the IT Act, 1961 was upheld and

confirming disallowance of Rs. 93347/- being 1/5 of depreciation and

insurance of car on account of personal use. The ld Assessing Officer

observed that the assessee firm is engaged in the business of 3 ITA 170/JP/2012_ M/s Gupta Jewels Corp. Vs. DCIT

manufacturing and trading/export of precious, semi precious stones and

handicrafts. Its return of income was e-filed on 25/09/2008 declaring

income at Rs. 8,95,990/-, which was digitally signed. The case was

scrutinized U/s 143(3) of the income Tax Act, 1961 (in short the Act).

The ld Assessing Officer observed that during the year under

consideration, the assessee had shown G.P. rate of 12.34% on the total

sales as against G.P. rate of 14.73% declared in the immediately

preceding year. He further observed that the assessee was asked to

furnish details and supporting evidence of opening and closing stock,

basis of valuation and also furnish stock register but failed to furnish

any stock register and also failed to give quantitative and qualitative

details of stock and basis of valuation of closing stock. In these

circumstances the value of stock and genuineness of the trading results

are not subject to verification. On examination of purchases details, it

was found that the assessee had shown purchases from bogus entry

providers as under:

Bill No. Concern name Date Amount (Rs.) 42 M/s Adinath Gems 04/6/2007 4,00,577/- 171 M/s Adinath Gems 3/11/2007 1,07,800/- 208 M/s Adinath Gems 4/12/2007 2,42,200/- 305 M/s Amar Gems 3/4/2007 6,13,362/- 422 M/s Amar Gems 27/8/2007 4,31,138/- 4 ITA 170/JP/2012_ M/s Gupta Jewels Corp. Vs. DCIT

530 M/s Amar Gems 2/1/2008 2,97,594/- 555 M/s Amar Gems 4/2/2008 2,68,412/- 454 M/s Gems Ocean 3/4/2007 9,82,917/- 724 M/s Gems Ocean 3/1/2008 3,23,891/- 763 M/s Gems Ocean 5/2/2008 2,62,925/- 125 M/s Raj Shree Gems 25/8/2007 3,25,752/- 53 m/S v.s. Jewellers 2/6/2007 7,08,561/- 6 M/s Vijay Gems 4/4/2007 7,26,762/- 8 M/s Vijay Gems 4/6/2007 9,60,040/- 47 M/s Vijay Gems 2/7/2007 2,15,622/- 110 M/s Vijay Gems 1/10/2007 1,57,278/- 04 M/s Subhlaxmi gems 4/4/2007 7,41,760/- 06 M/s Subhlaxmi Gems 06/04/2007 7,24,100/- 34 M/s Subhlaxmi Gems 2/7/2007 1,52,536/- 8 M/s Anshu Gems 5/4/2007 6,32,564/- 38 M/s Anshu Gems 1/7/2007 3,37,859/- 92 M/s Anshu Gems 1/10/2007 4,26,438/- 1,00,40,088/-

He further observed that the since, all the above purchases remains

unverifiable therefore, a show cause was issued vide letter dated

05/11/2010 and 16/12/2010 to produce the aforesaid parties for

verification. The assessee failed to produce the above parties. The

above parties were only giving accommodation entries and not doing

any genuine sale purchase of the gems & jewels. The assessee was

asked to produce the above parties alongwith books of account in order

to prove the genuineness of transaction. In response to this, the

assessee submitted its reply, which was not found convincing and 5 ITA 170/JP/2012_ M/s Gupta Jewels Corp. Vs. DCIT

acceptable by the ld Assessing Officer. He relied on the various case

laws i.e.:

(a) M/s Kanchwala Gems Vs. JCIT ITD No. 134.

(b) CIT Vs. Precision Finance P Ltd. 208 ITR 465 (Cal).

(c) M/s Indian Woolen Carpet Factory Vs. ITAT & Ors. (2002) 178 CTR 420 (Raj) (d) VISP (P) Ltd. Vs. CIT 186 CTR 718 (MP) (e) Chuhar Mal Vs. CIT 172 ITR 250 (SC) (f) CIT Vs. Golcha Prop Pvt. Ltd. 227 ITR 391 (Raj)

The ld Assessing Officer further observed that from the above case laws

and discussion, it is clear that the assessee has failed to prove the

genuineness of the purchases made. The primary onus is on the

assessee to establish the genuineness of the purchases claimed by it.

Since the primary facts are in the knowledge of the assessee it is his

duty to provide the correct address or contact modes of the alleged

suppliers. Payment of account payee cheque is not sacrosanct. The

learned Assessing Officer after considering the assessee's reply and

relying upon the decision in the case of Kachwala Gems Vs. JCIT 288

ITR 10 (SC), he rejected the book result U/s 145(3) of the Act and after

following the decision in the case of Sanjay Oil Cake Industries Vs. CIT

(2008) 10 DTR (Guj)153, he disallowed 30% of unverifiable purchases 6 ITA 170/JP/2012_ M/s Gupta Jewels Corp. Vs. DCIT

of Rs. 1,00,40,088/- and made trading addition of Rs. 30,12,026/- to

the income of the assessee.

Regarding commission payment, the ld Assessing Officer

observed that it was admitted by the respective parties that they

charged commission of .20% to .25% for the bogus purchase bills

issued. Accordingly, in the case of it is clear that it had made

commission payment of Rs. 25,100/- on the total bogus purchase of Rs.

1,00,40,088/-. Assessee failed to furnish any documentary evidence and

source of such commission payment, hence the same is taxed in the

hands of its income as payment made out undisclosed sources. The ld

Assessing Officer observed that the assessee had concealed the

particulars of his income and furnished inaccurate particulars of income

by reducing its gross profits, therefore it is a fit case for initiating

penalty proceedings U/s 271(1)(c) of the IT Act, which was being done

separately.

With regard to another ground i.e. on account of vehicle

expenses, ld Assessing Officer observed that on perusal of computation

of total income, it is noticed that assessee had added an amount of Rs.

70,516/- on account of vehicle expenses considered personal. On 7 ITA 170/JP/2012_ M/s Gupta Jewels Corp. Vs. DCIT

perusal of depreciation chart, it noticed that the assessee maintaining

10 car and most of them are luxurious. The use of these cars for

personal use has already admitted by the assessee by adding the same

amount in the total income in computation. But the assessee had not

disallowed the proportionate amount of deprecation of Rs. 4,32,552/-

and insurance for these car at Rs. 29,184/-. He disallow 1/5 of

depreciation on car as well as insurance on car which comes to Rs.

93,347/-, the same is added in the total income of the assessee.

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

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

the assessee's appeal partly by observing as under:-

"5. As already pointed out the case of the appellant is of manufacturer. Moreover, it has been noticed by the undersigned that apparently recorded yield of the emerald as noticed by the undersigned was found to be very low i.e. 7.71% as against the yield of 15.80% shown in the chart furnished before the A.O. Similar, apparently recorded yield of other semi precious stones is found to be less than 5.06% which is quite low as against the yield shown in the chart furnished before the A.O.. Yield as per manufacturing record of citrine is as low as 3.2% and of amethyst is only 3.84%. Moreover, these yields so shown are certainly below 8 ITA 170/JP/2012_ M/s Gupta Jewels Corp. Vs. DCIT

the yield shown by other manufacturer in the similar line of business. Apart from it, the purchases shown from these unverifiable parties is certainly inflated. All these facts and circumstances in the instant case of the appellant, which have been noticed by the A.O. and further facts noticed by the undersigned regarding suppressed yield and other defects for the year under consideration, were not brought on record before the Hon'ble ITAT and also the then CIT(A) in the appeal for earlier years. Therefore, the new facts now brought on record clearly warrant departure from the past history of the case.

6. It is a fit case where ratio of decision of Hon'ble Gujarat High Court in the case of M/s Sanjay Oil Cake Inds. Vs. CIT 316 ITR 274 and Vijay Protein Vs. ACIT 58 ITD 428 is applicable. In the case of M/s Sanjay Oil Cake the Hon'ble High Court has upheld the disallowance of 25% out of the unverifiable/bogus purchases made by the Hon'ble ITAT. Considering the facts and circumstances of the case and the legal position under consideration, particularly considering the ratio decindi of the above cited cases, the disallowance of 25% out of the bogus as well as unverifiable purchases totaling to Rs. 1,00,40,088/- is upheld, which comes to Rs. 25,10,022/- and balance addition of Rs. 5,02,004/- is deleted."

The ld CIT(A) has further held regarding commission payment as under:-

9 ITA 170/JP/2012_ M/s Gupta Jewels Corp. Vs. DCIT

"I have considered the submission of ld. AR and have perused the material on record. It has already been held that various parties as mentioned in the preceding paras had given bogus bill to the appellant by charging commission at the rate of .25%. Accordingly, the Assessing Officer was justified in adding Rs. 25,100/- as commission payment from undisclosed sources".

The ld CIT(A) has further held regarding insurance payment of car as under:-

"I have considered the submission of ld. AR and have perused the material on record. It is settled legal position that in case of proprietory business or firm, if the vehicle is not fully and exclusively utilized for the purpose of business, then proportionate disallowance of depreciation need to be made part from disallowance out of vehicle running expenses. Since appellant has himself rightly considered vehicle expenses partly being personal in nature and added Rs. 70,516/- in the computation of total income, proportionate disallowance out of depreciation and insurance of this car amounting to Rs. 93,347/- so made by the A.O. is justified and is upheld."

4. Now the assessee is in appeal before us. The ld AR of the

assessee has reiterated the arguments made before the ld Assessing

Officer as well as before the ld CIT(A).

10 ITA 170/JP/2012_ M/s Gupta Jewels Corp. Vs. DCIT

5. The Ld. DR supported the order of the ld. Assessing Officer as

well as the ld CIT(A) and argued that the Assessing Officer had given

detailed findings on facts and legal proposition on this issue. He also

confirmed the addition reasonable on the basis of overall surrounding

circumstances of the case. The assessee could not produce these

parties for verification. Notices were issued by the Assessing Officer,

were neither got served by assessee nor were found on given

addresses, therefore, disallowance of 25% on unverifiable purchases

may please be confirmed.

6. 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. Accordingly, we also apply 15%

disallowances on unverifiable purchases in this case also. The Assessing

Officer is directed to recalculate the income as per above direction.

11 ITA 170/JP/2012_ M/s Gupta Jewels Corp. Vs. DCIT

6.1 With regard to the commission payment and payment of

insurance, the ld CIT(A) had given detailed findings on these issues,

therefore, we do not find to intervene in the order of the ld CIT(A).

Accordingly, the order of the ld CIT(A) is upheld.

7. In the result, the assessee's appeal is partly allowed.

Order pronounced in the open court on 19/06/2015.

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:- 19th June, 2015

*Ranjan

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

1. vihykFkhZ@The Appellant- M/s Gupta Jewel Corporation, Jaipur

2. izR;FkhZ@ The Respondent- The DCIT, Central Circle-2, 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. 170/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar