Harish Goyal Huf , 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. 648/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2009-10

Harish Goyal HUF, cuke Commissioner of Prop. Badhalia Gems & Jewellery, Vs. Income Tax-1, Jaipur. 1582, Haveli Navratna, Partaniyo Ka Rasta, Johari Bazar, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADHH 0566 F vihykFkhZ@Appellant izR;FkhZ@Respondent

vk;dj vihy la-@ITA No. 683/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2009-10

Income Tax Officer cuke M/s Harish Goyal HUF, Ward-1(1), Jaipur. Vs. 1582, Partaniyo Ka Rasta, Johari Bazar, Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADHH 0566 F vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri Ram Babu Gupta (C.A.) jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph (JCIT)

lquokbZ dh rkjh[k@ Date of Hearing : 08/01/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 27/03/2015 2 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

vkns'k@ ORDER

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

These are cross appeals, one by the assessee and another by the

Revenue arise against the order dated 03/05/2012 passed by the

learned C.I.T.(A)-I, Jaipur for the A.Y. 2009-10. The grounds of

assessee's appeal as well as the Revenue are as under:-

Grounds of ITA No. 648/JP/2012

"1. The learned CIT(A) have accepted the plea of the assessee and rightly deleted the additions made by the learned A.O. but the learned CIT(A) is unjust and has erred in law and acted against decided judgments by increasing the Net Profit without any basis from 2.2.% to 5% in spite of the fact that Turnover, Gross Profit and Net Profit of the firm is better than last year in amount and in percentage.

Even the learned A.O also not disturbed any expenses in the Profit and Loss Account and accepted all expenses and allowed in computing the income of the assessee. The Net Profit addition made by the learned CIT(A) deserves to be deleted.

2. The learned CIT(A) is unjust in upholding the rejection of books of account on the basis that few parties were not available or refused to accept the notice issued by the learned A.O. in spite of the fact that all the details required by the learned A.O. including quantitative details of stock. Register was filed and accounts were duly audited as per law."

3 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

Ground of ITA No. 683/JP/2012

"Whether on the facts and in the circumstances of the case and in law the learned CIT(A) is erred in :

(i) deleting disallowance on account of unverified purchases of Rs. 11,47,149/-, labour charges amounting to Rs. 9,11,149/- and assorting charges amounting to Rs. 17,43,166/- and replacing the same by N.P. addition of Rs. 11,78,186/-."

2. The learned Assessing Officer observed that the assessee is

engaged in the business of precious/semi precious stones. Return

declaring total income at Rs. 9,46,200/- was filed electronically on

29/09/2009. This case was scrutinized U/s 143(3) of the Income Tax

Act, 1961 (in short the Act) by the learned Assessing Officer. Learned

Assessing Officer further observed that the assessee is in the second

year of business operation and had not maintained day to day stock

register. The position of the trading result of current year, as compared

to the trading result of A.Y. 2008-09 is as under:-

Assessment Turnover Gross Profit Gross Profit Year ratio 2007-08 29062884 1879305 6.47% 2008-09 42380756 3296512 7.78%

The learned Assessing Officer found that the assessee has declared

purchase at Rs. 3,63,35,305/-. The purchases from M/s Sagar Exports 4 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

exceeded Rs. 10 lacs and therefore to verify the purchase on test check

basis. The assessee was asked to produce the said party with their

stock register, bank statement, sale register and ledge to verify the

genuineness of the purchases as claimed. The said party did not appear

before the Assessing Officer. The Assessing Officer further observed

that as per information available with the department to the survey

conducted by the DIT(investigation) Wing, the other authorities of the

department and the surveys/enquiries conducted by the Sales tax

department, reportedly a large number of so-called suppliers of

precious/semi precious stones were indulging in issuing mere bills

without transfer of the corresponding goods mentioned in the bills

issued by them. In the mean while, information had been received

through the higher authorities that the Sales tax department had also

conducted enquiries to ascertain the existence of various traders of

Gem stones. On the basis of enquiries so conducted, it was found that

large number of traders are existing in papers only. List of such traders

was also received by the Assessing Officer. The assessee had claimed

purchases from the following parties, which were reportedly providing

mere bills only without transfer of corresponding goods mentioned in

such bills:-

5 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

S. Name of the Address of the party Amount Total Remarks No. party and Bill No. and date of purchases for non purchases made service 1 M/s Sagar 55, Kailashpuri, near 388800 1663440 Addressee Exports Hotel Jaipur Darbar, 432000 moved Amer Road, Jaipur. 464640 Bill No. 201 dated 378000 13/05/2008 Bill No. 202 dated 18/05/2008 Bill No. 203 dated 07/6/2008 Bill No. 205 dated 16/06/2008 2 M/s Paradise 37, Rajhans 344250 675000 Insufficient Exports Colony,Bhrampuri, 330750 address Jaipur Bill No. 20 dated 03/05/2008 Bill No. 24 dated 15/05/2008

3 M/s Prabhat E-147, Vaishali Nagar, 290000 588500 No such Exports Jaipur 298500 firm exists Bill No. 7 dated 02/5/2008 Bill No. 9 dated 03/5/2008 4 M/s Neelkanth 1544, Chaura Rasta, 326800 592000 Refused to Enterprises SMS Highway, Jaipur 265200 accept Bill No. 369 dated 10/05/2008 Bill No. 370 dated 13/05/2008 5 M/s Hari Om 3738, KGB Ka Rasta, 283200 568000 House No. Exports Johri Bazar, Jaipur 284800 3738 Bill No. 419 dated remains 08/05/2008 closed Bill No. 423 dated 12/05/2008 6 M/s Raj Hans 180, Vaishali Nagar, 505000 505000 No such Jewellers Jaipur (Raj) firm exists.

Bill No. 359 dated 03/4/2008 Total value of purchases 4591940 6 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

These purchases were 12.63% of the total purchases. The learned

Assessing Officer issued summons to find out the genuineness of these

parties and also to verify the genuineness of these transactions but the

summons were returned back by the postal authority with the remarks

as mentioned in the above chart. The assessee was confronted with

these results of inquiry and the assessee HUF was given reasonable

opportunity of being heard. The A.R. also provided another opportunity

to produce these suppliers but it failed to comply the same. However, it

had filed a reply highlighting legal arguments for not disturbing the

trading result. Without verification of the facts involved, no law or legal

decisions can be applied to the facts of the case. The learned Assessing

Officer reproduced the assessee's reply of letter dated 08/12/2012 on

page 3-4 of the assessment order. After considering the assessee's

reply, the learned Assessing Officer concluded as under:-

"I have considered the reply furnished by the assessee, but I am unable to accept the same, for the following reasons:-

i) It is not verifiable as to whether the supplier has been filing any return of income with regard to his business activity and the resultant income/loss;

ii) The business does not exist at the notified address. NO new address has been provided by the assessee for further verification;

7 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

iii) As is reflected above some of the addressees have refused to accept the summons u/s 131 from the postal authorities. It is evident that they were aware of the content of the notices and the firm wanted to avoid any sort of cross verification.

iv) The assessee has not maintained any stock register on day to day basis so as to verify the day to day movement of the stock.

v) Assessee is harping on the fact that where the g.p. rate declared is better than the g.p. rate of past years, then its trading account is ought to be accepted, even if there are innumerable defects and flaws in the trade practice followed. Assessee has prepard standardized and pre- determined data with regard to its trading account, where the purchase itself is not verifiable. Then the authenticity of its opening stock and closing stock is itself is not subject to verification. In this background assessee's argument that the g.p. rate alone should be considered for accepting the correctness of its books of account has not legal sanctity.

vi) The entire exercise made is with a view to verify the correctness of each of the entries made in the trading account which culminates in the determination of the gross profit. If the correctness of any one entry of the trading account is found to be incorrect, then it will have a bearing on the gross profit declared because it is arrived at by arithmetical calculations.

8 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

vii) It is to be noted that summons issued at the address available on the purchase bills have been returned by the postal authorities with remarks 'no such firm exists/address incomplete/not known' etc.

viii) Confirmations from the parties have also not been furnished by the assessee.

ix) The observations of formalities on paper, like TIN, RCST/CST No./PAN, bank account are part of the modus operandi to run the racket of issuing bogus bills. All the documents bear an address, but the supplier is not found at the given address. Moreover, payment by cheque is neither sacrosanct nor can it make a non-genuine transaction as genuine for which reliance is placed on the judgment of CIT Vs. Precision Finance(P) Ltd (208 ITR 465 (Cal.)

x) Reliance is also placed on the judgment of M/s Kachwala Gems Vs. JCIT (ITD No. 134, ITAT Jaipur Bench (Dec.2003)] wherein it was held that the A.O. is entitled to act on material which may not even be accepted as an evidence as the A.O. is not bound by the technical rules of Evidence and Pleadings. The Hon'ble ITAT has also held that the declaration of sales under Sales Tax Act and non- production of books of account by the seller will not lead to the conclusion that the sales are genuine in a case wherein A.O. comes to the conclusions that the relevant purchases are non-genuine in the case of the assessee. The Hon'ble 9 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

ITAT has also held that the payment by account payee cheque is not sufficient to establish the genuineness of the purchaser.

xi) Under section 101, 102 and 106 of the Evidence Act, onus lies upon the assessee to prove all the expenses including purchases to the satisfaction of the Assessing Officer, which was not discharged by the assessee as it failed to produce the suppliers from whom purchases have been claimed. The onus lies upon the assessee to prove the genuineness of the transaction when such purchases are claimed to be genuine by it. Reliance is placed in the case of Indian Woolen Carpet Factory Vs. ITAT 178 CTR 420 (Raj.)].

The assessee was also not submitted evidence of assorting charges and

labour charges for Rs. 35 lacs. On the basis of these defects, he applied

Section 145(3) of the Act and rejected the book result. It has been held

by the Assessing Officer that the assessee had inflated the cost of

purchase covered by the bills issued by the above parties. He estimated

the net profit @ 25% on unverifiable/bogus purchases of Rs.

45,91,940/- at Rs. 11,47,985/-.

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

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

justified the rejection of book U/s 145 of the Act by observing that the 10 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

assessee was not able to prove the genuineness of the purchases from

six parties in spite of repeated opportunities given to the assessee by

the Assessing Officer. The department had gathered the evidences

against these parties and found that these transactions were not found

genuine but were merely entry providers. The learned Assessing Officer

made efforts to verify the parties by issuing notice U/s 131 of the Act

but they could not be served because these parties were not found to

exist. Regarding estimation of income on unverifiable/bogus purchases,

the learned CIT(A) held that the learned Assessing Officer made an ad

hoc disallowance on labour charges claimed and entire assorting

charges have been disallowed. On the other hand, the appellant had

produced ledger account of labour charges and assorting charges paid.

The department cannot venture upon giving directions to the assessee

on how to conduct business and the labour charges and assorting

charges were business related expenses as per the appellant. The only

point of dispute seems to be the amount of disallowance to be made in

absence of proper records as required for verification by the A.O. It is

also a fact that the turnover, G.P. rate and N.P. rate of the appellant

have improved. Secondly, several judicial pronouncements have held

that once the books of account have been rejected and the income is 11 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

estimated than separate addition cannot be made. On the other hand,

the non maintenance of proper books of account which prevented the

verification of the payment for labour and assortment and the facts that

12.63% of the total purchases were made from unregistered dealers

and not maintaining qualitative details of stock in spite of huge payment

for assorting of stock, indicates that the appellant may not be reflecting

its correct income. Therefore, the N.P. rate is estimated at 5% on total

turnover. The separate disallowances made from labour charges and

assorting charges are not being upheld. Since the appellant himself has

shown a Net profit of Rs. 9,40,852/- at the rate of 2.22% a set off the

amount is given and a total N.P. addition of Rs. 11,78,187/- is

confirmed at the rate of 5%. Resulting in a total N.P. addition of Rs.

11,78,186/-.

4. Now both i.e. assessee as well as the Revenue are in appeals

before us. The learned A.R. for the assessee reiterated the arguments

made before the learned CIT(A) and further argued that the relevant

details like purchase bills, copy of account, sales tax number, PAN of

these parties were submitted. The learned Assessing Officer insisted on

personal presence of these persons and as an individual he could not

have been forced to produce these peoples. None service of summons 12 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

did not mean that the business did not exist or the business had never

existed. The stock summary/inventory register of good was filed before

the Assessing Officer. The assessee turnover as well as G.P. had

increased substantially including the N.P. rate. He also relied upon the

various case laws given below:

(i) Kansara Bearing Pvt. Ltd. Vs. CIT 270 ITR 235 (Raj.).

(ii) Addl.CIT Vs. Lakhani Shoes Ltd. 34 TW 32 (Jp.) and J.C.

Sharma Vs. ITO 33 TW 80 (Jp.)

(iii) CIT Vs. Gotan Lime Khanij Udhyog 256 ITR 243.

5. At the outset, the learned D.R. supported the order of the

Assessing Officer and argued that no evidence regarding labour charges

and assorting charges were furnished before the Assessing Officer.

However, the learned CIT(A) allowed the benefit of expenses claimed

and no separate addition on account of labour charges and assorting

charges had been confirmed. These disallowances are specific,

therefore, separate addition should have confirmed by the learned

CIT(A). She prayed to confirm the order of the learned Assessing

Officer.

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

perused the material available on record. It is undisputed fact that the 13 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

assessee's purchases were found unverifiable/bogus. The learned

Assessing Officer got information from the various authorities of the

department and from inspection of the address and it was found that

these purchases were unverifiable/bogus. He issued summons to them

but which was returned back unserved. The learned Assessing Officer

also asked to produce these parties for verification, which were not

produced by the appellant during the assessment proceedings. Similar

line of cases, this Bench has decided in the case of Shri Anuj Kumar

Varshney Vs. I.T.O. and other gems and jewellery cases in ITA No.

187/JP/2012 order dated 22/10/2014 where on unverifiable/bogus

purchases 15% disallowances has been decided. Being this issue

identical, we also apply 15% disallowances on unverifiable purchases in

this case also.

6.1 The other additions made by the Assessing Officer, which were

deleted by the learned CIT(A) on the ground that several judicial

pronouncements have held that once the books of account have been

rejected and the income is estimated, then separate addition cannot be

made. This Bench also confirmed this finding as held by the various

Courts that after estimating the income, no separate addition can be

made on account of various expenses debited in the P&L account.

14 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

Therefore, we confirmed the addition of Rs. 6,88,791/- as 15%. The

learned CIT(A) has increased the N.P. on total sale and after giving the

effect of N.P. disclosed at Rs. 9,40,852/- @ 2.22% is set off the amount

was given. However, she estimated the income on the basis of 5% on

total turnover but she had not given any finding on the basis of

comparable case and had not considered the past history of the

assessee's case. It is a fact that the assessee's sale, G.P. and N.P. rate

has increased but it is also fact that the assessee had not able to verify

the partly labour charges and assorting charges. The learned Assessing

Officer also made these additions in absence of any evidence submitted

by the assessee, which has been explained before the learned CIT(A).

However, the assessee's reply not supported with the evidences, he

simply explained the reasons but it is also a fact that the assessee has

to incur expenses on labour charges and assorting of gems. Thus, we

upheld the N.P. rate @ 3% instead of 5% confirmed by the learned

CIT(A) on total sale. Net addition of Rs. 3,25,222/- is confirmed. The

addition confirmed by this Bench on unverifiable/bogus purchases is

separate. Therefore, the Assessing Officer is directed to calculate the

income as per above direction. Accordingly, assessee's appeal is partly

allowed.

15 ITA 648 & 683/JP/2012_ Harish Goyal Vs. CIT-1

7. In the result, the assessee's appeal as well as appeal of the

revenue are partly allowed.

Order pronounced in the open court on 27/03/2015.

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:- 27th March, 2015

*Ranjan

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

1. vihykFkhZ@The Appellant- Harish Goyal HUF, Jaipur

2. izR;FkhZ@ The Respondent- Commissioner of Income Tax-1, 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. 648 & 683/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar