Rohit Oswal, 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. 930/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2005-06

Rohit Oswal, cuke I.T.O. 570, Thakur Pachewar Ka Rasta, Vs. Ward 2(1), Jaipur. Johari Bazar, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAAPO 5230 C vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri G.M. Mehta (C.A.) jktLo dh vksj ls@ Revenue by : Shri Rajesh Ojha (JCIT)

lquokbZ dh rkjh[k@ Date of Hearing : 31/12/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 20/03/2015

vkns'k@ ORDER

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

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

07/11/2012 passed by the learned CIT (A)-I, Jaipur for A.Y. 2005-06

The effective grounds of appeal are as under:-

"i Learned CIT(A) has erred in law and on facts in sustaining the legality of action U/s 147 of IT Act, initiated by learned A.O. on borrowed information without making any independent inquiry or without

2 ITA 930/JP/2012_ Rohit Oswal Vs. ITO

confronting M/s Vijay Gems whose purchases were treated as fake.

ii. Learned CIT(A) was not justified in sustaining addition of Rs. 457,234/- being 25% of purchases from Vijay Gems by treating it as unverifiable and bogus purchases ignoring various decision of this Hon'ble jurisdictional Tribunal so also day to day stock register maintained by the assessee which was accepted to be correct and complete resulting in acceptance of total sales recorded therein as genuine (including purchased from M/s Vijay Gems.)

2. The first ground of appeal is against legality of challenging the

action U/s 147 of the Income Tax Act, 1961 (hereinafter referred as the

Act), initiated by the Assessing Officer on borrowed information. The

assessee is in trading of precious and semi precious stones. The

assessee filed return of income on 30/10/2005 declaring total income of

Rs. 2,34,636/-. In this case, notice U/s 148 of the Act was issued after

recording the reasons by the learned Assessing Officer, the assessee

raised objection against the issuance of notice U/s 148 of the Act before

the Assessing Officer and same was decided and rejected vide his letter

dated 27/08/2010. It was noticed that the assessee has made

purchases of Rs. 18,28,937/- from M/s Vijay Gems in F.Y. 2004-05. A

survey was conducted by the BCTT Wing of the Department, Jaipur in

Vijay Group of cases during the F.Y. 2007-08 and it was found that M/s

Reshu Exports which is the proprietorship concern of the assessee was 3 ITA 930/JP/2012_ Rohit Oswal Vs. ITO

beneficiated by sales of Rs. 18,28,937/- in F.Y. 2004-05 from M/s Vijay

Gems which is a proprietorship concern of Shri Rajendra Kumar Vijay

and engaged in the business of issuing bogus bills only. Statement of

Shri Rajendra Kumar Vijay, who is proprietor of M/s Vijay Gems were

recorded on oath on 03/03/2008 and 09/05/2008 wherein he admitted

that no real sales and purchases are being made by M/s Vijay Gems

from whom purchases of Rs. 18,28,937/- has been claimed by the

assessee.

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

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

the action of the Assessing Officer by observing that the learned

Assessing Officer had followed all the procedures required for issuing

notice U/s 147 of the Act and since there are no procedural lapse. The

initiation of action U/s 147 by the Assessing Officer is upheld. The

learned Assessing Officer had reason to believe that income chargeable

to tax has escaped assessment. The learned Assessing Officer had

material before him and information received from the BCTT wing was

not borrowed satisfaction. The satisfaction was recorded by the

Assessing Officer U/s 147 of the Act and he rightly issued notice U/s

148 of the Act.

4 ITA 930/JP/2012_ Rohit Oswal Vs. ITO

4. Now the assessee is in appeal before us. The learned A.R. for the

assessee challenged the validity of notice U/s 148 of the Act and argued

that the information was received from BCTT Wing of the department

without making any independent inquiry or confronting M/s Vijay Gems,

on the basis of borrowed satisfaction, learned Assessing Officer formed

reason to believe for escapement of income and initiated action U/s 147

of the Act. It is settled law that "Borrowed Satisfaction" cannot form

basis for initiation of action U/s 147 of the Act. He relied on the

following case laws:-

(i) CIT Vs. Shree Rajasthan Syntax Ltd. (2008) 217 CTR (Raj.)

209.

(ii) CIT Vs. Pradeep Kumar Gupta (2008) 303 ITR 95 (Del.)

(iii) CIT Vs. Kamdhenu Steel & Alloys Ltd. (2012) 248 CTR (Del)

33.

(iv) Signature Hotels Pvt. Ltd. Vs. ITO (2012) 338 ITR 51 (Del.).

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

authorities and argued that the learned Assessing Officer independently

has recorded the reasons and was having reason to believe that

escapement of income was there in this case. Therefore, action of the

Assessing Officer may be confirmed.

5 ITA 930/JP/2012_ Rohit Oswal Vs. ITO

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

perused the material available on record. The assessee had shown

purchases from M/s Vijay Gems, which was found bogus. The learned

Assessing Officer identified the transaction made with Vijay Gems as

bogus, therefore, he formed information and recorded reasons U/s 147

of the Act. The case laws cited by the assessee are not squarely

applicable in this case. He independently formed reason to believe for

escapement of income. In this case, the assessee received information

from BCTT Wing of the department, thereafter, the learned Assessing

Officer verified the record that the assessee had accepted the bogus

bills from M/s Vijay Gems. The Hon'ble Supreme Court in the case of

Kalyanji Mavji & Company Vs. CIT (1976) 102 ITR 287 had observed

that the word "information" is of the widest amplitude and

comprehends a variety of factors with reference to information within

the meaning of Section 147 Explanation 2(b) of the Act. When the

learned Assessing Officer allowed to make assessment on the basis of

amended provisions of Section 147 Explanation 2(b) of the Act to use

information even without giving the 147 notice to expand the

jurisdiction to assessee the income on the basis of information. The

sufficiency of the reason for forming the believe is not for the court to 6 ITA 930/JP/2012_ Rohit Oswal Vs. ITO

judge as held in case of Phool Chand Bajrang Lal & Anr. Vs. ITO & Anr.

(SC) 203 ITR 456 and Raymond Woolen Mills Vs. ITO & Ors. 236 ITR

34. Accordingly, we upheld the order of the learned CIT(A). Therefore,

this ground of assessee's appeal is dismissed.

7. The second ground of appeal is against sustaining addition of Rs.

4,57,234/- being 25% of purchases from M/s Vijay Gems by treating it

as unverifiable and bogus purchases. The Assessing Officer analysed

the trading result of the assessee, the assessee has not maintained

stock register on the basis of quality but made on weight basis. The

closing stock is based purchases price or market price on estimated

basis whichever is low, which is not subject to verification. The assessee

has shown bogus purchases from Vijay Gems at Rs. 18,27,937/-, which

were found during the course of investigation by Investigation Wing of

DIT, Jaipur in case of Haldia Group, Sanjiv Prakashan Group and survey

conducted by BCTT Wing of the department. It was found that actually

no physical delivery of goods was being given against these bills and

after receiving the cheque of equal amount from the interested party,

cash was being remitted to them after making cash withdrawal from the

bank account where these cheques were deposited. These persons

were charging commission @ .2% to .25% of quantum for issuing these 7 ITA 930/JP/2012_ Rohit Oswal Vs. ITO

bogus sales bills. In some cases, the commission was higher as much as

.5% to .6%. Summons were issued to Vijay Gems but no compliance

was made. Therefore, spot inquiry at the business premises of the

above parties were conducted by the Inspector of the Ward and he

reported that no business activity was carried out by above named firm

at the address given. The statement of Shri Rajendra Kumar Vijay,

proprietor of M/s Vijay Gems were recorded on oath on 03/3/2008 and

09/5/2008 by BCTT Wing wherein he admitted that no real sale and

purchase was made by M/s Vijay Gems. The Assessing Officer gave

show cause notice to the assessee on 26/11/2010 and asked to produce

the above parties for verification but the assessee failed to produce all

the above parties for verification purposes. The assessee replied vide

letter dated 03rd December, 2010 and also relied on various decisions.

The learned Assessing Officer considered the assessee's reply and also

relied on the following case laws:-

(i) M/s Kanchwala Gems Vs. JCIT ITD No. 134. (ii) M/s Indian Woolen Carpet Factory Vs. ITAT & Ors. (2202) 178 CTR 420. (iii) VISP (P) Ltd. Vs. CIT & Anr. 186 CTR 718. (iv) Chuhar Mal Vs. CIT 172 ITR 250 (SC). 8 ITA 930/JP/2012_ Rohit Oswal Vs. ITO

Finally he rejected the book result U/s 145(3) of the Act. After

considering the decisions in the case of M/s Sanjay Oilcake Industries

Vs. CIT (2008) 10 DTR (Guj) 153 and M/s Vijay Proteins Ltd. Vs. ACIT

58 ITD 428 (Ahd.), he disallowed 25% of unverifiable purchases of Rs.

18,28,937/- and make trading addition of Rs. 4,57,234/- to the declared

trading profit of the assessee.

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

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

confirmed the addition by observing as under:

"I have carefully perused the order of the A.O. and the submissions of the A.R.. It is a fact that purchases from M/s Vijay Gems could not be verified to that extent the assessee failed to discharge its onus of getting the purchases verified. The Hon'ble ITAT Jaipur Bench has consistently held in the cases of gems and jewellery traders of Jaipur that un-verifiability of purchases are sufficient ground for invoking the provisions of section 145(3). Therefore, the decision of the A.O. to reject the books of accounts of the assessee by invoking provisions of section 145(3) is upheld.

The facts of the case of the appellant are different from the facts of the case of Sanjay Oilcake Industries Vs. CIT (2008) 10 DTR (Guj.), since no evidence has been brought on record to show that these purchases sales were inflated. Regarding the

9 ITA 930/JP/2012_ Rohit Oswal Vs. ITO

estimation of income, it has consistently been held by the Hon'ble ITAT Jaipur Bench that the past history of the case is the best guide for estimating the g.p. rate of the assessee in such cases. As per the observation of the A.O., the g.p. rate of the assessee was 3.25% in the preceding assessment year which had fallen to 0.34% during this assessment year. Thus, the A.O. is directed to estimate the G.P. of the assessee by taking the G.P. rate at 0.8% during this year resulting in a confirmation of trading addition of Rs. 5,57,235/-."

9. Now the assessee is in appeal before us. The learned A.R. for the

assessee reiterated the arguments made before the lower authorities

and further submitted that the G.P. rate has increased from .33% to

.34% during the year and he relied in the case of M/s Sun It Exports

ITA No. 920/JP/2012 for A.Y. 2005-06 and also CIT Vs. Vaibhav Gems

Ltd. (2014) 52 Tax World 159 (Raj) dated 21/08/2014 and claimed that

no addition should have been made by the Assessing Officer.

10. At the outset, the learned D.R. vehemently supported the order

of the learned CIT(A).

11. 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. 10 ITA 930/JP/2012_ Rohit Oswal Vs. ITO

and other cases in ITA No. 187/JP/2012 order dated 22/10/2014 where

on unverifiable/bogus purchases 15% disallowances has been decided.

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.

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

Order pronounced in the open court on 20/03/2015.

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:- 20th March, 2015 *Ranjan

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

1. vihykFkhZ@The Appellant- Rohit Oswal, Jaipur

2. izR;FkhZ@ The Respondent- ITO, Ward 2(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. 930/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar