Sumati Gems, 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. 175/JP/2013 fu/kZkj.k o"kZ@Assessment Year : 2008-09

M/s Sumati Gems, cuke Addl. Commissioner of 1839, Bara Gangore Ka Rasta, Vs. Income Tax Johari Bazar, Jaipur. Range-1, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAQFS 8547 N vihykFkhZ@Appellant izR;FkhZ@Respondent

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

lquokbZ dh rkjh[k@ Date of Hearing : 24/06/2015 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 assessee against the order dated

09/01/2013 passed by the learned CIT(A)-(I), 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 in upholding rejection of the books of accounts of the appellant firm by the Assessing Officer U/s 145(3) of the I.T. Act, 1961.

2 ITA 175/JP/2013_ M/s Sumati Gems Vs. Addl.CIT

2. That the Ld CIT(A) is further wrong and has erred in law in upholding trading to the extent of Rs.

513712/- to the income of the appellant by directing application of G.P. rate of 9.25% as against declared G.P. rate of 8.82%.

3. That the ld. CIT(A) is also wrong and has erred in law in confirming disallowance of whole of traveling expenses of Rs. 343937/- incurred on Shri V.A. Methi.

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

2. Ground Nos. 1 and 3 of the assessee's appeal are not pressed

during the course of hearing, therefore, we dismiss the same as not

pressed. Ground No. 4 is general in nature, therefore we are not

adjudicating the same.

2.1 Ground No. 2 of the appeal is against upholding the trading to

the extent of Rs. 5,13,712/- to the income of the appellant by applying

G.P. rate of 9.25% as against declared G.P. rate of 8.82%. The ld

Assessing Officer observed that the assessee firm was engaged in the

business of manufacturing/dealing in all kinds imitation diamonds,

precious and semi precious synthetic gems stones and of manufacturing

and dealing in studded precious and semi-precious stones gold

jewellery. Return of income for the assessment year 2008-09 was filed 3 ITA 175/JP/2013_ M/s Sumati Gems Vs. Addl.CIT

by the assessee on 27/09/2008 declaring total income of Rs.

69,03,740/-. The case was scrutinized U/s 143(3) of the Income tax

Act, 1961 (in short the Act). During the year under consideration, the

assessee had shown G.P. of Rs. 1,05,04,057/- on the total sales of Rs.

11,91,11,024/-. This G.P. included income from exchange rate

fluctuation. The assessee had computed a GP rate of 12.24% taking

this amount. However, the real GP for comparing with earlier year

should exclude this. Hence the comparative figures of the turnover and

GP rate for the three years furnished by the assessee are as under:-

A.Y. Turnover G.P. (%age) 2006-07 14,70,37,677/- 10.93% 2007-08 13,63,35,211/- 8.90% 2008-09 11,91,11,024/- 8.82%

The ld Assessing Officer further observed that the assessee has not

maintained any stock register. It has also not maintained day to day

record for its manufacturing activities and therefore, yield percentage of

finished stones manufactured out of the rough was also not

ascertainable. Except purchases of Rs. 4,07,925/- from M/s Nidhi

Exports rest of the purchases were imports. Bills of purchases from M/s

Nidhi Exports had been furnished by the assessee firm. The assessee

was asked to produce the party for verification, expressed its inability to 4 ITA 175/JP/2013_ M/s Sumati Gems Vs. Addl.CIT

do so. Summons U/s 131 of the Act dated 11/11/2010 had been served

on M/s Nidhi Exports to produce its books of account for the relevant

period but it did not comply with the summons. A show cause notice

was also issued to the assessee vide letter dated 01/12/2010. In

response to show cause, the assessee replied the same vide letter

dated 3/12/2010. Again on 10/12/2010, summon was issued to M/s

Nidhi Exports by registered post but the same was returned unserved.

The ld Assessing Officer rejected the books of account of the assessee

after relying on the various case laws, which has been noted in the

Assessing Officer. He also observed that the past history of the case as

well in assessee's own case for the assessment year 2007-08 wherein

the ld CIT(A) vide his order in ITA No. 337/2009-1- dated 16/08/2010

confirmed the G.P. rate @ 9.5% on declared turnover, therefore, he

applied G.P. rate @ 9.5 on total turnover, which will result in trading

addition of Rs. 8,11,490/- Unverified purchases of Rs. 4,07,925/- were

also disallowed, but the G.P. addition is more than unverifiable

purchases, therefore, no separate addition was made.

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 on this ground by observing that regarding 5 ITA 175/JP/2013_ M/s Sumati Gems Vs. Addl.CIT

the estimation of g.p. rate as per the submission of the AR on similar

facts in the case of the assessee itself, the Hon'ble ITAT, Jaipur has

confirmed the g.p. rate of 9.01% on total turnover of Rs.

13,63,35,211/- in the immediately preceding assessment year,

considering that the turnover has declined and the g.p. improves with

the decline in turnover the g.p. rate is estimated at 9.25% resulting in a

confirmation of trading addition of Rs. 5,13,712/-.

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). He further submitted as under:-

"The ld A.O. held that in respect to purchases of Rs. 4,07,925/- from M/s Nidhi Exports, the assessee firm failed to discharge its onus to prove purchases and so the purchases of Rs. 4,07,925/- is not verifiable. In this connection, it is submitted that the assessee firm in course of assessment proceedings furnished complete details of purchases effected from these parties which are:

i. Producing the purchase bill.

ii. Sales-tax registration Number under Sales-tax Act.

iii. Permanent Account Number under Income Tax Act.

iv. Confirmation duly signed by the party.

6 ITA 175/JP/2013_ M/s Sumati Gems Vs. Addl.CIT

v. Payment was made by account payee cheque which stood debited in the Bank Account of appellant and credited in the bank A/c of Seller Party and in support copy of Bank A/c of assessee firm was also filed.

In respect to above purchases the Ld. A.O. did not brought on record any cogent material or evidence for holding the purchases as ungenuine or purchase bills submitted by assessee firm as bogus. The assessee firm submitted all the necessary documents in support of purchases. The assessee firm submits that it had made purchases from the said party as recorded in its books of accounts and produced all the documents including confirmations from party to prove purchases. The findings given by Ld. A.O. in assessment order are without making any enquiry and so based on guesswork and conjectures and Ld. A.O. has not brought any conclusive material on record to prove that assessee firm has not made purchases from the said party or it received back the cash in lieu of cheques issued by it for purchases. The Ld. A.O. is therefore wrong and has erred in law in holding that the said purchases of Rs. 4,07,925/- are not verifiable. The Ld. A.O. has invoked provisions of Section 145(3) and rejected books of accounts also for non-maintenance of day to day manufacturing account and stock register. The absence of stock-register or failure to maintain itemwise stock register, books of accounts could not be rejected unless there is finding or opinion that record were incomplete or that method of accounting employed was such that income could not be deduced from accounts maintained by assessee. The legal view is upheld in the judgment 7 ITA 175/JP/2013_ M/s Sumati Gems Vs. Addl.CIT

in the case of Ashoka Refractories P. Ltd. Vs. CIT (2005) 279 ITR

457.

The comparative results of assessee firm for past three years are as under:-

A.Y. Turnover Gross Profit G.P. Rate Remarks 2006-07 14,70,37,677 1,60,64,383 10.93% G.P. applied 11.93% CIT(A) restricted addition to Rs. 700000/-

sustained addition- deleted by ITAT in C.O. No. 65/JP/10 order dated 13/1/2011. 2007-08 13,63,35,211 1,21,37,948 8.90% A.O. applied G.P. rate of 10.93% CIT(A) reduced to 9.5% ITAT upheld only Lump sum addition of Rs. 1.50 lacs which brings G.P. rate of 9.01%. (Copy of orders annexed hereto). 2008-09 11,91,11,024 1,05,04,057 8.82%

It will be found from the above chart that export turnover of assessee during the year is slightly lower as in immediately preceding year and G.P. rate also declined very marginally. The G.P. rate cannot be same and equal in every year. It varies with the composition of items exported, quality of stone, yield etc.

The declared G.P. rate thus is almost comparable with A.Y. 2007- 08 and is only fractionally less from 9.01% finally upheld in appeal. In view of these facts of the case the application of G.P. rate of 9.5% by Ld. A.O. is not sustainable. The results declared by assessee firm deserves to be accepted even if technically 8 ITA 175/JP/2013_ M/s Sumati Gems Vs. Addl.CIT

application of provisions of Section 145(3) are upheld or in the alternative G.P. rate of 9.01% upheld in A.Y. 2007-08 may ordered to be applied as it is held in various judgments that while applying G.P. rate the rate applied in immediately past years is to be considered.

The Ld. CIT(A) applied G.P. rate of 9.25% as against 9.01% by holding that in A.Y. 2007-08 the Hon'ble ITAT, Jaipur has confirmed the G.P. rate of 9.01% on total turnover of Rs. 13,63,35,211/- in that year, considering that in the year the total turnover of assessee has declined and G.P. improves with the decline in turnover the G.P. rate is estimated at 9.25% for this year thereby confirming trading addition of Rs. 5,13,712/-.

In this connection, it is submitted that total turnover of assessee firm in this year is Rs. 11,91,11,024/- as compared to total turnover of Rs. 13,03,35,211/- in A.Y. 2007-08 which cannot be termed as decline in turnover but it is marginally lower only. The assessee sales are totally export turnover and fluctuation of exchange rate also make variation in terms of rupees in export turnover and further recession in export market effects turnover and both the factors being pressure on G.P. rate and does not result in increase in G.P. rate. The findings of Ld.CIT(A) are not based on any evidence or precedence and so lacks support. In case of Kansara Bearings Pvt. Ltd. Vs. ACIT (2004) 270 ITR 235 (Raj.) and in case of Har Gopal Singh Prop. Gopal sweets (2005) 273 ITR 507 holding that once books of accounts of the assessee 9 ITA 175/JP/2013_ M/s Sumati Gems Vs. Addl.CIT

are rejected, past history of the assessee can be one reasonable method of estimating assessee's profit. However, the Hon'ble Rajasthan High Court in the same case of kansara Bearing Pvt. Ltd. Vs. ACIT 270 ITR 235 has held that last year's profit declared is the best guide to estimate the profit rate. Similar view has been taken by the Hon'ble ITAT, Jaipur Bench in the case of Cit Vs. Lakhani Shoes Ltd. 34 TW 32 and in the case of J.C. Sharma Vs. ITO 33 TW 80.

It is, therefore, prayed that G.P. rate of 9.25% applied by the ld CIT(A) in place of G.P. rate of 9.01% of immediately last year deserves to be reduced to 9.01% or any other reasonable relief may kindly be allowed."

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 the party

for verification.

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

perused the material available on the record. During the year under

consideration, the sale has gone down from 13.63 crores to 11.91

crores. It is general trend that when sales go down, the percentage of 10 ITA 175/JP/2013_ M/s Sumati Gems Vs. Addl.CIT

G.P. increases. However, in the instant case, the G.P. also has gone

down from 8.9% to 8.82%. In preceding year, the ITAT has confirmed

the addition on the basis of G.P. @ 9.01%. However, during the year,

the assessee has debited unverifiable purchases to the tune of Rs.

4,07,925/-, this Bench has applied 15% net profit on unverifiable

purchases, accordingly, the income is worked out at Rs. 61.189/- on

unverifiable purchases. However, in this case, the ld Assessing Officer

as well as ld CIT(A) observed that there were number of specific

defects in the books of account, which has not been challenged by the

assessee, therefore, we confirm the G.P. rate @ 9.2% including the

addition on account of unverifiable purchases, which will uphold the

addition to the extent of Rs. 4,54,157/-. Accordingly, the assessee's

appeal is allowed partly.

7. In the result, the assessee'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 11 ITA 175/JP/2013_ M/s Sumati Gems Vs. Addl.CIT

*Ranjan

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

1. vihykFkhZ@The Appellant- M/s Sumati Gems, Jaipur

2. izR;FkhZ@ The Respondent- The Addl.CIT, Range-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. 175/JP/2013) vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar