Sunil Kumar Malani , 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. 874/JP/2011 fu/kZkj.k o"kZ@Assessment Year : 2007-08

Sunil Kumar Malani, 7-JHA-9, cuke Income Tax Officer, Jawahar Nagar, Jaipur. Vs. Ward-6(1), Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADGPM 6988 A vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri S.L. Poddar (Adv) jktLo dh vksj ls@ Revenue by : Shri Rajesh Ojha (JCIT)

lquokbZ dh rkjh[k@ Date of Hearing : 24/03/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 17/04/2015

vkns'k@ ORDER

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

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

13/09/2011 passed by the learned CIT (A)-II, Jaipur for A.Y. 2007-08

The effective grounds of appeal are as under:-

"1 Under the facts and circumstances of the case the learned CIT(A) has erred in confirming the addition of Rs. 2,18,789/- on the basis of alleged bogus purchases from the various parties by the assessee 2 ITA 874/JP/2011_ Sunil Kumar Malani Vs. ITO

by invoking the provisions of section 145(3) of the IT Act, 1961.

2. Under the facts and circumstances of the case the learned CIT(A) has erred in confirming the disallowance of Rs. 60,482/- on account of traveling expense and Rs. 6,690/- on account of telephone expenses."

2. The first ground of appeal is against confirming the addition of

Rs. 2,18,789/- on the basis of bogus purchases from the various

parties. The ld Assessing Officer observed that the assessee is engaged

in the business of trading and export of previous and semi previous

stones. The assessee is running his business in the name and style of

M/s Malani Gems & Jewels. The assessee had filed its return of income

on 29/10/2007 declaring total income of Rs. 4,13,500/-. During the year

under consideration, the assessee had shown total sales of Rs.

2,30,19,184/- and gross profit of Rs. 26,41,337/- giving G.P. rate of

11.47%. The assessee was asked to furnish the comparative G.P. chart

of last three assessment year. The assessee had filed the chart, which

is reproduced at the assessment order. During the year under

consideration, the assessee had made total purchases of Rs.

1,90,98,469/-. The assessee was asked to furnish the confirmation of

the persons from whom purchases were made. Letters U/s 133(6) of

the Act were issued to the parties named in the assessment order, but 3 ITA 874/JP/2011_ Sunil Kumar Malani Vs. ITO

they were returned back by the post authorities with remarks that "diye

gaye pate par is naam ka koi vyakti nahi rahta hai". The department

had also conducted search U/s 132 of the Income Tax Act, 1961 (in

short the Act) in cases of Motisons, Ravi Haldia and M/s Sanjiv

Prakashan. During the course of search and other enquiries, it was

found that these parties were indulged in issuing bogus sale hills

without actual delivery of goods. In this case, the name of the parties

from whom the bogus purchases were made are as under:-

1. M/s Lotus Impex Rs. 5,53,365/-

2. M/s gem Export Rs. 2,19,500/-

3. M/s Rahul gems Rs. 30,400/-

4. M/s Bagda Gems Rs. 51,400/-

5. M/s Rajat gems Rs. 20,492/-

Total Rs. 8,75,157/-

The ld Assessing Officer after considering the assessee's reply and

relying upon the decision of the Hon'ble ITAT, Jaipur Bench in the case

of Sh. Kishan Malpani (ITA No. 1045/JP/1997) dated 29/06/2004 and

M/s Kanchwala Gems Vs. JCIT dated 10/12/2003 reported in tax world,

February, 2004 page 77, 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 160 {10 DTR (Guj)153 and M/s Vijay Proteins Ltd.

Vs. ACIT 58 ITD 426 (Ahd.), he disallowed 25% of unverifiable

4 ITA 874/JP/2011_ Sunil Kumar Malani Vs. ITO

purchases of Rs. 8,75,157/- and made addition of Rs. 2,18,789/- to the

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 dismissed the assessee's appeal by observing that the assessee

failed to establish such purchases, summons issued U/s 131 of the Act

through ward Inspector remained uncomplied as due to non existence,

they could not be served on the purchasers. 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 and the ld CIT(A) also confirmed

the disallowance made by the Assessing Officer @ 25% on unverifiable

purchases.

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

assessee has reiterated the arguments made before the ld. CIT(A) and

submitted that the action of ld A.O. is almost mechanical in holding that

the aforesaid parties were issuing only bills. He failed to appreciate the

evidences furnished by the assessee namely:-

5 ITA 874/JP/2011_ Sunil Kumar Malani Vs. ITO

(i) Complete name and address of the party has been

furnished. The department has all the power to trace out the party and

enforce the attendance.

(ii) Confirmations have been filed before the ld. Assessing Officer.

(iii) Copy of purchase vouchers has been furnished.

(iv) The parties have got sales tax registration number.

(v) PAN number has been provided.

(vi) Copies of relevant bank accounts were furnished. He has also submitted that by referring to postal authorities, the A.O.

has held that the aforesaid five parties were not existing, but on the

other hand, he has referred to the departmental action by the

Investigation Wing in the case of Moti Sons, Ravi Randiya and Sanjeev

Prakashan and to the surveys conducted by the BCTT Wing and has

held that these parties were only issuing bills. If a party does not exist,

it cannot issue any bill. If the bills are found to be issued by these

parties, it means that these were existing. Thus, the postal report is not

dependable. No enquiries worth the name were conducted by him. He

was mislead by the postal remarks. The parties exist and the assessee

has produced evidence of purchases from them. Therefore, the addition

made by the ld Assessing Officer deserves to be deleted. He also relied

on the following case laws.

6 ITA 874/JP/2011_ Sunil Kumar Malani Vs. ITO

(i) Sambhav Gems Ltd. Vs. ACIT (2006) XXXV TW 254 (ITAT Jaipur)

(ii) Parasmal Jain Vs. DCIT in ITA No. 40/JP/2005 (ITAT) Jaipur.

(iii) Prakash Chand Vijay in ITA No. 26/JP/2005 (ITAT Jaipur).

(iv) Sagar Mal Daga & Co. Vs. ITO (2004) XXXII Tax World 40 (ITAT Jaipur).

(v) M/s Om Metals & Minerals Ltd. vs. JCIT (2004) XXXII IW 54 (ITAT Jaipur).

(vi) Shiv trading Co. Vs. ITO 30 Tax World, 117 (Jaipur)

(vii) CIT vs. Krishna Malpani 32 Taxworld 122 (JP)

(viii) ACIT s. Gem Stone 26 Taxworld 511 (JP)

(ix) Radhamohan Agarwal vs. ITO 30 Taxworld 190 (JP).

5. At the outset, the Ld. DR supported the order of the learned

CIT(A) and argued that the learned CIT(A) 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 7 ITA 874/JP/2011_ Sunil Kumar Malani Vs. ITO

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.

7. The second ground of assessee's appeal is against confirming the

disallowance of Rs. 60,482/- on account of traveling expense and Rs.

6,690/- on account of telephone expenses. The ld Assessing Officer has

observed that the assessee has debited Rs. 66,909/- on account of

telephone expenses. The personal use of telephone cannot be ruled

out. It will be fair and reasonable to disallow 20% of these expenses for

personal use. Therefore, he disallowed Rs. 13,381/- and added back in

the total income of the assessee. The assessee had also debited Rs.

6,04,820/- on account of travelling expenses. The assessee was asked

to furnish the details of these expenses. On verification of details filed,

it was clear that these expenses paid in cash with self made vouchers.

The personal traveling cannot be ruled out. Therefore, he disallowed

10% out of traveling expenses totaling to Rs. 60,482/- and added back

in the income of the assessee.

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

assessee carried the matter before the Ld. CIT(A), who had partly 8 ITA 874/JP/2011_ Sunil Kumar Malani Vs. ITO

allowed the appeal by observing that the A.O. has disallowed 20% of

telephone expenses, which appears to be on higher side. Accordingly,

the disallowance out of these expenses is restricted to 10%. With

regard to traveling expenses, the ld. CIT(A) has held that the self made

vouchers for traveling expenses did not contain the complete details

and supporting, therefore, the Assessing Officer was not in a position to

carry out any verification. The alleged payments were made in cash,

therefore, these expenses were indeed not proven to verification,

therefore, he confirmed the disallowance @ 10% regarding travelling

expenses.

9. Now the assessee is in appeal before us. The ld. AR for the

assessee has submitted that the assessee has claimed telephone

expenses of Rs. 66,096/- and traveling expenses of Rs. 6,04,820/- in

the profit & loss account. Out of this the ld. A.O. has disallowed a sum

of Rs. 13,381/- and Rs. 60,482/-. The Ld. A.O. has disallowed the

expenditure on the ground that personal use cannot be ruled out. The

expenditure disallowed is 20% out of telephone expenses and 10% of

traveling expenses which is very excessive. lt is further submitted that

during the year under consideration the turnover of the assessee is of

Rs. 2,30,19,184/-. ln relation to this the percentage of expenditure is 9 ITA 874/JP/2011_ Sunil Kumar Malani Vs. ITO

just 0.29% and 2.62% respectively. The same is quite reasonable. As

the entire expenditure is fully vouched and the same is wholly and

exclusively for the purposes of the business, no disallowance was

required. The Ld. A.O. has disallowed a sum of Rs. 60,482/- out of

traveling expenses purely on the ground that personal element cannot

be ruled out and also that the vouchers were self made and payment

were made in cash. lt is submitted that the nature of expenditure is

such where payments are required to be made in cash and the

recipients do not carry any regular bill book such as auto-rikshaw wala,

car driver etc.. Further he has not pointed out any specific voucher

containing expenditure of personal nature. The expenditure has been

disallowed purely on surmises, no voucher was put to test. Even self

made vouchers cannot be doubted without verification. The

disallowance is based purely on generalization. Therefore, he prayed to

delete the addition made by the Assessing Officer and confirmed by the

ld CIT(A).

10. At the outset, the ld DR has vehemently supported the orders of

the lower authorities.

10 ITA 874/JP/2011_ Sunil Kumar Malani Vs. ITO

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

perused the material available on the record. It was admitted fact that

no call register for telephone expenses of Rs. 66,906/- was maintained

by the assessee, therefore, personal element could not be ruled out.

The disallowance on account of personal use of telephone was called

for since the assessee did not maintain the necessary records such as

telephone call register. The ld AR has merely submitted that these

expenses were incurred for business purposes. In absence of necessary

documents, the possibility of personal expenses could not be ruled out

and regarding travelling expenses, the payments were made in cash

and these expenses were indeed not prone to verification. Therefore,

we uphold the order of the Ld.CIT(A).

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

Order pronounced in the open court on 17/04/2015.

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 April, 2015

*Ranjan 11 ITA 874/JP/2011_ Sunil Kumar Malani Vs. ITO

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

1. vihykFkhZ@The Appellant- Sunil Kumar Malani, Jaipur

2. izR;FkhZ@ The Respondent- ITO, Ward 6(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. 874/JP/2011)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar