TMI Blog2015 (12) TMI 1122X X X X Extracts X X X X X X X X Extracts X X X X ..... de to the file of the AO to decide afresh - Decided in favour of revenue for for statistical purposes. G.P. addition - CIT(A) reducing the G.P. rate on reduced sale by giving weighted average price, not following AS-2 and giving telescoping benefit to the assessee - Held that:- Regarding the net profit decided by the Assessing Officer and partly confirmed by the ld CIT(A), the ld Assessing Officer made valuation of sale on approval memos on the basis of average method. However, the assessee chose to apply weighted average price method, it is a fact that in jewellery business, particularly diamonds are sold on the basis of colour, cut, clarity and carat, therefore, the ld Assessing Officer was not right to apply simple average method of valuation of sale made on approval memos. The assessee’s calculation of sale on the basis of approval memos is more scientific than the Assessing Officer. The ld CIT(A) had applied G.P. rate @ 20%. The assessee has shown G.P. rate on the basis of regular books of account @ 18.44% as mentioned by the Assessing Officer on page 2 of the assessment order. Therefore, the GP applied by the ld CIT(A) is also reasonable. Further the ld CIT(A) has allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. (vii) telescoping the profit arising and taxable in A.Y. 2004- 05 in accordance with mercantile system of accounting, with the unexplained investment in the excess stock surrendered in the year of survey i.e. A.Y. 2006-07, especially in the view of the fact that only the unexplained investment part comprised in the gross unrecorded sales price in earlier years have been taxed as excess unexplained stock surrendered in A.Y. 2006-07. 2. The 1st ground of revenue s appeal is against disallowance of 25% of unverifiable purchases. The ld Assessing Officer observed that the assessee is in trading of precious and semi precious stones. The firm had filed return on 01/11/2004 declaring total income at ₹ 35,110/-. The assessment was completed U/s 148/143(3) of the Income Tax Act, 1961 (in short the Act). The Assessing Officer found that the assessee had claimed purchases of precious and semi precious stones aggregating to ₹ 45,32,888/- including purchases of ₹ 43,58,897/- made from various local parties. As per information available with the department, through the surveys conducted by the DI (Inv) Wing and other authorities of the department, reportedly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1,16.85,007 ( 63,13,050 + 53,71,957) by holding that the consistent stand of the Hon ble ITAT, Jaipur Bench regarding the past history of the assessee being the best guide for estimating the GP income of the assessee, a GP rate of 20% appears to be reasonable. The assessee had accepted the G.P. rate of 19% estimated by the ld CIT(A) in the subsequent assessment year i.e. A.Y. 2005-06 as reasonable. Though it is higher than what has been reflected in the past year by the appellant and estimated by ld CIT(A) in the subsequent assessment year. He further held that reasonable in order to cover any extra profit that may have been made by the appellant on account of the clarity and colour of the gem stones not mentioned in the approval memos. This gives a G.P. of ₹ 23,37,001/- after giving a set off of the G.P. already shown at ₹ 11,64,162/-. It results in confirmation of a total net addition to the income of the assessee of ₹ 11,72,840/- instead of the total G.P. addition made by the A.O. of ₹ 75,62,705/- comprising of ₹ 4,50,663/- (on account of unverifiable purchases) and ₹ 71,12,042/- (as G.P. on unrecorded sales). 4. The ld. DR is heard who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisional estimation, the value of the goods reflected on the approval memos was estimated at ₹ 26,23,520/- in respect of the items which could be valued on provisional basis. The assessee was given a reasonable opportunity to furnish the valuation of sale price of goods reflected on approval memos. The assessee had submitted valuation vide letter dated 24/11/2011 who had valued the goods reflected in approval memos at ₹ 11,78,674/-. The ld Assessing Officer had exercised to ascertain the sale price on the basis of impounded documents. As per impounded documents Annex.- 1,2 and 16 which are the invoices issued by the assessee to various parties in respect of the goods actually sold to them. All the items and its rates reflected on Annex-1, 2 and 16 were inventorised. Various types of coloured stones sold by the assessee was identified. It was found that then rates are not uniform, for the apparent reasons that the rates of coloured stones depend on colour, size, transparency, designs etc.. The Assessing Officer applied simple average price, which is based on the total of the rate of each stone divided by total number of stones, was worked out as per chart-1. The simple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,2, and 16 only, which contain only limited Invoices pertaining to A.Y. 2004-05. In this regard, the assessee was provided with the chart containing the entries of sales reflected in Annexure-1, Annexure-2 and Annexure-16, which were impounded during the survey proceedings. He was required to examine the same and to file objections with documentary evidence. Assessee could have prepared a parallel chart incorporating entries of all invoices pertaining to the period from 01/4/2004 to 31/3/2004 so as to substantiate its claim. In the absence of any documentary support to substantiate its claim, objection in this regard is rejected. (4) Weighted average rate should be considered instead of simple average rates applied by the A.O. for working out the sale price of the goods covered by Approval Memos (Annexures 22 to 24). Assessee s argument in this regard has no legal sanctity/support and support of accounting principles/guidelines. In the case of valuation of stock/closing stock, assessee s argument may carry weight. In that case it will have no impact on the total income that may accrue to the assessee on sales of such stock. If closing stock is valued by adoptin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising from the Approval Memo and then set off of such gross profit arrived should be allowed against the excess stock found during the course of survey; This objection of assessee has also been considered and effect is given in working out the gross profit arising from the sale of goods covered by Approval memo. After considering the assessee s reply the ld Assessing Officer held that argument with regard to valuation of the Beads/Drops/Lines etc. carried out weight. It was gathered that Beads/Drops/Lines were inferior in quality as compared to the cut and polished colour stones. Therefore, the sale of the goods reflected on the Approval memos was worked out by the Assessing Officer after considering the assessee s argument that Beads/Drops/Lines coloured stones had been segregated/isolated and valued separately as per chart category-1, which was as per Annexure- R/1 to the order of the Assessing Officer, which has been reproduced on page 10 of the assessment order. The ld Assessing Officer worked out sale price of the goods reflected on the approval memo. He further observed that the Beads/Drops/Lines of respective coloured stones had been segregated and isolated from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rused the order of the AO and the submissions of the AR. It is seen that the assessee was unable to rebut the onus of proving the genuineness of the transactions of purchases in the cases where sufficient evidence had been gathered and placed on record by the Department. It has been the consistent stand of the Hon ble ITAT, Jaipur Bench to consider the bogus purchases to be sufficient defect for invoking provisions of Section 145(3) in the case of jewellers. Given the fact of the case of the assessee, evidence gathered by the Department and the decisions of the Hon ble ITAT, Jaipur Bench on similar facts, the decision of the AO to reject the books of account of the assessee U/s 145(3) is upheld. 4.4 Regarding estimation of G.P. by disallowing 25% of the bogus purchases it is seen that the A.O. has not brought on record any evidence to show that the purchase bills were inflated by 25%. It has consistently been held by the Hon ble ITAT, Jaipur Bench that the past history of the case of the assessee is the best guide for estimation of the G.P. of the assessee as they have placed reliance on judicial pronouncement of the Jurisdictional High Court in the case of Gotan Khanij Udyog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 601 to 614 are for 04/01/2003 to 17/08/2003. Approval memos not co-related to specific exhibition. The finding of fact of the Hon ble ITAT as reproduced above clearly supports the finding that these approval memos were sales made out of course by the appellant as there is no evidence available on record to prove otherwise. 3) The next contention of the appellant is that the approval memos issued in favour of customers may be taken as sales and the approval memos where the name of the partner of the concern or the name of the staff is mentioned may not be presumed to have been sold because these goods were taken for display in exhibitions or for marketing at other stations. If any sales materialized the same was duly recorded in the books. Once again the appellant has failed to get the requisite verification done vis a vis the stock taken as per these approval memos by the partner of the firm or staff. The sale bills or entries in the books of accounts could not be correlated either. It is unlikely that no sales were effected during exhibitions. In the absence of any records for verification of the actual sales there appears to be no reason to give benefit of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer had adopted simple average rate on the basis of Annexure-1, 2 and 16, which contained only invoices for A.Y. 2004-05. The assessee had carried out the valuation of sale made through approval memos by applying the weighted average rate and worked out the sale at ₹ 53,71,557/- as against worked out by the Assessing Officer at ₹ 2,78,03,137/-. He differentiated the valuation made by the Assessing Officer and the assessee as under:- Category Value as per A.O. on the basis of simple average Value as per assessee on the basis of weighted average I 10,93,554/- 8,14,997/- II 2,62,54,218/- 41,01,595/- III 4,55,365/- 4,55,365/- Total 2,78,03,137/- 53,71,957/- He has drawn our attention on page No. 93 to 102 of the paper book and argued that the assessee has made valuation itemwise against the valuation made by the Assessing Officer, which is more near to accepted principle in the line of gems and je ..... X X X X Extracts X X X X X X X X Extracts X X X X
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