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2015 (12) TMI 1122 - ITAT JAIPUR

2015 (12) TMI 1122 - ITAT JAIPUR - TMI - Disallowance of 25% of the unverifiable purchases - Held that:- The issue under consideration relates to taxability of unverifiable purchases of precious and semi precious stones used in jewellery manufacturing. The Coordinate Bench of ITAT in a bunch of appeals, on similar issue, by consolidated order in the case of Anuj Kumar Varshney & Others vs. ITO (2015 (4) TMI 533 - ITAT JAIPUR) has held that 15% of unverifiable purchases shall be held to be income .....

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Therefore, following our earlier orders on the same lines, the issue raised in subject appeal is also accordingly set aside 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 l .....

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ntific 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 the set off against the excess stock found during the course of search, which is also reasonable on the ground that there is no evidence found during the course of surve .....

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eena, A.M. This is an appeal filed by the Revenue against the order dated 08/05/2012 passed by the learned CIT (A)-I, Jaipur for A.Y. 2004-05. The respective grounds of appeal are as under:- i not upholding the disallowance of 25% of the unverifiable purchases made by the A.O., especially in view of the fact that assessee had not linked its sales either as the sales of the year or to the closing stock declared in the books of account. (ii) reducing the gross profit to 20% as against 25.58% worke .....

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and rte of each of the correspondence goods mentioned in both the documents i.e. Approval memos (Annex 22 to 24) and sales invoices (Annexures 1,2, and 16). (v) not appreciating the fact that the principle laid down in AS-2 with reference to FiFO/weighted average method of valuation of inventory is not applicable for ascertaining the sale price of goods already sold. (vi) ignoring the crucial fact that for borrowing the principle of FIFO for the purpose of valuation of the inventory, proper stoc .....

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ed 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 Offic .....

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goods mentioned in the bills issued by them. It is found that the assessee has claimed purchases of ₹ 18,02,655/- from the following parties: S. No. Name of supplier Address of supplier as furnished Amount Remark of postal authority 1 Adinath Gems 3613, MSB Ka Rasta, Johari Bazar, Jaipur. 1,24,409 Not existing 2 DJ Impex 1477, Jadiyon Ka Rasta, Cbhaura Rasta, Jaipur. 4,89,260 No firm exist 3 Esdire International 2305, Chandrawat House, Johari Bazar, Jaipur 1,51,131 Not Known 4 Govindam Jew .....

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purchased amount of ₹ 18,02,655 and made addition of ₹ 4,50,663/- and added back in the income of the assessee. 3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the learned CIT(A), who had deleted the addition made by the Assessing Officer by observing that the total sale of the assessee during the assessment year is determined at ₹ 1,16.85,007 ( 63,13,050 + 53,71,957) by holding that the consistent stand of the Hon ble ITAT, Jaip .....

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y 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 unverifiabl .....

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h of appeals, on similar issue, by consolidated order in the case of Anuj Kumar Varshney & Others vs. ITO (ITA No. 187/JP/2012 dated 22-10-2014) has held that 15% of unverifiable purchases shall be held to be income of the assessee from undisclosed sources in the relevant years. It is also brought to our notice that both Revenue and assessee have gone in appeal before Hon ble Rajasthan High Court against this bunch of orders. In similar cases, to avoid multiplicity of appeals, this Bench has .....

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ter giving adequate opportunity of being heard to the parties. Thus the appeal of the Revenue is allowed for statistical purposes. 7. Grounds No. (ii) to (vii) of the appeal are against reducing the G.P. rate on reduced sale by giving weighted average price, not following AS-2 and giving telescoping benefit to the assessee. The ld Assessing Officer observed that a survey U/s 133A of the Act was carried on 18/8/2005. During the course of survey, the books of account and loose papers impounded as .....

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isional 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 .....

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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 average rate of stone so worked out was assigned to the goods covered by the approval memos. The total sale price of the goods reflected on the approval memos was accordingly arrived at ₹ 3,58,83,753/- as per Annexure-2. The assessee was provided copy of chart-1 and chart-2 for comment during th .....

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as not adduced any documents before wherefrom it could be inferred that the goods mentioned in the Approval memos have been either included in the sales of assessee or it has been received back in the stock of the assessee. Further, there is no ledger account to account for the transactions took place through the Approval memos. Assessee s argument is baseless and mis-leading and hence rejected. (2) The assessee s 2nd argument is that there is no explanation for the difference between the valuat .....

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corded U/s 147 that there are other items for which the rate is to be ascertained from the purchase/sale bills of the assessee. Therefore, the figure of ₹ 26,23,250/- gave the A.O. to form a belief that income chargeable to tax has escaped assessment. Exact quantum of income escaped is to be worked out on the basis of examination of the documents in the light of the explanations that may be provided by the assessee. Assessee s argument in this regard also do not carry any weight. (3) For a .....

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f 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 .....

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he goods admittedly sold through Approval Memo are identifiable. Considering assessee s objection with regard to the sale price of Beads/Drops/Lines, which were included for working out the average price has been isolated and excluded from the quantity of cut and polished stones and both the categories have been valued separately. The value so arrived is very closer to the value of these items. The valuation adopting the weighted average method gives a very absurd result as is apparent from the .....

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n the cut/polished stones and other drops/beads/lines. Same average rates has been adopted for valuing regular quality/size of the precious/semi precious stones and its Beads/Drops/Lines. He has argued that Beads/Drops/Lines are of inferior quality and it has very nominal value as compared to the regular quality of precious/semi precious stones. This objection appears to carry weight and hence it is considered in the following paragraph. (6) If the goods reflected in the Approval Memos are value .....

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s mentioned in the following paragraphs. (7) G.P. alone should be applied for computing the income arising 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 wi .....

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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 the list of goods covered by the approval memos in a chart which was attached with the assessment order by him as Annexure M/1. The sale price was computed by adopting a simple average rate worked out in Annexur .....

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te, the sale price of the cut/polished colour stones reflected in the approval memos identified as Annexure-22 to 24 in survey proceedings comes to ₹ 2,62,54,218/-. The third category of goods were not identifiable with the goods in any of the sale invoices impounded, its value has been adopted at ₹ 4,55,365/- as communicated by the assessee vide its letter dated 12/12/2011. In this way the total value of goods reflected in the approval memo was ₹ 2,78,03,137/- is against ͅ .....

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ad not allowed set off of excess stock disclosed by the assessee during the course of survey in subsequent year against this profit on the ground that the assessee has money in rotation in unaccounted purchasing and selling the same which has been found in form of excess stock during the course of survey. Accordingly he made trading addition of ₹ 71,12,042/-. 8. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had deleted the .....

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e 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 broug .....

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18.35% on total sales of ₹ 56,71,300/-. During this A.Y. the sales as reflected in the books of accounts have increased to ₹ 63,13,050/- and a G.P. rate of 18.44% is declared. The finding regarding the estimation of the G.P. rate is given while deciding the second ground of appeal 8.1 Regarding profit estimated by the Assessing Officer on unaccounted sale through approval memos, the ld CIT(A) has held as under:- 5.4 I have carefully perused the order of the AO and the submissions of .....

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acceptable because he has not been able to get the submission verified either at the assessment stage or during appellate proceedings. If these approval memos were merely sent for exhibition then the outgoing should have been reflected in the stock register and so also when they came back in the stock of the assessee they should have been shown in the stock register of the appellant and so would have been subject to verification. Similarly, the appellant has consistently failed to correlate the .....

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ble Bench has given a specific finding as follows:- There is no evidence that such approval memos are for the items taken for exhibition. No evidences filed. One has to appreciate the evidence on the basis of human probability. Approval memos front 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 .....

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nce 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 doubt to the appellant in view of the observations of the Hon ble ITAT as .....

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ess of gems and precious and semi precious stones the value of items is dependent upon the size, quality and purity of the stone. It has further been submitted that weighted average should be taken for determining the sale price. This average has been worked out at ₹ 53,71,957/-. I concur with this submission of the AR since the value of gems depends on carats (weight), clarity and colour. In the case of the assessee the approval memos do not contain details regarding colour or clarity pro .....

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e sale made through approval memos in place of simple average method adopted by the ld Assessing Officer, which is reasonable and accepted in the line of business, therefore, order of the ld Assessing Officer may be confirmed. 10. At the outset, the ld AR of the assessee has reiterated the arguments made before the ld CIT(A) and further argued that the approval memo were nothing but the goods carried by the assessee for displaying sales to customer on approval basis which has been received back .....

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al 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 a .....

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