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TMI Blog2020 (10) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged unverifiable purchases of Rs. 11,84,063/- and thereby sustaining addition of Rs. 11,84,063/- made by the AO in the total income of assessee, which sustenance of disallowance and consequential addition of Rs. 11,84,063/- is most arbitrary, unjust and untenable in fact and in law and in the alternative excessive w.r.t facts and circumstances of the case. 2. Under the facts and circumstances of the case the learned CIT(A) erred in sustaining trading addition of Rs. 2,22,289/- (as separate trading addition sustained by the learned CIT(A) at Rs. 11,84,063/- by disallowing 100% of total unverified purchases of Rs. 11,84,063/- is more than this trading addition of Rs. 2,22,289/- worked out by him by applying higher GP rate of 30% as against declared GP rate of 13.82% on sales of Rs. 13,73,963/- no separate trading addition of Rs. 2,22,289/- has been sustained by the learned CIT(A) on protective basis, which sustenance of trading addition of Rs. 2,22,289/- by the learned CIT(A) is most arbitrary, unjust, untenable and bad in fact and in law and in the alternative excessive with reference to facts and circumstances of the case." 4. During the course of hearing, the ld AR submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal observed that no separate addition for cash purchases/ purchases from unregistered dealers of Rs. 11,84,063/- is to be made. The Department filed appeal before the Hon'ble High Court against this order of Tribunal on the issues of excess stock and unverified purchases. The Hon'ble High Court answered the question of excess stock in favour of assessee and remitted back the matter relating to unverifiable purchases to the AO. 5. It was further submitted that in the set-aside proceedings, the AO vide the impugned assessment order dated 17.10.2018 applied the GP rate of 30% as against GP rate of 13.82% declared by the assessee and GP rate of 17% upheld by the Tribunal (in regard to appeal emanating from the assessment order dated 30.11.2009 passed u/s.153A r.w.s. 153B/143(3) of the I.T. Act, 1961) and consequentially made trading addition of Rs. 2,22,208/- and also made addition of Rs. 11,84,063/- being 100% of cash purchase/purchases from unregistered dealers of Rs. 11,84,063/-. In the second round of appellate proceedings, the learned CIT(Appeal) sustained the addition of Rs. 11,84,063/- being 100% of cash purchases/purchases from unregistered dealers but deleted the G. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are required and at the same time the assessee also requires different shapes and sizes of the stones and these are never available at one single place. Further the big dealers normally do not sell the goods in little volume. In these circumstances and to fulfill the commitments with the customers, the assessee had to purchase goods from petty dealers. This is not a peculiar feature of this business, but it is a regular practice in this trade. So the purchases from unregistered dealers and in cash should not be viewed otherwise. 11) That as regards payment made in cash the assessee's explanation is that the unregistered dealers as well as other persons related to this trade are almost illiterate or little educated . Most of the same did not have even Bank A/c and in order to maintain regularity of business the appellant was compelled to make the payment in cash. 12) That this is not the case of the A.O. that the assessee had made excessive payment while making purchases in cash. 13) That above all, the appellant can be said to have been guided by business expediency for making the payment in cash to the illiterate / little educated unregistered dealers. 14) That as submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenance by the learned CIT(A) of trading addition of Rs. 2,22,289/- on protective basis made by the AO by way of application of higher GP rate of 30% as against declared GP rate of 13.82% on sales of Rs. 13,73,963/-. The assessee's submissions in this regard are as under:- 1. To avoid repetition it is humbly prayed that the submissions made in para No. 1 to 12 in relation to Ground of appeal No.1 above may please be considered in respect of this ground of appeal No. 2 also. 2. That as submitted above the assessee deals in Gems and stones and in this line of business multiple businesses are started every year which gives a tough competition in the market. 3. That above all, the appellant can be said to have been guided by business expediency for making the payment in cash to the illiterate / little educated unregistered dealers. 4. Moreover there is no allegation of the AO that such and such receipts are not entered in books of account nor is there any allegation that such and such amount have been received by the assessee out of books nor is there any allegation that such and such expenditure have been incurred out of books and such and such expenditure is inflated. 5. Ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that as the addition on account of unverified purchase amounting to Rs. 2,96,016/- (25% of Rs. 11,84,063/-) is higher, no further addition on account of gross profit difference is required. In further appeal , the Hon'ble ITAT decided the above issue, thereby, the GP rate was adopted @ 17% and no separate addition on account of unverifiable purchase was sustained. The department preferred appeal before the Hon'ble High Court whereby following questions of law were raised: "D.B. Income Tax Appeal No. 204/12 admitted on 03.01.2014 1 Whether the Tribunal was justified in deleting the addition of Rs. 2,96,016/- made on account of unverifiable purchases by the Assessing Officer and confirmed by CIT(A), despite upholding the rejection of books of accounts u/s 145(3) of the Act? 2. Whether the Tribunal was justified in reversing the finding recorded by CIT(A) as well as Assessing Officer and thereby, despite confirming the rejection of books of accounts u/s 145(3), reducing the trading addition of Rs. 2,22,208/- to merely Rs. 43,673/- by applying gross profit rate of 17% as against 30%?" (ii) The Hon'ble High Court decided the above issue as under: "in that view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of unverified purchase or on account of gross profit difference. The said findings of the ld CIT(A) are not under challenge by the Revenue and have thus been accepted and even the assessee has not challenged the same before us. Thereafter, the ld CIT(A) has held that the addition worked out on the basis of bogus purchase is Rs. 11,84,063/- while on the basis of GP, it is Rs. 2,22,289/-and the higher of the two i.e. Rs. 11,84,063/- was upheld and the balance Rs. 2,22,289/- was deleted. The basis of sustaining the higher of the two additions as stated by the ld CIT(A) is that "right from first round of assessment proceedings to all the appellate stage, a consistent view was taken that higher of the additions on the basis of unverified purchase or on the basis of GP difference will finally be upheld". In this regard, we refer to the findings of the Coordinate Bench in the first round of appellate proceedings and note that the Coordinate Bench vide its order dated 19.12.2011 has held that since the books of accounts have been rejected and trading addition has been sustained (by directing to apply G.P rate of 17% as against 30% applied by the AO), no separate addition is requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Therefore, as submitted by both the parties, since facts and circumstances of these two cases are identical to facts and circumstances of the case in ITA No. 1349/JP/2018, our findings and directions contained therein shall apply mutatis mutandis to this appeal. Following the same, for A.Y 2004-05, the AO is directed to apply G.P rate of 15% and separate addition in respect of unverified purchases of Rs. 17,23,930/- is hereby deleted. ITA No. 1351/JP/2019 11. In ITA No. 1351/JP/2019 for A.Y 2008-09, we find that the matter is limited to estimation of gross profit rate after rejection of books of accounts u/s 145(3) of the Act and which has been subject matter of appeal before the Hon'ble High Court in the first round of appellate proceedings and the matter has been decided in favour of the department whereby the findings of the Tribunal have been reversed and the action of the AO in applying gross profit rate of 30% has been upheld and the matter has thus attained finality. Similar finding has been recorded by the ld CIT(A) which doesn't call for any interference and the same is upheld and the appeal of the assessee is dismissed. In the result, all the three appeals of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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