TMI Blog2021 (2) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... this ground and dismissed the ground raised by the assessee. Estimation of income - bogus purchases - rejection of books of accounts u/s. 145(3) on account of alleged unverifiable purchases - directing application of G.P. rate of 12% on declared turnover on this count - HELD THAT:- In view of difference in the circumstances, the results of this year i.e. A.Y. 2010-11 cannot be compared to the results of earlier year as the complete nature of business is changed from this year. In view of the above facts, the allegation of reducing profit by obtaining non-genuine bogus purchase bills is wrong and not sustainable. There is increase in total gross profit and thus results can be held as progressive and therefore, in such circumstances, no additions are called for. Even the Coordinate Bench of Jaipur ITAT in assessee's own case [ 2020 (5) TMI 481 - ITAT JAIPUR] having similar facts, deleted the entire addition confirmed by the ld. CIT(A). Therefore, keeping in view the above facts and circumstances and discussion, we are also of the view that the additions confirmed by the ld. CIT(A) by applying G.P. rate of 12% as against the declared G.P. rate of 9.34% is uncalled for an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Ld. CIT(A). 2. The hearing of the appeals was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. 3. Facts in brief are that the assessee is an Individual and engaged in export of gems jewellery after purchasing it from local market. The assessee carried on business in proprietorship under the name style of M/s. S. Naveen Jewellers. The assessee filed return of income declaring NIL income after claiming set of b/f losses. The return was processed u/s. 143 (1) of the Income Tax Act, 1961 (in short, the Act) and no notice u/s. 143 (2) of the Act was issued. Thereafter the A.O. initiated reassessment proceedings by issuance of notice u/s. 148 of the Act on 29-03-2017 after recording following reasons: As per information available with this office, it was noticed that a search and seizure action u/s. 132 of the I.T. Act, 1961 was carried out in the case of Sh. Rajendra Jain Group, Sh. Sanjay Choudhary Group and Sh. Dharmichand Jain Group on 03.10.2013. During the course of search and seizure operation, statements of Sh. Rajendra Jain and Sh. Surendra Jain, the key persons of the Rajendra Jain Group were recorded on oath wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO. I have also gone through the relevant pages in the paper book filed by the Ld. A/R. 9.2 It is seen that the AO has disallowed purchase of ₹ 2,90,10,843/- found to be unverifiable by invoking provisions of sec. 145(3) of the Act thereby rejecting books of accounts. The issue regarding unverifiable purchase has been decided by the Hon'ble ITAT, Jaipur and Hon'ble Rajasthan High Court wherein it was held that when purchases are unverifiable, income is to estimated and for estimation of income of the assessee, application of G.P. is the best course of action based on average G.P. rate on past history. 9.3 In this case the Authorized Representative filed a GP chart of 3 years. As per the same, the average G.P. rate comes to 15.73% which has come down to 9.34% in A.Y. 2010-11. The assessee contended that in earlier years he was exporting mainly coloured gem stones while in this year export is of diamond only wherein G.P. margin is much lesser as is commonly known in trade than that in coloured gem stones. It is thus contended that past year declared G.P. rates are not comparable with the G.P. rate declared in this year. The assessee filed details of purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The AO mechanically and blindly acted upon the information received from the Investigation Wing, Mumbai without applying his own mind to arrive at believe that income of the assessee has escaped assessment. For this, reliance is placed on the following cases:- 1. Sarthak Securities Co. (P) Ltd. Vs. ITO 329 ITR 0110 (Del.) (HC) decision dt. 18.10.2010. 2. Banke Bihari Properties Pvt. Ltd. Vs. ITO (2016) 46 CCH 0546 (Del.) (Trib.) decision dt. 22.04.2016. 3. M/s. Surbhi Minchem Pvt. Ltd. Vs. ITO order dt. 16.05.2014 in ITA No. 102 103/Jodh/2014. 4. Vinayak Shyam Enterprises Pvt. Ltd. Vs. ITO order dt. 21.05.2014 in ITA No. 104/Jodh/2014 5. CIT Vs. Kamdhenu Steel Alloys Ltd. Ors. (2012) 68 DTR 38 (Del.) (HC) He further submitted that where the AO acted mechanically on the information supplied by the Directorate of the IT (Inv.) about the alleged bogus/accommodation entries provided by certain individuals/companies, without applying his own mind, he was not justified in invoking jurisdiction u/s. 147. Hence, the reopening of assessment only at the instance of Investigation Wing, Mumbai and that too on vague reasons is illegal and bad in law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al pronouncement and rejected the objections filed by assessee. It is submitted that reopening of assessment on facts of the case is wrong and bad in law. The issue of notice u/s. 148 to assessee cannot be sustained in law. 7. On the contrary, the ld. DR has relied on the order of the A.O. 8. We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. From the facts of the present case, we noticed that the case was reopened on the basis of information received by the A.O. regarding search operation conducted in the case of Jain Group of companies and information of which was available to the A.O. In the present proceedings, although, the ld. AR had challenged the reopening on the basis of the extract of statement of Shri Praveen Kumar Jain and submitted that there were no reasons to believe and the A.O. reopened the case and the A.O. had simply formed an opinion without bringing on record any corroborate evidence. According to the ld. AR, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney received from bogus sources lacking genuineness, creditworthiness, genuine identity, which fall within the purview of section 68. [Para 14]. It is true that the reasons recorded or the material available on record must have nexus to the subjective opinion formed by the Assessing Officer regarding the escapement of the income but then, while recording the reasons for belief formed, the Assessing Officer is not required to finally ascertain the factum of escapement of the tax and it is sufficient that the Assessing Officer had cause or justification to know or suppose that income had escaped assessment. It is also well settled the sufficiently and adequacy of the reasons which have led to formation of a belief by the Assessing Officer that the income has escaped the assessment cannot be examined by the Court (Para 16) . 6.4 In view of the discussion as above, the Assessing Officer had specific information based on which after due recording of reasons and approval, the assessment has been reopened. The action of the Assessing Officer u/s. 147 is upheld. Ground of appeal is dismissed. 9. After having considered the entire facts of the present case, we are also of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her wrong and has erred in law in rejecting books of accounts of the appellant u/s. 145 of the I.T. Act, 1961 and in confirming an addition of ₹ 41,23,468/- to the declared income of the appellant by applying G.P. rate of 12.00% on declared turnover. The Ld. A.O. on the ground that information was received from investigation Wing of the department at Mumbai that during the course of search operation carried out by Investigation Wing of the Department in case of Rajendra Jain group Mumbai on 3-10-2013 it is revealed from documents and evidences:- From the documents and evidences found during the search, it has been established that the assessee Shri Sunder Das Sonkia, Prop. M/s. S. Naveen Jewellers also arranged accommodation entry from Sh. Rajendra Jain group and obtained bogus purchase bills of ₹ 11,60,43,473/- from M/s. AVI Exports, M/s. Aadi Impex, M/s. Sun Diam P. Ltd., M/s. Kalash Enterprises the paper concern of Rajendra Jain group which are treated as bogus and non-genuine. In this connection it is submitted that in course of assessment proceedings the assessee company produced complete details of purchases effected from the said party which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Jatin Hariyani (2007) XXXVII T.W. 116 in case of Vaibhav Gems Ltd.; Vivek Kala Vs. ACIT (2007) XXXVIII T.W. 65 S.M. Company Vs. ACIT (2007) XXXVIII T.W. 236, Euro Jewels Vs. ACIT (2008) XXXIX T.W. 105 has upheld the above legal views and purchases supported with similar documents as furnished by assessee in assessment proceedings were held as genuine and not bogus. The Ld. A.O. for making disallowance of 25% of said alleged purchases of ₹ 11,60,43,873/- relied on judgement in case of Sanjay Oil Cake Industries. The judgement of Sanjay Oil Cake Industries Vs. CIT (2008) 10 DTR 153 (Guj.) is not applicable. In this connection it is submitted that the facts of the said case are quite different from the facts of the party from whom assessee made purchases. These are as under:- Facts in case of Sanjay Oil Cake Industries Facts of the parties from whom assessee made purchases (i) It was found that parties were not traceable only bills and sales tax No. were furnished. Parties are traceable as they besides having sales tax No. hold PAN they filed regular I.T. Returns gave d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Diamond Stones Studded jewellery 2,54,77,175/- 2,53,28,369/- 25,47,717/- 50,66,543/- 10.00% 20.00% In appeal Hon ble ITAT accepted the declared G.P. rate of 10% vide order dated 15-04- 2020 in Appeal No. 1126/JP/2020 2010-11 Diamond Stones Studded jewellery 14,54,88,165/- 97,94,075/- 1,29,33,991 15,26409/- 8.92% 15.59% It is further submitted that export of assessee upto A.Y. 2008-09 was only of colour stones precious or semi precious. However from A.Y. 2009-10 it started shifting to business of diamonds and in that year the export turnover was of colour stones precious or semi precious and diamonds. But in A.Y. 2010-11 the export sale is of mainly diamonds and therefore the export sale jumped to ₹ 15,92,82,240/-. As it is commonly known that the profit margin in diamond is much lesser than in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention to the documents submitted during the course of assessment proceedings, which are in the shape of purchase invoice received from the party, VAT Registration No. of party under MVAT Act, permanent account No. of party under I.T. Act, payments having been made by account payee cheques which stood debited in the Bank account of assessee company and credited in Bank A/c of seller party, confirmation from party confirming the purchase transaction etc. It was submitted by the ld. AR that the assessee had discharged the initial burden castled on him and relied on various judgements. The assessee further submitted that alleged statements made on behalf of alleged concerns cannot be relied and used in case of assessee and for this purpose he relied on judgement in case of S.P. Agarwalla Alias Sukhdev Prasad Agarwala Vs. ITO (1983) 140 ITR 1010 (Cal) wherein it was held that mere confusion statement by a third party that he was a mere name lender in transaction without naming the assessee would not be sufficient to hold that same transaction as bogus. We further found in the present case that the assessee had discharged the initial burden castled upon it to prove the genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that the amounts were credited on account of cheques of the assessee and they were being withdrawn by some unknown person No such facts were brought on record in this case. whose address or whereabouts could not be known. Apart from above, we noticed that the assessee has also relied upon the decision in the case of CIT Vs. Sathya Narayan P. Rathi (2013) 351 ITR 350 the Hon'ble Court noticed that the assessee was not able to prove the purchases to the extent of ₹ 61.40 lakhs, the Assessing Officer disallowed the entire amount, but in first appeal it was felt that the profit element therefrom alone could be assessed, so that only 30 per cent of such purchases amounting to ₹ 18.42 lakhs was taxed. The Tribunal reduced the percentage of possible overstatement of purchases to 12.5 per cent. The Revenue came in appeal to the High Court on the plea that the entire amount should have been treated as bogus purchase. The High Court pointed out that it was found by the Tribunal that the stock details indicated that the assessee could not have made the sales, which were accounted in the books witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the Hon'ble High Court. On the contrary in the case of the assessee the AO not given any finding of inflated purchases by the assessee but doubted the very transactions of purchases due to non production of these parties before the AO. The AO has not given the finding that the prices of the goods was inflated by the assessee but the AO doubted the genuineness of the purchases on the ground that the suppliers were found to be accommodation entries providers. When the AO rejected the book results u/s. 145 (3) of the Act, then the AO after rejection of the books of account can proceed to make the assessment on the basis of best judgement instead of resorting make the addition to the book results. Accordingly, in the facts and circumstances of the case and in view of the decision of this Tribunal in assessee's own case for A.Y. 2006-07 we do not find any error or illegality in the orders of the Ld. CIT(A) in restricting the addition to the average GP rate based on the past history. Hence, the grounds raised in the Revenue appeals are rejected being without any substance or merits. Accordingly, in view of the above facts and circumstances of the case and the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared GP rate 14.99% is not discernable from the order of the ld. CIT(A) where he has only stated that purchases to the tune of ₹ 2,11,15,458/- were found bogus/unverifiable which constitute 50% of total purchases. Further, he has not taken into consideration the fact that the assessee has started diamond trading business during the year under consideration wherein he has disclosed gross profit rate of 10%. Given that the assessee has disclosed gross profit rate of 10% in respect of diamond trading which is stated to be pretty robust as per industry standards and in respect of trading of semi precious stone and studded jewellery, he has disclosed a gross profit rate of 20% which is better than the average gross profit rate of last three assessment years, in the facts and circumstances of the present case, we find that even where the books of accounts have been rejected, there is no basis for making trading addition in the hands of the assessee. In this regard, reference can be drawn to the decision of Hon'ble of Rajasthan High Court in case of CIT vs Gotan Lime Khanij Udhyog (2002) 256 ITR 243 wherein it was held as under: 3. We have perused the statement of case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antile system of accounting regularly employed by the assessee. Thus, for the purpose of computing income on the basis of method of accounting adopted by the assessee, the same is confined to maintenance of accounts on cash basis or mercantile system of accounting, i.e., to say, on accrual basis. No other system, even if employed regularly by the assessee, is acceptable for computing the income as per the provisions of the Act. However, this provision ipso facto does not mean that rejection of books of account of an assessee must yield to different conclusion in the computation of income as returned by the assessee on the basis of accounts made by him employing any other method of accounting. 5. Be that as it may, the provision which was in force in the accounting period relevant to assessment year in question envisaged that where the accounts are correct and complete to the satisfaction of the Assessing Officer but the method employed is such that in the opinion of the Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing Officer may determine. It also envisaged that where no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that merely changing the basis or method of arriving at end-result of working out the computation of taxable income under the Act, necessarily does not result in devising at profits or gains from business or other sources different from one returned by the assessee, where he has returned his income, which is different from the result reached by the assessee as per method of accounting employed by him, by adopting different basis by the assessing authority. 6. In light of aforesaid discussions and respectfully following the decisions referred supra, the addition of ₹ 21,65,807/- so confirmed by the ld. CIT(A) is hereby directed to be deleted and the ground of appeal so taken by the assessee is allowed. 14. After having gone through the decision of the Coordinate Bench in assessee's own case, we found that turnover and trading results of the assessee for the last three years are as under: A.Y. Turnover Gross profit G.P. rate Remarks 2008-09 (Only stones) 1,88,54,584 25, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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