CLARITY GOLD P LTD., Jaipur v. DCIT, Jaipur

ITA 238/JPR/2011 | 2006-2007
Pronouncement Date: 23-09-2011 | Result: Dismissed

Appeal Details

RSA Number 23823114 RSA 2011
Bench Jaipur
Appeal Number ITA 238/JPR/2011
Duration Of Justice 6 month(s) 6 day(s)
Appellant CLARITY GOLD P LTD., Jaipur
Respondent DCIT, Jaipur
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 23-09-2011
Assessment Year 2006-2007
Appeal Filed On 17-03-2011
Judgment Text
1 ITA 238(2)-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 238/JP/2011 ASSTT. YEAR : 2006-07. M/S. CLARITY GOLD PVT. LTD. VS. THE DCIT CIRCLE -2 4 GANGA VIHAR SARDAR PATEL MARG JAIPUR. C-SCHEME JAIPUR. ITA NO. 289/JP/2011 ASSTT. YEAR : 2006-07. THE ACIT CENTRAL CIRCLE-1 VS. M/S. CLARITY GOLD PVT. LTD. JAIPUR. JAIPUR. (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SHRI J.K. RANKA & SHRI SIDDART H RANKA DEPARTMENT BY : SHRI VINOD JOHARI & SHRI SUNIL MATHUR DATE OF HEARING : 13.9.2011 DATE OF PRONOUNCEMENT : 23.9.2011 ORDER DATE OF ORDER : 23/09/2011. PER R.K. GUPTA J.M. THESE ARE TWO APPEALS BY ASSESSEE AND DEPARTMENT A GAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2006-07. 2. THE FIRST ISSUE IN APPEAL OF THE ASSESSEE IS AGA INST HOLDING THE PURCHASES MADE FROM 22 PARTIES AT RS. 5.40 CRORES OR ODD AS BOGUS. GROUND NO. 2 IS AGAINST UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT BY INVOKING PROVISION S OF SECTION 145(3). GROUND NO. 3 IS AGAINST SUSTAINING A TRADING ADDITION OF RS. 60 13 071/- AGAINST TRADING ADDITION OF RS. 2 1 04 93 279/- MADE BY AO. GROUND NO. 4 AND 5 ARE AGAINST CHARGING OF INTEREST UNDER SECTION 234B AND 234C RESPECTIVELY. 3. GROUND NO. 4 & 5 ARE STATED TO BE CONSEQUENTIAL IN NATURE THEREFORE THEY DO NOT REQUIRE ANY SEPARATE ADJUDICATION UPON. 4. THE DEPARTMENT IN ITS APPEAL IS OBJECTING IN RED UCING TRADING ADDITION MADE BY AO BY APPLYING 8.5% NP RATE AGAINST ADDITION MADE B Y AO @ 25% OF UNVERIFIABLE PURCHASES. 5. THE REMAINING GROUNDS IN THE APPEAL OF THE ASSES SEE AND THE GROUNDS OF APPEAL OF DEPARTMENT ARE INTER-RELATED THEREFORE THEY ARE B EING DISPOSED OFF TOGETHER. 6. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS DEALING IN PRECIOUS AND SEMI PRECIOUS STONES GOLD AND SILVER JEWELLERY. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT ASSESSEE HAS MADE PURCHASES OF RS. 5 4 0 47 180/- FROM 22 CONCERNS WHICH REMAINED UNVERIFIABLE AS ASSESSEE FAILED TO PRODUCE THESE PARTIES FOR VERIFICATION. THE AO NOTED THAT IN THE SEARCH CASE OF HALDIA GROUP AND S URVEY CONDUCTED BY BCTT WING OF THE DEPARTMENT IT WAS FOUND THAT A LARGE NUMBER OF BOGUS ENTITIES WERE CREATED FOR ISSUING ACCOMMODATION BILLS WITHOUT MAKING ANY ACTUAL PURCH ASE OR SALE. MOST OF THE PARTIES FROM WHOM THE PURCHASES MADE BY ASSESSEE REMAINED U NVERIFIED THEY WERE FOUND IN THE LIST OF SUCH BOGUS PARTIES. COPIES OF STATEMENT OF SHRI SHIKHAR CHAND LALWANI AND SHRI KAILASH CHAND KHANDELWAL CONNECTED TO AT LEAST SOME OF THE ABOVE MENTIONED CONCERNS WERE MADE AVAILABLE TO THE ASSESSEE BY WHICH IT WAS ADMITTED THAT THEY HAVE ISSUED BILLS WITHOUT SUPPLYING ANY MATERIAL. THOUGH ASSESSEE HAS FILED COMPLETE DETAILS OF PURCHASES INCLUDING PURCHASE BILLS THEIR ADDRESSES PAN AND PROOF OF PAYMENT THROUGH PROPER BANKING CHANNEL HOWEVER SINCE NONE OF THE PARTIES OUT OF 22 CONCERNS WERE FOUND AT THE 3 ADDRESSES GIVEN NOR ANY ASSESSEE PRODUCED BEFORE AO . THEREFORE THE AO PLACING RELIANCE ON THE DECISION OF TRIBUNAL IN CASE OF SHR I KISHAN MALPANI 32 TAX WORLD 122 INVOKED PROVISIONS OF SECTION 145(3) ON THE BASIS O F UNVERIFIABLE PURCHASES WHICH WAS HELD AS A DEFECT IN MAINTENANCE OF ACCOUNTS. AFTER REJECTING BOOKS OF ACCOUNT TO ESTIMATE G.P. THE AO HELD THAT GP HAS GONE DOWN FROM 12.73% TO 7.40%. RELYING ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SANJAY OIL CAKE INDUSTRIES VS. CIT 10 DTR 153 (GUJ.) AND DECISION OF AHMEDABAD B ENCH OF TRIBUNAL IN CASE OF M/S. VIJAY PROTEINS LTD. VS. ACIT 58 ITD 428 (AHD.) TH E AO DISALLOWED 25% OF UNVERIFIABLE PURCHASES AND MADE A TRADING ADDITION OF RS. 1.04 C RORES OR ODD. IT WAS CONTENDED BEFORE LD. CIT (A) THAT ASSESSEE HAS MAINTAINED REGULAR BO OKS OF ACCOUNT WHICH ARE AUDITED. SUPPLIERS S.T. NUMBER PAN AND TIN WERE FURNISHED . THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUE. COPIES OF BILLS WERE FILED. T HE GOODS PURCHASED WERE ENTERED IN STOCK REGISTER COPIES OF SUPPLIERS BANK ACCOUNT WE RE ALSO FILED ALONG WITH THEIR CONFIRMATIONS. PURCHASED GOODS WERE ALSO SOLD AS IT IS. ACCORDINGLY IT WAS SUBMITTED THAT AS ALL THE POSSIBLE EVIDENCES WERE SUBMITTED THE ASSESSEE HAS DISCHARGED ITS PRIMARY ONUS. DETAILED EXPLANATION WAS GIVEN TO EMPHASIZE THAT ALL THE PURCHASES WERE GENUINE. SUMMONS BEING NOT SERVED ON THESE PARTIES DOES NOT LEAD TO PRESUME THAT THE SAID PARTY DID NOT EXIST. IT WAS ALSO SUBMITTED THAT IT IS NOT THE DUTY AND APPLICATION OF ASSESSEE TO PROVE THE SOURCE OF SOURCE AS HELD IN VARIOUS CASE LAWS. THE AO HAS RELIED ON STATEMENTS OF SUCH PERSONS BUT OPPORTUNITY OF CROSS EXAMINING THEM WAS NOT PROVIDED. THERE IS NO SPECIFIC MATERIAL WITH THE AO REGARDING THESE PARTI ES AND AO HAS RELIED ON ONLY GENERAL OBSERVATIONS IN SOME OTHER CASES. REGARDING VALUATI ON OF STOCK IT WAS SUBMITTED THAT THERE IS NO CHANGE IN METHOD OR BASIS OF VALUATION. THE VALUATION WAS DONE AT THE END OF 4 THE YEAR AND ESTIMATED COST PRICE IS ARRIVED OF EAC H LOT ETC. AND ACCORDINGLY SUCH VALUATION IS PUT IN THE BOOKS OF ACCOUNT. RELIANCE WAS PLACED ON VARIOUS CASE LAWS MENTIONED IN THE WRITTEN SUBMISSIONS. THE LD. CIT (A) SENT THE EXPLANATION FILED BY ASSESSEE TO THE AO FOR HIS COMMENTS. HOWEVER NO RE MAND REPORT WAS RECEIVED FROM THE AO. AS NO FRESH EVIDENCE ALONG WITH WRITTEN SUBMIS SIONS WITHOUT WAITING FOR THE REMAND REPORT THE APPEAL OF THE ASSESSEE WAS DECID ED BY LD. CIT (A). 7. THE LD. COUNSEL OF THE ASSESSEE ALSO FILED SUBMI SSIONS SHOWING COMPARABLE G.P. CHART OF LAST THREE YEARS. FOR DECLINE IN G.P. VA RIOUS REASONS WERE GIVEN INCLUDING THE SUBSTANTIAL INCREASE IN SALES FROM RS. 14.26 CRORES TO RS. 54.66 CRORES. AS PER LIST THREE YEARS WEIGHTAGE AVERAGE G.P. CHART AVERAGE G.P. R ATE OF 8.28% WAS WORKED OUT. IT WAS ALSO SUBMITTED THAT IN ASSESSMENT YEAR 2005-06 UNDE R SIMILAR FACTS AND CIRCUMSTANCES THE TRIBUNAL HAS UPHELD ONLY TRADING ADDITION OF RS. 1 LAC. ACCORDINGLY RELIANCE WAS PLACED ON THE ORDER OF TRIBUNAL IN THE CASE OF ASSESSEE IT SELF. 7.1. AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE MATERIAL ON RECORD THE LD. CIT (A) NOTED THAT ASSESSEE HAS FAILED TO PRODUCE VARIO US PARTIES FOR VERIFICATION OF PURCHASES. IN SEPARATE SEARCHES/SURVEYS CONDUCTED BY THE DEPAR TMENT IT HAS BEEN ESTABLISHED THAT A LARGE NUMBER OF PAPER CONCERNS WERE CREATED TO ISSU E ONLY PURCHASE BILLS AND AFTER RECEIVING CERTAIN COMMISSION AND WITHOUT MAKING ACT UAL PURCHASE OR SALES THE NAMES OF SUCH SUPPLIERS APPEARED IN THE LIST OF SUCH BOGUS E NTITIES. IN ANY CASE BY NOT PRODUCING THE PARTIES FOR VERIFICATION THE ASSESSEE FAILED T O DISCHARGE ITS ONUS TO PROVE THE PURCHASES. HE FURTHER OBSERVED THAT BY SUBMITTING PAN TIN ETC. THE EXISTENCE OF THESE PARTIES CAN BE ESTABLISHED ONLY ON PAPERS. BY FURT HER OBSERVING THAT IN NUMBER OF CASES THE TRIBUNAL HAS HELD THAT APPLICATION OF SECTION 1 45(3) FOR REJECTION OF BOOKS OF ACCOUNT 5 IS CORRECT THEREFORE THE CIT (A) UPHOLD THE ORDER OF AO INVOKING PROVISIONS OF SECTION 145(3) AND REJECTED THE BOOKS OF ACCOUNT. THE LD. CIT (A) THEN DECIDED THE ISSUE ON MERIT. IT WAS NOTED BY LD. CIT (A) THAT IN CASE OF GEM PARADISE IN ITA NO. 700/JP/ AND IN LARGE NUMBER OF OTHER CASES THE TRIBUNAL HAS HELD T HAT FACTS OF THE CASE OF M/S. SANJAY OIL CAKE INDUSTRIES (SUPRA) AND M/S. VIJAY PROTEINS LTD . (SUPRA) ARE DIFFERENT AND SAME CANNOT BE APPLIED IN THE SIMILAR CASES OF GEM STONE S. IT WAS FURTHER OBSERVED THAT IN SIMILAR TYPE OF CASES THE TRIBUNAL CONSISTENTLY FOL LOWING PRACTICE OF APPLYING FAIR G.P. RATE RATHER THAN DISALLOWING 25% OF UNVERIFIABLE PURCHAS ES. THEREAFTER THE LD. CIT (A) NOTED THAT IN THE PRESENT CASE ON SALE OF RS. 54.66 CRORE S THE DECLARED G.P. RATE OF 7.40% WHICH IS LOWER THAN THE G.P. RATE OF 12.73% DECLARED IN T HE IMMEDIATELY PRECEDING YEAR. KEEPING IN MIND THE FACT THAT THE SALES HAVE GONE U P FROM RS. 14.26 CRORES TO RS. 54.66 CRORES AND THEREFORE THERE IS A REASONABLE CAUSE F OR DECLINING G.P. RATE IN A GRADUAL WAY. HOWEVER SINCE THERE WAS STIFF FALL IN G.P. OF MORE THAN 5%. THEREFORE TAKING INTO CONSIDERATION THE AVERAGE RATE OF THREE YEARS WHICH WAS OF 8.28% THE LD. CIT (A) DIRECTED THE AO TO APPLY 8.5% G.P. RATE. 8. AGAINST THIS FINDING OF LD. CIT (A) NOW BOTH AR E IN APPEAL HERE BEFORE THE TRIBUNAL. 9. THE LD. D/R HAS STRONGLY SUPPORTED THE ORDER OF AO. IT WAS FURTHER SUBMITTED THAT IN CASE GEMS AND JEWELLERY THE MAINTENANCE OF STOC K REGISTER QUALITY-WISE AND QUANTITY- WISE WHICH HAS NOT BEEN MAINTAINED BY THE ASSESSEE . THE AO HAS MADE A DETAILED ENQUIRY AND INVESTIGATION INTO THE CASE AND FOUND T HAT THE PURCHASES MADE FROM 22 PARTIES WERE BOGUS. IT WAS FURTHER SUBMITTED THAT IN CASE OF M/S. VINAYAK GEMS & JEWELLERS THE ASSESSEE HAS SHOWN PURCHASES OF MORE THAN RS. 90 LA CS WHEREAS AS PER INCOME-TAX RECORD 6 OF M/S. VINAYAK GEMS & JEWELLERS THERE WAS SALES S HOWN ABOUT RS. 18 LACS ONLY. THEREFORE IT IS AMPLY PROVED THAT ALL THE PURCHASE S SHOWN FROM 22 PARTIES WERE BOGUS AND AO WAS CORRECT IN DISALLOWING 25% OF SUCH BOGUS PURCHASES. 9.1. REGARDING THE DECISION OF TRIBUNAL FOR A.Y. 20 05-06 IT WAS SUBMITTED BY LD. D/R THAT FOR ASSESSMENT YEAR 2005-06 THERE WERE PURCHA SES OF ONLY RS. 39 LACS WHICH REMAINED UNVERIFIABLE. HOWEVER IN THE PRESENT CASE THERE WERE PURCHASES OF MORE THAN 5.40 CRORES WHICH REMAINED UNVERIFIABLE. THEREFORE THE FINDING OF TRIBUNAL FOR ASSESSMENT YEAR 2005-06 CANNOT BE APPLIED HERE. IT WAS FURTHER SUBMITTED THAT IF THE ADDITION MADE BY AO IS TAKEN INTO CONSIDERATION THE N IT WILL BE FOUND THAT ONLY 2.5% G.P. RATE IS INCREASED WHEREAS THE ASSESSEE HAS SHOWN ST IFF DECLINE IN G.P. RATE I.E. OF 5% APPROXIMATELY. THEREFORE ON THIS BASIS ALSO NO RE LIEF SHOULD BE GIVEN TO THE ASSESSEE. ACCORDINGLY IT WAS SUBMITTED THAT ORDER OF LD. CIT (A) IS LIABLE TO BE SET ASIDE AND ORDER OF AO IS LIABLE TO BE RESTORED. FURTHER LD. D/R ALS O FILED A COPY OF WRITTEN SUBMISSIONS. 10. THE LD. COUNSEL OF THE ASSESSEE ON THE OTHER SI DE REITERATED THE CONTENTION RAISED BEFORE LOWER AUTHORITIES. VARIOUS REASONS FOR DECL INE IN G.P. RATE WERE ALSO EXPLAINED. ONE OF THE REASONS EXPLAINED WAS THAT DUE TO LOWER DEMAND FROM USA THE ASSESSEE WAS FORCED TO SELL ITS ITEM ON LOWER PRICE. ON A QUERY FROM THE BENCH THAT WHAT EVIDENCE HAS BEEN FILED IN RESPECT TO DECLINE IN THE MARKET OF U SA THE LD. A/R FAIRLY CONCEDED THAT THERE IS NO EVIDENCE IN THIS RESPECT. HOWEVER IT W AS SUBMITTED THAT THERE ARE SO MANY OTHER REASONS FOR DECLINE IN GP RATE. MAJOR REASON EXPLAINED BY THE ASSESSEE WAS THAT THE TURNOVER OF THE ASSESSEE HAS BEEN INCREASED MANY FO LD. THEREFORE DECLINE IN GP RATE BY 5% IS NOT ON HIGHER SIDE. RELIANCE WAS PLACED ON TH E DECISION OF TRIBUNAL FOR ASSESSMENT YEAR 2005-06 AS AS PER LD. COUNSEL OF THE ASSESSEE THE FACTS ARE SIMILAR. 7 11. REGARDING THE CONTENTION OF LD. D/R THAT IN CAS E OF M/S. VINAYAK GEMS & JEWELLERS THE FACTS WERE TOTALLY FOUND WRONG IT W AS STATED THAT THE ASSESSEE HAS FILED CONFIRMATION OF M/S. VINAYAK GEMS & JEWELLERS AND I F AS PER INCOME-TAX RECORD THERE IS SOMETHING CONTRADICTORY THEN THERE IS NO FAULT OF T HE ASSESSEE AND ASSESSEE CANNOT BE PENALIZED ON WRONG FACTS FURNISHED BY M/S. VINAYAK GEMS & JEWELLERS TO THE DEPARTMENT. IT WAS FURTHER SUBMITTED THAT IT IS WRO NG TO SUGGEST THAT NO STOCK REGISTER HAS BEEN MAINTAINED BY THE ASSESSEE. THE ASSESSEE HAS MAINTAINED STOCK REGISTER ITEM-WISE AND THE SAME WAS PRODUCED BEFORE THE AO FOR TEST CH ECK. IT WAS FURTHER ADDED THAT ASSESSEE IS NOT A MANUFACTURER THEREFORE WHATEVER THE ITEMS WERE PURCHASED THEY WERE ENTERED IN THE STOCK REGISTER. 12. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CONSID ERED THEM CAREFULLY. WE HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY LD. A/R AND LD. D/R ALONG WITH OTHER MATERIAL PLACED ON RECORD. AFTER CONSIDERING THE O RDERS OF THE AO LD. CIT (A) AND THE WRITTEN SUBMISSIONS AS WELL AS VERBAL SUBMISSIONS A DVANCED BY BOTH THE PARTIES WE FIND THAT BOTH THE APPEALS I.E. APPEAL OF THE DEPARTMENT AS WELL AS OF THE ASSESSEE ARE LIABLE TO BE DISMISSED IN RESPECT TO TRADING ADDITION MADE AN D SUSTAINED BY LD. CIT (A) IN PART. 12.1. THE AO AFTER HAVING GIVEN HIS DETAILED REASON ING FOR REJECTION OF BOOKS OF ACCOUNT HAVE REJECTED THE BOOKS OF ACCOUNT IN VIEW OF DECISION OF TRIBUNAL AS WELL AS OF DECISION OF HONBLE APEX COURT IN CASE OF M/S. KANC HWALA GEMS 288 ITR 10 (SC). THEREAFTER THE AO MADE ADDITION @ 25% OF UNVERIFIA BLE PURCHASES OF RS. 5.40 CRORES OR ODD. THE LD. CIT (A) SUSTAINED THE REJECTION OF BO OKS HOWEVER HE HAS HELD THAT ADDITION SHOULD NOT HAVE BEEN MADE ON THE BASIS OF UNVERIFIA BLE PURCHASES BUT SHOULD HAVE BEEN MADE TAKING INTO CONSIDERATION THE PAST HISTORY OF THE CASE. ACCORDINGLY INSTEAD OF 8 SUSTAINING ADDITION MADE BY AO @ 25% OF UNVERIFIABL E PURCHASES THE LD. CIT (A) APPLIED A G.P. RATE OF 8.5% AGAINST DECLARED BY ASS ESSEE AT 7.40% ON THE TOTAL TURNOVER DECLARED WHICH RESULTED IN AN ADDITION OF RS. 60 LA CS OR ODD AGAINST THE ADDITION MADE BY THE AO. THOUGH THE LD. COUNSEL OF THE ASSESSEE HAS MADE LENGTHY ARGUMENTS IN RESPECT TO REJECTION OF BOOKS OF ACCOUNT AND HAS STATED THAT E ACH AND EVERY DETAILS WERE FILED BEFORE THE AO AS WELL AS BEFORE LD. CIT (A) INCLUDING THE PAN TIN AND ST NUMBER OF THE RESPECTIVE PARTIES ALONG WITH THE CONFIRMATION. TH E PAYMENTS HAVE BEEN MADE THROUGH ACCOUNT PAYEE CHEQUE AND THEY WERE NOT FOUND INCORR ECT. HOWEVER THE FACT REMAINS THAT NONE OF THE PARTIES FROM WHOM THE PURCHASES OF RS. 5.40 CRORES OR ODD WERE SHOWN TO HAVE BEEN MADE WERE FOUND AT THE ADDRESSES GIVEN NE ITHER THEY WERE PRODUCED BY THE ASSESSEE BEFORE THE AO. A SEARCH AND SEIZURE WAS C ONDUCTED IN CASE OF HALDIA GROUP AND INVESTIGATIONS WERE CARRIED OUT BY BCTT WING OF THE DEPARTMENT AND MOST OF THE PARTIES FROM WHOM THE PURCHASES WERE SHOWN TO HAVE BEEN MADE BY THE ASSESSEE WERE FOUND IN CASE OF HALDIA GROUP AND BCTT WING FOUND T HAT THEY WERE INVOLVED IN ISSUING MERELY BILLS WITHOUT SUPPLYING ANY MATERIAL. STATE MENT OF SOME OF THE PERSONS WERE ALSO RECORDED AND THEY HAVE CATEGORICALLY ADMITTED THAT THEY WERE ISSUING BILLS ONLY WITHOUT SUPPLYING MATERIAL AND CHARGING COMMISSION @ 0.20% TO 0.60%. IT IS ALSO A MATTER OF FACT THAT THE STOCK HAS BEEN PREPARED ON ESTIMATE B ASIS. THIS FACT HAS BEEN ADMITTED BY LD. COUNSEL OF THE ASSESSEE BEFORE LD. CIT (A) AS WELL AS BEFORE TRIBUNAL IN ITS WRITTEN SUBMISSIONS. IT HAS BEEN CATEGORICALLY ADMITTED BY LD. A/R THROUGH HIS WRITTEN SUBMISSION THAT IT IS NOT POSSIBLE TO VALUE THE STOCK ITEM-WIS E AS THE STOCK IS OF THOUSANDS ITEMS AND THEREFORE SENIOR MANAGEMENT WHO INVOLVED IN TAKING VALUE OF STOCK HAS VALUED THE STOCK ON ESTIMATED BASIS AND ON A PRAGMATIC APPROACH. T HIS FACT CLEARLY ESTABLISHES VALUATION 9 OF CLOSING STOCK WAS NOT VERIFIABLE. THIS IS ALSO A MATTER OF FACT THAT ASSESSEE IS ONLY TRADER AND MAKING LOCAL SALES ONLY. IT IS ALSO A M ATTER OF FACT AS ADMITTED BY LD. A/R DURING THE COURSE OF APPELLATE PROCEEDINGS THAT STO CK REGISTER IS MAINTAINED AND WHATEVER THE ITEMS ARE PURCHASED THEY ARE ENTERED INTO STOCK REGISTER. THE SALES ARE MADE OF THE ITEMS PURCHASED IN THE SAME SHAPE AND DESIGN AND T HEREFORE THE STOCK SHOULD HAVE BEEN VALUED ON THE BASIS OF PURCHASES MADE. HOWEVER THE STOCK HAS BEEN VALUED ON ESTIMATE BASIS. THE JAIPUR BENCHES OF THE TRIBUNAL ARE TAKI NG A CONSISTENT VIEW THAT WHERE PURCHASES REMAIN UNVERIFIABLE THE REJECTION OF BOO KS OF ACCOUNT IS JUSTIFIED. THE HONBLE SUPREME COURT ALSO IN CASE OF KANCHWALA GEMS (SUPRA ) HAVE HELD THAT WHERE PURCHASES REMAIN UNVERIFIABLE THE REJECTION OF BOOKS OF ACCO UNT IS CORRECT. IT IS ALSO A MATTER OF FACT THAT ON SIMILAR FACTS THE REJECTION OF BOOKS OF ACC OUNT WAS UPHELD BY TRIBUNAL FOR ASSESSMENT YEAR 2005-06. IN VIEW OF THESE FACTS AND CIRCUMSTANCES WE HOLD THAT THE REJECTION OF BOOKS OF ACCOUNT WAS CORRECT AND THE L D. CIT (A) WAS JUSTIFIED IN UPHOLDING THE REJECTION OF BOOKS OF ACCOUNT. WE UPHOLD THE A CTION OF THE LD. CIT (A) IN RESPECT OF REJECTION OF BOOKS OF ACCOUNT. 13. NOW WE WILL TAKE UP THE ARGUMENT OF THE DEPARTM ENT THAT THE AO WAS CORRECT IN MAKING THE ADDITION BY DISALLOWING 25% OF UNVERIFIA BLE PURCHASES. 14. IN VARIOUS CASES THE ISSUE HAS BEEN DISCUSSED I N DETAIL AND AFTER PLACING RELIANCE AND ALSO FOLLOWING THE DECISION OF HONBLE JURISDIC TIONAL HIGH COURT IN CASE OF GOTAN LIME & KHANIZ UDYOG WHEREIN IT IS HELD THAT THE BES T COURSE TO DEDUCE THE TRUE PROFIT IS TO FOLLOW PAST HISTORY. THE DEPARTMENT HAS STATED T HAT THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2005-06 SHOULD NOT BE FOLLOWED AS I N THAT YEAR THERE WERE PURCHASES OF ONLY RS. 39 LACS WHICH REMAINED UNVERIFIABLE. HOWE VER IN THIS PARTICULAR YEAR THERE ARE 10 PURCHASES OF RS. 5.40 CRORES WHICH REMAINED UNVERIF IABLE. IT WAS ALSO EMPHASIZED THAT FROM THE PARTY M/S. VINAYAK GEMS & JEWELLERS THE A SSESSEE HAS SHOWN PURCHASES OF ABOUT RS. 90 LACS WHEREAS THAT PARTY HAS SHOWN ONLY SALES OF RS. 18 LACS. THEREFORE FROM ALL ANGLES IT HAS BEEN AMPLY PROVED THAT ENTIRE PUR CHASES SHOWN BY ASSESSEE ARE BOGUS AND THEREFORE THE AO WAS CORRECT IN MAKING ADDITI ON @ 25%. 14.1. THE LD. D/R HAS ALSO TAKEN AN ARGUMENT THAT T HERE MAY BE CASH SALES FROM OTHER THAN THE PARTY FROM WHOM THE BILLS HAVE BEEN TAKEN AS SALE HAS BEEN MADE OF MATERIAL WHICH HAS BEEN ACCEPTED BY THE AO IN THAT CASE PRO VISIONS OF SECTION 40A(3) COULD ATTRACT AS ENTIRE PURCHASES WERE MADE IN CASH AND T HE ENTIRE PURCHASES COULD HAVE ADDED IN VIEW OF PROVISIONS OF SECTION 40A(3). 14.2. AFTER CONSIDERING THESE SUBMISSIONS WE WOULD LIKE TO OBSERVE HERE THAT THIS IS NOT THE CASE OF THE DEPARTMENT THAT PURCHASES HAVE BEEN MADE IN CASH AND THEREFORE ADDITION SHOULD HAVE BEEN MADE UNDER SECTION 40A(3). THEREF ORE WE ARE NOT INCLINED TO ACCEPT THIS CONTENTION OF THE DEPARTMENT. 14.3. REGARDING THE ADDITION MADE @ 25% OF UNVERIFI ABLE PURCHASES IN OUR VIEW IT IS NOT A CORRECT APPROACH AS THE AO HAS NOT BROU GHT ANY MATERIAL ON RECORD THAT THE PURCHASES MADE FROM THE PARTIES WHICH COULD NOT BE VERIFIED HAVE BEEN MADE ON THE LOWER SIDE OR ON HIGHER SIDE AS COMPARED TO THE PUR CHASES SHOWN WHICH ARE VERIFIABLE. THE TOTAL PURCHASES ARE OF RS. 54 CRORES OR ODD AND NO COMPARISON HAS BEEN MADE BY THE AO TO HOLD THAT ASSESSEE HAS INFLATED ITS PURCHASE PRICE TO REDUCE THE TAX BURDEN. THEREFORE THE CONTENTION OF THE DEPARTMENT THAT AD DITION @ 25% SHOULD HAVE BEEN MADE IS NOT ACCEPTABLE. IT IS ALSO WORTH MENTIONING HER E THAT IN EARLIER YEAR THOUGH THERE WAS UNVERIFIABLE PURCHASES HOWEVER THE AO HAS MADE AD DITION BY ENHANCING THE GROSS PROFIT 11 RATE AT 13.28% AGAINST 12.73 % SHOWN BY ASSESSEE. T HIS WAS CORRECT APPROACH BY THE AO TO DISTURB THE G.P. RATIO AND NOT MAKING THE ADDITI ON @ 25% OF UNVERIFIABLE PURCHASES. THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF GO TAN LIME KHANIZ UDYOG HAVE CLEARLY HELD THAT WHERE BOOKS OF ACCOUNT ARE REJECT ED THEN THE BEST COURSE TO DEDUCE THE PROFIT IS TO TAKE INTO CONSIDERATION THE PAST HISTO RY OF THE CASE AND CURRENT EVENTS OF THE CASE. THEREFORE THE CONTENTION OF THE DEPARTMENT I S REJECTED THAT ADDITION SHOULD HAVE BEEN CONFIRMED @ 25% OF UNVERIFIABLE PURCHASES MADE BY AO. 14.4. NOW WE WILL DEAL WITH THE ISSUE THAT THE GROS S PROFIT RATE DISTURBED BY LD. CIT (A) WAS JUSTIFIED OR NOT. IN IMMEDIATELY PRECEDING YEAR THE G.P. RATE SHOWN BY ASSESSEE WAS 12.73% ON A TOTAL TURNOVER OF RS. 14.26 CRORES. IN EARLIER YEAR I.E. 2004-05 THE G.P. WAS SHOWN @ 13.97% ON TOTAL TURNOVER OF RS. 2.92 CRORES OR ODD. IN THIS YEAR THOUGH THE TURNOVER HAS INCREASED SUBSTANTIALLY I.E. RS. 54.66 CRORES OR ODD ON WHICH G P. RATE HAS BEEN SHOWN BY ASSESSEE AT 7.40%. THE LD. CIT (A) H AS TAKEN INTO CONSIDERATION THE G.P. RATE OF LAST THREE YEARS AND THE ORDER OF THE TRIBU NAL FOR EARLIER YEAR 2005-06 AND ARRIVED AT A CONCLUSION THAT IF G.P. RATE OF 8.5% IS APPLIE D AGAINST 7.40% SHOWN BY ASSESSEE THAT WILL MEET THE ENDS OF JUSTICE. 14.4. THE LD. COUNSEL OF THE ASSESSEE HAS STATED TH AT LD. CIT (A) HAS NOT TAKEN INTO CONSIDERATION THE PAST HISTORY OF THE CASE WHICH HA S BEEN ACCEPTED BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2005-06. IN OUR CONSIDERED VIEW THE CONTENTION OF LD. A/R IS NOT CORRECT. THE LD. CIT (A) HAS FOL LOWED THE ORDER OF TRIBUNAL AND AFTER TAKING INTO CONSIDERATION THE ORDER OF TRIBUNAL TH EN ONLY HE HAS APPLIED 8.5%. THE PAST HISTORY IS NOT THE DECISION OF THE TRIBUNAL BUT PAS T HISTORY IS THE RESULT OF THE ASSESSEE SHOWN BY IT AND THE RESULT IS THAT IN EARLIER YEAR THE G.P. WAS SHOWN AT 12.73% AND A YEAR 12 BEFORE THE G.P. WAS DECLARED AT 13.99%. THE TRIBU NAL TOOK INTO CONSIDERATION THAT TURNOVER HAS BEEN INCREASED AND THEREFORE MARGINA L DECLINE IN G.P. RATE SHOULD NOT BE TAKEN INTO CONSIDERATION. HOWEVER THE FACT WAS THA T CERTAIN PURCHASES REMAINED UNVERIFIABLE THEREFORE A TRADING ADDITION OF RS. 1 LAC WAS SUSTAINED BUT IN THE YEAR UNDER CONSIDERATION THE G.P. RATE IS NOT DECLINED MARGINA LLY BUT DECLINED ABOUT 5% I.E. FROM 12.73% TO 7.40%. THE LD. COUNSEL OF THE ASSESSEE HAS TAKEN SO MANY REASONS FOR DECLINE IN G.P. RATE AT PAGE 2 OF HIS WRITTEN SUBMISSIONS W HICH ARE AS UNDER :- A. THE VISION KNOWLEDGE EXPERIENCE OF THE MANAGEM ENT AND ITS PERSONNEL WITH LONG TERM PLANNING IN MIND ETC. B. THE ASSESSEE IS HAVING ONLY CAL SALES AND IT IS COMMON KNOWLEDGE THAT MARGINS IN LOCAL SALE ARE COMPARATIVELY LOWER THAN THAT IN THE EXPORT MARKET. C. THERE HAS BEEN SUBSTANTIAL GROWTH IN TURNOVER IN THE RELEVANT PREVIOUS YEAR IN COMPARISON TO EARLIER ASSESSMENT Y EARS. D. THE THRUST OF THE MANAGEMENT HAS BEEN YEAR TO YE AR INCREMENTAL GROWTH IN ALL THE PARAMETERS I.E. TURNOVER AND MAR GINS. E. THE MARGINS RE ALSO AFFECTED ON PARTICULAR PERIO DS DEMAND AND SUPPLY POSITION. F. THE MARGINS ALSO AFFECTED LOOKING AT THE DEMAND OF FUNDS BY THE COMPANY. G. THE PRODUCT IN WHICH THE ASSESSEE COMPANY DEALS IS A NATURES PRODUCT THEY ARE NOT STANDARDIZED AND EACH STONE S HALL EARN A RATE OF RETURN FOR ITSELF DEPENDING ON ITS QUALITY SHA PE SIZE ETC. ETC. H. THE MARGINS ARE ALSO IMPACTED LOOKING AT THE COM PETITION IN THE MARKET ETC. ETC. 13 15. WE HAVE GONE THROUGH REASONS AND FOUND THAT TH ESE REASONS/EXPLANATION HAVE ALREADY BEEN TAKEN INTO CONSIDERATION BY LD. CIT (A ) AND THEN ONLY HAS APPLIED 8.5% G.P. RATE. IT IS SEEN THAT THE STOCK WAS VALUED ON ESTIM ATED BASIS AND THERE IS NO GROUND OR EXPLANATION THAT PURCHASE PRICE HAS BEEN INCREASED AND THEREFORE THERE WAS A DECLINE IN G.P. RATE. THERE IS NO CASE THAT EXTRA LABOUR HAS BEEN EMPLOYED TO INCREASE HUGE SALES. IT IS ALSO NOT A CASE THAT ASSESSEE HAS EMPLOYED EXTRA CAPITAL ON WHICH INTEREST HAS BEEN PAID MORE AND THEREFORE THERE IS A REASON TO DECLINE I N G.P. THE MAIN REASON IS THAT THE THRUST OF THE MANAGEMENT HAS BEEN YEAR TO YEAR INCREMENTAL GROWTH IN ALL THE PARAMETERS I.E. TURNOVER AND MARGINS. WE ARE NOT UNDERSTANDABLE HO W THIS EXPLANATION HELP THE CASE OF THE ASSESSEE. THERE SHOULD BE A REASONABLE EXPLANAT ION FOR DECLINE IN GROSS PROFIT RATE. HOWEVER NO SUCH EXPLANATION GIVEN BY LD. A/R EITHE R BEFORE LD. CIT (A) OR HERE BEFORE THE TRIBUNAL. THE REASONS GIVEN BY LD. A/R IN HIS WRITTEN SUBMISSIONS FOR DECLINE IN G.P. RATE WHICH ARE TABULATED ALSO IN THIS ORDER SOMEWHE RE ABOVE ARE GENERAL IN NATURE AND WITHOUT ANY SUPPORTING EVIDENCE. THEREFORE IN OUR CONSIDERED VIEW THE PAST HISTORY IS THE BEST GUIDE TO ADOPT THE GROSS PROFIT RATE IN TH IS CASE AND LD. CIT (A) WAS MORE THAN REASONABLE IN APPLYING GROSS PROFIT RATE OF 8.5% AG AINST GROSS PROFIT RATE OF 12.73% SHOWN IN THE IMMEDIATELY PRECEDING YEAR. THE LD. CIT (A) HAS ALREADY GIVEN AMPLE RELIEF IN RESPECT TO THE ARGUMENT THAT TURNOVER OF THE ASSESS EE HAS BEEN INCREASED MANY FOLD AS HE HAS GIVEN MARGIN OF 4% OF G.P. AND HAS INCREASED AB OUT 1% OF G.P. AGAINST G.P. SHOWN BY ASSESSEE. WE HAVE GONE THROUGH THE CASES ON WHI CH RELIANCE HAS BEEN PLACED AND FOUND THAT THEY ARE NOT MUCH HELP TO THE ASSESSEE B ECAUSE IN ALL THE CASES IT IS SEEN THAT WHERE BOOKS OF ACCOUNT ARE REJECTED THE BEST COURS E IS TO ADOPT PAST HISTORY OF THE CASE AND PAST HISTORY IS THAT THE GROSS PROFIT SHOWN BY ASSESSEE IN EARLIER YEAR WAS 12.73% 14 WHEREAS IN THE CURRENT YEAR THE G.P. HAS BEEN SHOWN AT 7.40%. IN VIEW OF ALL THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF THE REASONING GIVE N BY LD. CIT (A) WE HOLD THAT LD. CIT (A) WAS JUSTIFIED IN CONFIRMING THE GROSS PROFIT @ 8.5% AGAINST 7.40% SHOWN BY ASSESSEE. ACCORDINGLY WE CONFIRM HIS ORDER. 16. IN THE RESULT APPEAL OF THE ASSESSEE AS WELL A S APPEAL OF THE DEPARTMENT ARE DISMISSED. 17. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 23 .9.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR D/- COPY FORWARDED TO :- M/S. CLARITY GOLD PVT. LTD. JAIPUR. THE ACIT CENTRAL CIRCLE-1 JAIPUR. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 238(2)/JP/2011) BY ORDER AR ITAT JAIPUR.