The ITO, Ward-5(1),, RAJKOT-GUJARAT v. Shri Arvind R. Mevcha, Prop. od M/s Avaij Jewellers,, RAJKOT-GUJARAT

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI N.R.S. GANESA N (JM) I.T.A. NO.677/RJT/2010 (ASSESSMENT YEAR 2006-07) ITO WD.5(1) VS SHRI ARVIND R MEVCHA RAJKOT PROP OF M/S AVAIJEWELLERS 14 RAJSHRUGI COMPLEX PALACE ROAD RAJKOT PAN : ACFPM2309F (APPELLANT) (RESPONDENT) I.T.A. NO.746/RJT/2010 (ASSESSMENT YEAR 2006-07) SHRI ARVIND R MEVCHA VS DY.CIT CIR.2 RAJKOT RAJKOT (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE RESPONDENT BY : SHRI I VIJAYKUMAR O R D E R PER AL GEHLOT AM THESE ARE CROSS APPEALS AND ARE FILED AGAINST THE ORDER OF CIT(A)-III RAJKOT DATED 23-11-2009 FOR THE ASSESSMENT YEAR 200 6-07. THE FOLLOWING ARE THE EFFECTIVE GROUNDS RAISED BY THE ASSESSEE AN D THE REVENUE: ASSESSEE 1. THE LEARNED C.I.T. (APPEALS) III RAJKOT ERRED IN UPHOLDING THE A.OS ACTION IN REJECTING BOOKS OF ACCOUNTS U/S 145(3) OF THE I.T. ACT 1961. ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 2 2. THE LEARNED C.I.T.(APPEALS) III RAJKOT ERRED IN PARTLY UPHOLDING TO THE EXTENT OF RS.95 748/- BEING THE AD DITION MADE BY THE A.O. ON ACCOUNT OF LOWER G.P. 3. THE LEARNED C.I.T. (APPEALS) III RAJKOT ERRED I N PARTLY UPHOLDING TO THE EXTENT OF RS.58 54 538/- BEING THE ADDITION MADE BY THE A.O. ON ACCOUNT OF BOGUS PURCHASES. 4. THE LEARNED C.I.T. (APPEALS) III RAJKOT ERRED I N PARTLY CONFIRMING TO THE EXTENT OF RS.32 02 378/- BEING HE ADDITION MADE BY THE A.O. ON ACCOUNT OF UNVERIFIABL E PURCHASES. 5. THE LEARNED C.I.T. (APPEALS) III RAJKOT ERRED I N CONFIRMING THE A.O.S ACTION OF CHARGING INTEREST U /S 234B OF THE ACT. 6. THE LEARNED C.I.T. (APPEALS) III RAJKOT ERRED I N CONFIRMING THE A.O.S ACTION IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. REVENUE 1. THE LD.CIT(A)-IV RAJKOT HAS ERRED IN LAW AND O N FACT IN DIRECTING TO REDUCE TO RS.32 02 378/- BEING 10% OF BOGUS PURCHASES AS AGAINST RS.80 00 445/- BEING 25% OF BO GUS PURCHASES CONSIDERED BY THE AO. 2. NONE WAS PRESENT ON BEHALF OF THE ASSESSEE. NOT ICE OF HEARING SENT THROUGH RPAD FOR THE HEARING DATED 21-02-2011 HAS B EEN RETURNED BY THE POSTAL AUTHORITIES WITH THE REMARK LEFT. IT MAY ALSO BE STATED THAT ASSESSEE HAS NOT INTIMATED ANY OTHER ADDRESS THAN WHAT IS ME NTIONED AT COLUMN 10 OF THE APPEAL MEMO IN FORM 36. IT IS ALSO TO NOTE THA T THIS MATTER WAS FIXED ON A NUMBER OF TIMES AND NOTICES SENT WHICH WERE ALSO RETURNED BY THE POSTAL AUTHORITIES WITH THE REMARK LEFT IN SOME OF THE HEARING DATES COUNSEL SHRI DM RINDANI HAS APPEARED ON BEHALF OF THE ASSESSEE A ND TOOK ADJOURNMENT. SHRI RINDANI VIDE HIS LETTER FOR HEARING DATED 01-1 2-2010 STATED THAT HE HAS ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 3 NO FURTHER INSTRUCTIONS FROM THE ASSESSEE. THE REL EVANT CONTENTS OF THE LETTER ARE REPRODUCED BELOW: WE HAVE TO MOST RESPECTFULLY STATE THAT IN THE AFO RESAID MATTER OUR OFFICE HAD SOUGHT ADJOURNMENT IN PAST AT THE RE QUEST OF THE ASSESSEE. HOWEVER WE BEG TO NOW STATE THAT WE HAVE NO FURTHE R INSTRUCTIONS FROM THE ASSESSEE IN THE MATTER WHICH WE SEEK TO INTIMATE TO THE HONBLE BENCH. KINDLY CONSIDER THE ABOVE AND OBLIGE YOURS SINCERELY FOR. M.J. RINDANI & ASSO. SD/- FOR C.A. D.M. RINDANI PARTNER NOTICE OF HEARING DATED 04-01-2011 WAS SERVED THROU GH DEPARTMENTAL REPRESENTATIVE AND IT HAS BEEN CONFIRMED BY ACIT C IR.2 RAJKOT VIDE HIS LETTER DATED 15-12-2010 WHICH IS PLACED ON RECORD. FROM THE ABOVE FACTS IT CLEARLY APPEARS THAT THE ASSESSEE IS NOT INTERESTED TO PUT HIS PRESENCE BEFORE THE ITAT. THEREFORE WE HAVE NO OTHER OPTIO N BUT TO PROCEED THE MATTER EXPARTE ON MERITS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF GOLD AND SILVER OR NAMENTS. A SURVEY WAS CONDUCTED AT THE BUSINESS PREMISES OF THE ASSESSEE ON 22-02-2006. DURING THE COURSE OF SURVEY DIFFERENCE IN PHYSICAL STOCK W AS FOUND. THE ASSESSEE DISCLOSED STOCK OF RS.7 LAKHS. DURING THE ASSESSME NT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS ACC EPTED THE DIFFERENCE IN CLOSING STOCK AND ACCORDINGLY INCREASED THE CLOSING STOCK BY RS.6 91 070. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE DID NOT DISCLOSE RS.7 LAKHS ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 4 (RS. 6 91 070 IN ACTUAL) SEPARATELY IN TRADING AND PROFIT & LOSS ACCOUNT CLAIMED TO HAVE BEEN INCLUDED IN THE STOCK. THE AS SESSING OFFICER FURTHER NOTICED THAT THE GROSS PROFIT FOR THE YEAR UNDER CO NSIDERATION SHOWN BY THE ASSESSEE IS RS.8 43 757 ON TOTAL TURNOVER OF RS.3 1 8 35 039 WHICH WORKED OUT AT 2.65% AS AGAINST GROSS PROFIT OF RS.5 38 876 WHICH CAME TO 5.15% IN IMMEDIATELY PRECEDING YEAR. THE ASSESSING OFFICER NOTED THE FALL IN GROSS PROFIT. THE ASSESSEE FILED RETURN OF INCOME DECLAR ING TOTAL INCOME OF RS.8 27 428. THE ASSESSING OFFICER REJECTED THE BO OKS OF ACCOUNT AS THE ASSESSEE HAS FAILED TO FURNISH THE QUANTITATIVE DET AILS AND ADMISSION OF RS.7 LAKHS ON ACCOUNT OF STOCK WHICH PROVES THAT THERE W ERE IRREGULARITIES IN BUSINESS OF THE ASSESSEE AND NOT MAINTAINING PROPER BOOKS OF ACCOUNT OF THE BUSINESS. THE ASSESSING OFFICER ACCORDINGLY IN VOKED PROVISIONS OF SECTION 145(3) OF THE ACT AND THE BOOK RESULTS WERE REJECTED. 4. IT HAS ALSO BEEN NOTICED BY THE ASSESSING OFFICE R THAT THE ASSESSEE HAS FAILED TO FURNISH ANY REASON FOR FALL IN GROSS PROFIT. THE ASSESSEE HAS SIMPLY TRIED TO NULLIFY THE EFFECT OF DISCLOSURE MA DE DURING THE COURSE OF ASSESSMENT PROCEEDINGS BY WAY OF REDUCING GROSS PRO FIT DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER FURTHER OBSERVED THAT IT IS BASIC CONCEPT TO NULLIFY THE EFFECT OF THE EXCESS STOCK F OUND DURING THE COURSE OF SURVEY BY REDUCING THE PROFIT MARGIN AFTER DATE OF SURVEY. THE ASSESSING OFFICER RELIED UPON HE DECISION OF ITAT AHMEDABAD BENCH IN THE CASE OF M/S WHITELINE CHEMICALS VS ITO IN ITA NO.3509/AHD/2 004 ORDER DATED 30- 08-2005. AFTER REJECTING THE BOOKS OF ACCOUNT THE ASSESSING OFFICER ESTIMATED THE PROFIT OF THE BUSINESS ON THE BASIS O F DATA AVAILABLE ON RECORD. THE ASSESSING OFFICER CALCULATED THE GROSS PROFIT B Y APPLYING GROSS PROFIT RATE AT 5.15% AS SHOWN BY THE ASSESSEE IN IMMEDIATELY PR ECEDING ASSESSMENT YEAR ON TOTAL TURNOVER OF RS.3 18 35 039 WHICH WORK ED OUT TO RS.16 39 505 AS AGAINST THE GROSS PROFIT OF R.8 43 757 SHOWN BY THE ASSESSEE. THE ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 5 DIFFERENCE OF RS. 7 95 748 WAS CALCULATED FOR ADDIN G TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NO OBJECTION IN RESPECT OF DISCLOSURE MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER IT WAS STATED THAT RS.7 LAKH S IN THE AUDIT REPORT WAS AGAINST RS.6 91 070 DISCLOSED DURING HE COURSE OF S URVEY. THE ASSESSEE DID NOT FURNISH ANY REASON IN RESPECT OF RETRACTION IN THE DISCLOSURE MADE DURING THE COURSE OF SURVEY. THE ASSESSING OFFICER ACCORDINGLY CALCULATED THE AMOUNT OF ADDITION OF RS.7 86 818 AS UNDER: AS STATED SUPRA THE RATE OF GROSS PROFIT HAS BEEN APPLIED AS SHOWN IN IMMEDIATE PRECEDING YEAR AND THE DISCLOSUR E MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS IS ADDI TIONAL INCOME OVER ABOVE INCOME EARNED DURING THE YEAR UND ER CONSIDERATION. HENCE THE ACTUAL PROFIT OF THE BUS INESS WORKED OUT TO RS.23 30 575/- (RS.1639505 + RS.691070) OUT OF WHICH THE ASSESSEE HAS SHOWN GROSS PROFIT OF RS.15 43 757 /- IN THE TRADING ACCOUNT. THEREFORE DIFFERENCE OF RS.7 86 818/- IS HEREBY ADDED TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF LOW G.P. AND DIFFERENCE IN AMOUNT OF DISCLOSURE. 5. THE SURVEY WAS CARRIED OUT IN THE BUSINESS PREMI SES OF THE ASSESSEE IN CONSEQUENCE TO SURVEY U/S 133A OF THE ACT CARRIE D OUT AT THE BUSINESS PREMISES OF M/S OM MARKANDESHWAR JEWELLERS ANKLESH WAR BHARUCH. DURING THE COURSE OF SURVEY AT THE BUSINESS PREMISE S OF M/S OM MARKANDESHWAR JEWELLERS ANKLESHWAR BHARUCH IT WAS NOTICED THAT THEY HAD PURCHASED GOLD ORNAMENTS FROM THE PARTIES BASED AT RAJKOT. IT WAS SEEN FROM THE RECORD THAT PURCHASE BILLS WORTH RS.9 1 34 492 FOUND FROM THE BUSINESS PREMISES OF M/S OM MARKANDESHWAR JEWELLERS ANKLESHWAR BHARUCH OUT OF WHICH BILLS PERTAINING TO THE ASSESS EE WERE WORTH RS.61 82 195. DURING THE ASSESSMENT PROCEEDINGS IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE DID NOT SELL ANY GOODS T O M/S OM MARKANDESHWAR JEWELLERS ANKLESHWAR BHARUCH. HOWE VER IT WAS ARGUED ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 6 BY THE ASSESSEE THAT THEY HAVE SENT BILLS TO THE AN KLESHWAR BASED PARTY AND THE DELIVERY WAS TO BE GIVEN ONLY AFTER RECEIPT OF PAYMENT. THE ASSESSING OFFICER DID NOT ACCEPT THIS PLEA AND FOUND THAT THE ASSESSEE HAD SOLD GOLD JEWELLERIES WORTH RS.61.82 LAKHS WHICH WERE NOT REC ORDED IN BOOKS OF ACCOUNT. THE ASSESSING OFFICER EMPHASIZED THAT THE ASSESSEE HAS NOT DENIED TO HAVE ISSUED THESE BILLS TO ANKLESHWAR BAS ED PARTY. ON VERIFICATION OF LEDGER OF M/S OM MARKANDESHWAR JEWELLERS ANKLES HWAR BHARUCH IT WAS SEEN THAT THE ASSESSEE HAD PHYSICALLY DELIVERED THE GOODS WHICH WAS RETURNED BACK BY THEM. WHEREAS ON THE OTHER HAND THE CONTENTION OF THE ASSESSEE WAS THAT AS THE BILL AMOUNT WAS SUBSTANTIA L IT WAS AGREED THAT THEY WOULD FIRST SENT BILL THEN ON RECEIPT OF THE PAYMEN T THE ACTUAL DELIVERY WOULD TAKE PLACE. BUT SINCE THE ANKLESHWAR BASED PARTY F AILED TO MAKE PAYMENT THE BILL GOT CANCELLED AND THE BILLS WERE CANCELLED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT. THE ASSESSING OFFICER DID NOT AC CEPT THIS CONTENTION BY NOTING THAT ANKLESHWAR BASED PARTY HAD ALREADY RECO RDED PURCHASES IN ITS BOOKS OF ACCOUNT. THUS IT IS ESTABLISHED THAT THE SALES AND DELIVERY OF THE GOODS DID ACTUALLY TAKE PLACE BUT THE ASSESSEE DID NOT RECORD THE SALES IN HIS BOOKS OF ACCOUNT. THE ASSESSING OFFICER ALSO R EJECTED THE CONTENTION OF THE ASSESSEE THAT THE GOODS WERE RETURNED BACK AND THE FACT THAT THE GOODS RETURNED MUST HAVE BEEN INCLUDED IN THE VALUATION O F THE CLOSING STOCK. THE ASSESSING OFFICER MADE ADDITION OF RS.61 28 195 TRE ATED AS UNACCOUNTED SALES OF THE ASSESSEE BEING UNEXPLAINED PURCHASES O F GOLD PLUS GROSS PROFIT THEREON AND ADDED THE SAME TO THE TOTAL INCOME OF T HE ASSESSEE ON THE BASIS OF THE CONTENTION OF THE ASSESSEE THAT THE VA LUE OF SUCH GOODS HAD NOT BEEN INCLUDED IN VALUE OF CLOSING STOCK. 6. TO VERIFY THE GENUINENESS OF THE PURCHASES MADE DURING THE YEAR BY THE ASSESSEE NOTICE U/S 133(6) OF THE ACT HAS BEEN ISSUED TO M/S BHAVIN JEWELLERS AHMEDABAD WHICH WAS RETURNED BY THE POST AL AUTHORITIES WITH THE ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 7 REMARK LEFT. THE FACT WAS BROUGHT TO THE NOTICE OF THE ASSESSEE AND ASKED TO FURNISH NECESSARY REPLY BUT THE SAME WAS NOT FUR NISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICE R ESTIMATED AMOUNT OF ADDITION BEING 25% OF PURCHASES CLAIMED TO BE MADE FROM BHAVIN JEWELLERS FOLLOWING THE DECISION OF ITAT IN CASE OF VIJAY PRO TEINS LTD VS ACIT 55 TTJ 76 (AHD). 7. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER REGARDING REJECTION OF BOOKS OF ACCOUNT. 8. THE CIT(A) WHILE CONSIDERING THE ESTIMATION OF P ROFIT AND DISCLOSURE DURING THE SURVEY AND AFTER CONSIDERING ASSESSEES SUBMISSION NOTED COMPARATIVE POSITION OF THE GROSS PROFIT AT PAGE 7 OF HIS ORDER AS UNDER: SR. A.Y. GROSS PROFIT % REMARKS NO. 1) 2005-06 5.15% 2) 2006-07 2.65% WITHOUT CONSIDERING THE DISCLOSURE OF STOCK 3) 2006-07 4.85% WITH DISCLOSURE AS SHOWN IN THE AUDITED ACCOUNTS. THE CIT(A) HAS ALSO NOTED THAT THE SHORTFALL IN GRO SS PROFIT IS BETWEEN THE DIFFERENCE OF 5.15% TO 4.85% WHICH COMES TO 0.30%. THEREFORE ADDITION TO THE EXTENT OF RS.86 818 IS TO BE MADE WHICH WAS FOU ND TO BE REASONABLE. THE CIT(A) ACCORDINGLY CONFIRMED THE ADDITION TO TH E EXTENT OF RS.86 818. THE CIT(A) HAS ALSO NOTED THAT THE ASSESSEE HAS ACC OUNTED FOR RS.6 91 070 ON ACCOUNT OF STOCK WHEREAS THE DISCLOSURE OF STOCK WAS RS.7 LAKHS. THEREFORE THE ADDITION TO THE EXTENT OF RS.8 930 W AS ALSO SUSTAINED (RS.7 LAKHS RS.6 91 070). THE ASSESSEE CHALLENGED THIS ADDITION VIDE GROUND NO.2 AND THE AMOUNT STATED IN THE GROUND OF APPEAL IS RS. 95 748 ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 8 (RS.86 818 & RS.8 930). IT IS PERTINENT TO NOTE TH AT THE REVENUE HAS FILED THE APPEAL BUT AMOUNT OF ADDITION DELETED BY CIT(A) HAS NOT BEEN CHALLENGED IN THE GROUNDS OF APPEAL FILED BY THE REVENUE. 9. THE CIT(A) WHILE DEALING WITH THE ADDITION OF RS .61 82 195 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNACCOUNTED SAL ES MADE TO M/S OM MARKANDESHWAR JEWELLERS ANKLESHWAR BHARUCH AFTER CONSIDERING ASSESSEES SUBMISSION NOTED THAT THE ASSESSING OFFI CER DID NOT MAKE ANY ENQUIRY FROM THIS PARTY WITH REGARD TO THE NATURE O F THE TRANSACTION. ON THE OTHER HAND THE ASSESSEES CLAIM WAS THAT SALE OF R S.61 82 195 HAVE BEEN DONE BY BOGUS BILLING ONLY AND THERE IS NO ACTUAL S ALES OF GOODS OR DELIVERY. THE ACCOMMODATION BILLS WERE PROVIDED DUE TO RELATI ONSHIP WITH M/S OM MARKANDESHWAR JEWELLERS ANKLESHWAR BHARUCH AND TH E COMMISSION PREVAILING IN THE MARKET @2% ON ACCOMMODATION BILLS CAN AT THE BEST BE ADDED. THE ASSESSEE ALSO FILED COPIES OF THE ASSES SMENT ORDER PASSED IN CASE OF M/S OM MARKANDESHWAR JEWELLERS ANKLESHWAR BHARUCH. ON THE BASIS OF MATERIAL AND EXPLANATION FURNISHED BY THE ASSESSEE THE CIT(A) HELD THAT THE ISSUE OF ACCOMMODATION BILLS BY THE ASSESS EE WAS FOUND TO BE CORRECT AND ACCEPTABLE. THE CIT(A) ACCORDINGLY CAL CULATED THE AMOUNT OF ADDITION BY APPLYING 2% OF RS.61 82 195 OF WHICH CA LCULATION COMES TO RS.1 23 643. BEFORE THE CIT(A) THE ASSESSEE VIDE H IS LETTER DATED 16-11- 2009 AGREED FOR THE ADDITION OF RS. 1 33 000. THE CIT(A) SUSTAINED THE ADDITION OF 58 54 538 AND THE BALANCE AMOUNT OF RS. 3 27 656 WAS DELETED. HOWEVER THE CIT(A) ENHANCED THE ADDITION BY RS.1 33 000 OVER AND ABOVE THE ADDITION MADE BY THE ASSESSING OFFICER. THE RE LVANT OBSERVATIONS OF THE CIT(A) ARE AS UNDER: 5.5 IT IS WORTHWHILE TO MENTION THAT AS PER ACCOUN TING POLICY SALES CAN BE MADE OUT OF PURCHASES ONLY. THAT MEAN S WHEN BOGUS SALES ARE MADE CORRESPONDING BOGUS PURCHASES REMAINS DEBITED IN THE PURCHASE ACCOUNTS; THEREBY DISTORTIN G TRADING ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 9 ACCOUNTS. FOR DOING BOGUS SALES THE APPELLANT HAS TO SHOW BOGUS PURCHASES ALSO AND IN CASE OF THE APPELLANT IT IS FOUND THAT THE PURCHASES ARE MOSTLY SHOWN FROM M/S BHAVIN JEWELLERS AHMEDABAD AND AT THE END OF THE YEAR TH ERE IS AN OUTSTANDING BALANCE OF RS.6646183/-. APPARENTLY B OGUS SALES OF RS.6182195/- MADE TO M/S OM MARKANDESHWAR JEWELL ERS ANKLESHWAR HAS BEEN MADE BY SHOWING BOUGUS PURCHASE S FROM M/S BHAVIN JEWELLERS AHMERDABAD WHICH IS INCLUDED IN THE OUTSTANDING AMOUNTING TO RS. 6646183/-. NO DEDUCTI ON CAN BE ALLOWED FOR THE BOGUS PURCHASES AS THE QUESTION OF LEGITIMATE OUTGOING IN THE FORM OF SAID PURCHASES WOULD NOT AR ISES. RELIANCE IS PLACED ON (I) DEORIA OXYGEN CO. VS. CI T (2007) 210 CTR (ALL) 509 (II) KAVERI RICE MILLS VS. CIT ( 2006) 157 TAXMAN 376 (ALL) AND (III) SRI GANESH RICE MILLS V S CIT (2007) 294 ITR 316 (ALL). TO WORK OUT COST OF PURCHASE O UT OF SALES OF RS.6182195/- GROSS PROFIT ADOPTED AT 5.30% IN PARA- 4.4 IS REDUCED WHICH GAVE FIGURES OF RS.5854538/- AS COST OF PURCHASES. THEREFORE THE ADDITION OF RS.5854538/- IS ORDERED TO BE MADE FOR BOGUS PURCHASES DEBITED IN TRADING A /C AND ASSESSING OFFICERS ACTION IS CONFIRMED TO THAT EXT ENT. RESPECT OF AMOUNT OF RS.327656/- STANDS DELETED. THE 5 TH GROUND OF APPEAL IS PARTLY ALLOWED AND THE ADDITION MADE BY T HE ASSESSING OFFICER IS ENHANCED BY RS.133000/-. 10. IT IS ALSO TO STATE HERE THAT THE REVENUE THOU GH FILED THE APPEAL AGAINST THE SAID ORDER OF THE CIT(A) BUT DID NOT CH ALLENGE DELETION MADE BY THE CIT(A). IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSEE ALSO DID NOT CHALLENGE THE ENHANCEMENT MADE BY CIT(A) OF RS.1 33 000 IN THE GROUNDS OF APPEAL FILED BY THE ASSESSEE. THE ASSESSEE CHAL LENGED ONLY CONFIRMATION OF ADDITION OF RS.58 54 538. 11. THE CIT(A) WHILE DEALING WITH THE ISSUE PERTAIN ING TO ADDITION OF RS.80 00 445 MADE BY ASSESSING OFFICER ON ACCOUNT O F UNVERIFIABLE PURCHASES SUSTAINED THE ADDITION TO THE EXTENT OF R S.32 02 378 BY OBSERVING AS UNDER: ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 10 6.4 IT IS FOUND THAT IN THE CASE OF THE APPELLANT THE PURCHASES ARE NOT MADE FROM GRAY MARKET BUT AT THE SAME TIME PURCHASE TRANSACTION WITH M/S BHAVIN JEWELLERS ARE NOT FULLY VERIFIABLE HENCE AN ADVERSE VIEW IS REQUIRED TO BE TAKEN AGAIN ST APPELLANT. KEEPING IN VIEW THE FACT THAT NO PROPER EXPLANATION FOR TRANSACTIONS FROM M/S BHAVIN JEWELLERS HAS BEEN GIVEN AND THE APPELLANTS INDULGEMENT IN ISSUING ACCOMMODATIN G BILLS ETC. THERE IS ALL POSSIBILITY OF INFLATION OF PURCHASES FOR WHICH RATIO DECIDENDI OF CASE OF VIJAY PROTEINS LTD. CAN BE MAD E APPLICABLE. KEEPING IN VIEW THE FACTS AND CIRCUMST ANCES OF CASE WHEN BOGUS PURCHASES TO THE EXTENT OF RS.5854 538/- HAS BEEN DISALLOWED AND ADDED IN PARA-5.5 OR THE ORDER IT WOULD BE REASONABLE IF 10% OF PURCHASE AMOUNT IS CONSIDERED AS INFLATED. ACCORDINGLY DISALLOWANCE WORKS OUT AS UN DER:- (1) TOTAL PURCHASES = RS. 3 20 23 781/- (2) 10% OF ABOVE = RS. 32 02 378/- THEREFORE AN ADDITION OF RS.32 02 378/- IS CONFIRM ED AND REST OF THE ADDITION OF RS.47 98 067/- IS HEREBY ORDERED TO BE DELETED. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 11A. BOTH THE ASSESSEE VIDE GROUND NO.4 AND THE RE VENUE VIDE GROUND NO.1 HAVE CHALLENGED THIS ISSUE DECIDED BY THE CIT( A). 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORDS AND ORDERS OF ASSESSING OFFICER AND CIT (A). THE FIRST GROUND RAISED BY THE ASSESSEE IN ITS APPEAL IS IN RESPECT OF REJECTION OF BOOKS OF ACCOUNT. AFTER CONSIDERING THE ORDERS OF ASSESSING OFFICER AND CIT(A) WE NOTICE THAT THE ADMITTED FACTS ARE THAT THE ASSESSE E HAS DECLARED UNACCOUNTED STOCK OF RS.7 LAKHS DURING THE COURSE O F SURVEY WHICH ITSELF IS SUFFICIENT TO SAY THAT THE ASSESSEE DID NOT MAINTAI N PROPER BOOKS OF ACCOUNT. IN ADDITION TO THAT THE ASSESSEE DID NOT MAINTAIN Q UANTITATIVE DETAILS AND ALSO FAILED TO SUPPORT THE PURCHASE AND SALES. HE WAS A LSO INDULGING IN ISSUING ACCOMMODATION BILLS. WE THEREFORE DO NOT FIND ANY ERROR IN THE ORDER OF THE ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 11 CIT(A) IN CONFIRMING THE REJECTION OF BOOKS OF ACCO UNT BY THE ASSESSING OFFICER. ON THIS ISSUE THE ORDER OF CIT(A) IS CON FIRMED. 13. IN SECOND GROUND OF APPEAL THE ASSESSEE HAS CH ALLENGED GROSS PROFIT ADDITION OF RS.95 048 SUSTAINED BY THE CIT(A). THE ASSESSING OFFICER MADE THE ADDITION ON THIS ACCOUNT FOR RS.7 86 818 BY REC ORDING THE FACT THAT THE ASSESSEE HAS REDUCED THE NORMAL GROSS PROFIT WHEREA S ON ACCOUNT OF DISCLOSURE IT SHOULD BE HIGHER IN COMPARISON TO GRO SS PROFIT OF EARLIER YEARS. THE ESTIMATION OF PROFIT ADOPTED BY THE ASSESSING O FFICER IS A REASONABLE METHOD AS HE APPLIED THE GROSS PROFIT RATE OF IMMED IATELY PRECEDING YEARS ON TOTAL TURNOVER FOR CALCULATION OF NORMAL BUSINES S PROFIT AND IN CASE OF DISCLOSURE THE MATHEMATICAL FORMULA SHOULD BE CURR ENT YEAR PROFIT + AMOUNT OF DISCLOSURE. WE FIND THAT THE ASSESSING OFFICER HAS ADOPTED THIS METHOD BY ESTIMATING THE CURRENT YEAR PROFIT + DISCLOSURE. T HE EXCESS DIFFERENCE IN BETWEEN THIS REASONABLE AMOUNT OF ESTIMATION AND AM OUNT DECLARED BY THE ASSESSEE IS REQUIRED TO BE ADDED ON THIS ACCOUNT. WE THEREFORE FIND THAT THE PROCEDURE FOR ESTIMATION OF PROFIT ADOPTED BY T HE ASSESSING OFFICER IS REASONABLE. THE CIT(A) ADOPTED A METHOD BY HIS OWN METHOD AND WAY FOR WHICH WE ARE NOT IN AGREEMENT IN PRINCIPLE. HOWEVE R THE REVENUE IS NOT IN APPEAL. UNDER THE CIRCUMSTANCES WE CONFIRM THE AD DITION SUSTAINED BY THE CIT(A). THIS GROUND OF APPEAL OF THE ASSESSEE IS T HEREFORE DISMISSED. 14. THE THIRD GROUND OF APPEAL BY ASSESSEE PERTAINS TO AN ADDITION OF RS.58 54 538. THE CASE OF THE ASSESSING OFFICER WA S THAT THE SALES MADE TO M/S OM MARKANDESHWAR JEWELLERS ANKLESHWAR BHARUCH WERE NOT FOUND RECORDED IN THE BOOKS OF ACCOUNT. THE CONTENTION O F THE ASSESSEE THAT THE GOODS SOLD TO M/S OM MARKANDESHWAR JEWELLERS ANKLE SHWAR BHARUCH WERE RETURNED BACK BUT THE ASSESSING OFFICER DID NO T FIND THAT THE SAID RETURNED GOODS WERE INCLUDED IN THE CLOSING STOCK. THEREFORE HE MADE THE ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 12 ADDITION TREATING IT AS UNACCOUNTED SALES OF THE AS SESSEE BEING UNEXPLAINED PURCHASES OF GOODS AND GROSS PROFIT THEREON. THE I SSUE TURNED OUT TO BE IN A DIFFERENT WAY BEFORE CIT(A). THE FINDINGS OF THE C IT(A) AFTER CONSIDERING ASSESSEES SUBMISSIONS AND OTHER RECORDS AND MATERI AL THAT IT WAS ACCOMMODATION BILLS ON COMMISSION @ 2%. THE CIT(A) ACCORDINGLY ENHANCED THE ADDITION BY RS.1 33 000 ON THIS ACCOUN T WHICH HAS BEEN ACCEPTED BY THE ASSESSEE. THE CIT(A) CONFIRMED THE ADDITION TO THE EXTENT OF RS.58 54 538 BEING COST OF PURCHASES OF THE GOOD S WHICH WAS NOT HELD TO BE ALLOWABLE FOLLOWING CERTAIN DECISIONS NOTED ON P AGE 14 OF HIS ORDER. AS STATED ABOVE THAT THE ASSESSEE DID NOT CHALLENGE TH E FINDINGS OF THE CIT(A) IN RESPECT OF THE ENHANCEMENT OF THE ADDITION ON TH IS ACCOUNT BY RS.1 33 000 TREATING IT AS ACCOMMODATION BILLS ON A CCOUNT OF THE COMMISSION INCOME ONLY. THE REVENUE HAS ALSO NOT C HALLENGED THIS FINDINGS OF THE CIT(A) I.E. ON ACCOUNT OF ACCOMMODATION BILL S AND COMMISSION. UNDER THE CIRCUMSTANCES THE NATURE OF TRANSACTION CAN EITHER BE UNACCOUNTED SALES AND CORRESPONDING UNACCOUNTED PUR CHASES OR SIMPLY ACCOMMODATION BILLS ON COMMISSION BASIS. THE CIT(A ) HAS CONSIDERED BOTH THE NATURE OF TRANSACTION SUSTAINING ADDITION OF RS .58 54 538 ON ACCOUNT OF BOGUS PURCHASES AS ALSO ACCOMMODATION BILL ON COMMI SSION BASIS. THE CIT(A) OUGHT TO HAVE TAKEN ONE OF THE VIEWS IN RESP ECT OF NATURE OF THE TRANSACTION. TO CONSIDER THE NATURE OF THIS TRANSA CTION THE ADMITTED FACTS OF THE CASE IS THAT THE CIT(A) SUSTAINED THE ADDITION OF RS.1 33 000 BEING TREATED AS THE TRANSACTION ON COMMISSION BASIS WHIC H WAS NEITHER CHALLENGED BY THE ASSESSEE NOR BY THE REVENUE. IT MAY BE FURTHER NOTED THE FOLLOWING REPLY OF THE ASSESSEE BEFORE THE CIT(A) W HICH IS NOTED FROM PARAGRAPH 5.1 ON PAGE 10 OF CIT(A) ORDER: IT IS SEEN FROM THE RECORD THAT PURCHASE BILLS WO RTH RS.91 34 492/- WERE FOUND FROM THE BUSINESS PREMISE S OF M/S ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 13 OMJ ANKLESHWAR DURING THE COURSE OF SURVEY U/S 133 A. OUT OF THE TOTAL BILLS WORTH RS.91 34 492/- AS STATED ABOV E THE BILLS PERTAINING TO THE ASSESSEE WERE WORTH RS.61 82 195/ - AND THE BALANCE PERTAINED TO HIS SONS PROPRIETORY CONCERN V IZ. M/S MANSI JEWELLERS WHO IS ASSESSED WITH ITO WARD 5(2) RAJKOT. FURTHER YOUR HONOURS KIND ATTENTION IS DRAWN TO TH E FACT THAT GENERALLY IN THE ACCOMMODATIVE BILLS TRANSACTION 1% TO 2% IS CHARGED BY THE PARTY ISSUING THE ACCOMMODATIVE BILL S WHICH IS AS PER PREVAILING MARKET RATE. IN THIS CASE TOTAL ACCOMMODATIVE BILLS PROVIDED BY TWO PARTIES I.E. APPELLANT AND HI S SON FOR AN AMOUNT OF RS.91 34 492/- LESS RS.61 82 195/- = RS.2 9 52 297/-. IF DEPARTMENT WANTS TO MAKE THE ADDITION AT THE MAX IMUM RATE OF 2% ON ACCOMMODATIVE BILLS AMOUNTING TO RS.29 52 297/- IT COMES TO RS.1 33 000/- APPROX. INSTEAD THE ASSESSI NG OFFICER HAS MADE THE ADDITION OF RS.61 82 195/- WHICH IS AG AINST THE RULE OF NATURAL JUSTICE. MOREOVER THE ASSESSING O FFICER HAS WRONGLY MADE THE HUGE ADDITION BECAUSE YOUR APPLICA NT HAS STATED BEFORE THE AUTHORISED OFFICERS THAT DUE TO R ELATIONSHIP WE HAVE PROVIDED ACCOMMODATIVE BILLS AND NOT CHARGE D ANY AMOUNT. SO KINDLY DELETE THE ENTIRE ADDITION OF R S.61 82 195/- AND OBLIGE. AFTER CONSIDERING THE FACTS ON RECORD AND TO LAY TH E DISPUTE AT REST THE NATURE OF TRANSACTION IS TAKEN AS ACCOMMODATION BIL LS AND THE ADDITION SUSTAINED BY THE CIT(A) AT RS.1 33 000 IS CONFIRMED . IN THE LIGHT OF THAT FACT WE DO NOT THINK THAT IT WILL BE REASONABLE TO SUSTA IN ADDITION OF RS.58 54 538 ON SAME TRANSACTION. THEREFORE THE SAME IS HEREBY DELETED. GROUND NO.3 OF THE ASSESSEE IS ALLOWED. 15. GROUND NO.4 OF THE ASSESSEES APPEAL AND GROUND NO.1 OF REVENUES APPEAL PERTAIN TO ADDITION OF RS.80 00 445. THE CA SE OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS MADE PURCHASES FROM M /S BHAVIN JEWELLERS OF AHMEDABAD. THE NOTICE U/S 133(6) ISSUED BY THE DEP ARTMENT WAS RETURNED UNSERVED. THE ASSESSEE DID NOT FURNISH ANY SATISFAC TORY EXPLANATION REGARDING THE CLAIM OF THE SAID PURCHASES FROM BHAV IN JEWELLERS. THE ASSESSING OFFICER APPLIED A DECISION OF ITAT AHMED ABAD IN THE CASE OF VIJAY ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 14 PROTEINS LTD VS ACIT (SUPRA) AND 25% PROFIT WAS ADO PTED AND MADE THE ADDITION ACCORDINGLY. THE CIT(A) THOUGH ADMITTED THE FACTS NOTED BY THE ASSESSING OFFICER WITHOUT ANY REASONING HAS ADOPTE D 10% PROFIT INSTEAD 25% WHICH IS NOT CORRECT. THE ASSESSING OFFICER HA S FOLLOWED A DECISION OF ITAT IN CASE OF VIJAY PROTEINS (SUPRA). THERE IS N O CONTRARY MATERIAL TO REDUCE THE ESTIMATION FROM 25% TO 10%. WE THEREFO RE SET ASIDE THE ORDER OF CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASS ESSING OFFICER. GROUND 4 OF THE ASSESSEE IS DISMISSED AND GROUND NO.1 OF THE RE VENUE IS ALLOWED. 16. GROUND NO.5 IS IN RESPECT OF CHARGING OF INTERE ST U/S 234B OF THE ACT WHICH IS CONSEQUENTIAL. 17. GROUND NO.6 IS AGAINST INITIATION OF PENALTY WH ICH IS PREMATURE. 18. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL FILED BY THE REVENUE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25-02-2011. SD/- SD/- (N.R.S. GANESAN) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT DT : 25 TH FEBRUARY 2011 PK/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-III RAJKOT 4. THE CIT-II RAJKOT ITA NO.677/RJT/2010 ITA NO.746/RJT/2010 15 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT RAJKOT