Db Income Tax Appeal v. Income Tax Officer

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR DB Income Tax Appeal No.44/2015M/s H.K. Impex Vs. Income Tax Officer Date of Order :::: 10/05/2016 Hon'ble Mr. Justice M.N. BhandariHon'ble Mr. Justice J.K. Ranka Mr. Gunjan Pathak, counsel for the appellant BY THE COURT (Per: Hon'ble J.K. Ranka, J.) 1.Instant appeal under Section 260A of the Income Tax Act, 1961 (for short, 'Act') is directed against theorder dt.22/10/2015 passed by the Income TaxAppellate Tribunal, Jaipur Bench, Jaipur (for short,'Tribunal'). It relates to the assessment year 2007-08 2.Brief facts noticed for disposal of the appeal arethat the appellant-assessee is a manufacturer andexporter of precious stones. During the course ofverification of the books of accounts produced by theappellant, the Assessing Officer (for short, 'AO') foundthat the appellant-assessee made purchases from the following three parties as under:- 3.The AO desired the appellant-assessee to producethe said three parties from whom the purchases wereeffected to the tune of Rs.Rs.49,92,320/-. The AOclaims to have received information on the basis of enquiries conducted by the Investigating Wing that someparties were indulging in the activities of issuing bogussale bills to the businessmen who though have stock ofgoods available but to regularize such unaccountedstock, were obtaining sale bills without making theactual purchases. It was revealed by the InvestigatingWing on account of the search, seizure and survey onSanjeev Prakashan Group, Haldiya Group and others thatthe parties from whom purchases were made were non-existent or if found, denied of having sold the goods inactuality and merely providing sale bills on tokenamount on commission/brokerage basis. The AO, on thebasis of such investigation from the parties, from whomthe assessee had purchased the goods, as referred toabove, desired the assessee to produce all the abovementioned three parties who had sold the goodsalongwith their books of accounts including the purchasebills for verification. However, on the given dates, noneof the parties were produced and on the contrary, theassessee expressed his inability to produce theseparties/persons personally as the parties were not readyand willing to attend the office of AO on the request ofthe assessee. A request was made to the AO to issuesummons under Section 131 of the Act. On the desire ofthe assessee, the AO issued summons under Section 131of the Act on the addresses given by the assessee himself. However, all the summons returned back withthe postal remark “It was found that no such partyactually exists at the given address.” Since the assesseewas unable to produce the respective parties, the AOhimself got further enquiries conducted through WardInspector and found that on the basis of spot enquiry atthe business premises of M/s Ganpati Traders and M/sRatnam Jewellery that no business activities were beingcarried by the said firms at the addresses given. It wasalso found that the a survey operation was conducted bythe BCTT authorities of the department in the case ofM/s Umrao Exports and during the course of surveyproceedings, it was found that the said firm is not doingbusiness of gems and jewellery and only giving billswithout actual delivery of goods. No stock, cash orbooks of accounts etc. were found during the course ofsurvey. The AO also noticed that there were deficienciesin the stock register maintained and thus a show causenotice was given as to why in the light of theinformation gathered by the AO and other defects, thebooks of accounts be not rejected under Section 145(3)as not only the parties were not produced, were non-genuine or if found they were not carrying on anybusiness and the discrepancies noticed in the stockregister. by the Gujarat High Court in the case of M/s SanjayOilcake Industries Vs. Commissioner of Income-tax:(2008) 10 DTR (Guj.) 153 and other judgments of thisCourt, the AO disallowed 25% of the unverifiablepurchases of Rs.49.92,320/- and made a trading additionof Rs.12,48,080/-. 5.On an appeal by the assessee, the trading additionwas restricted by the Commissioner of Income Tax(Appeals) (for short, 'CIT(A)') to Rs.1 lac as against theaddition of Rs.12,48,080/- made by the AO. 6.The Tribunal, on a further appeal by the Revenueand cross appeal by the appellant though found all theclaims of the Revenue to be just and proper and theparties were not traceable on the basis of the returningof the summons with the remark “No entity exists onthe given addresses” and taking into consideration thejudgments of various courts , has held that it would bereasonable to disallow 15% of the unverifiable purchasesto meet the ends of justice as the assessee failed tobring on record genuineness of the purchases. It alsoheld that onus was on the assessee to prove thepurchases once the summons had come back andaccordingly sustained the addition to the tune of 15% ofthe unverifiable purchases. 7.Learned counsel for the appellant vehementlyargued that the assessee is basically a manufacturer and exporter and on one hand, the gross profit rate of21.91% has been accepted by the AO but in the garb ofaddition of Rs.12,48,080/- which has been reduced byTribunal, the gross profit rate has been enhanced whichis abnormal. He contended that the addition bydisallowing purchases should not have been made. Herelied upon the judgments rendered in the case of S.I.Rooplal and another Vs. Lt. Governor though ChiefSecretary, Delhi & ors.: AIR 2000 (SC) 594; Sayaji Ironand Engineering Co. Vs. CIT: 253 ITR 749; CIT Vs. LGRamamurthi 7 anr: (1977) 110 ITR 453 (Mad.); LakshmiVilas Bank Ltd. Vs. CIT: (2006) 284 ITR 93 (Mad.);Arihant Builders Developers & Investors Pvt Ltd Vs.ITAT : (2005) 277 ITR 239 (MP) and contended thatsubstantial question of law arise out of the orderimpugned. 8.We have heard ld.counsel for the appellant andhave perused the impugned order as well as the orderspassed by the lower authorities. Admittedly, theassessee claims to have purchased the goods from theabove three parties referred to herein before on whichthere was prima-facie apprehension by the Revenue thatthese parties including others are indulged in theactivities of issuing bogus bills without making actualsales/purchases and that is on the basis of theinvestigation carried out by the Investigating Wing of the Income Tax Department from time to time onaccount of search, survey and seizure on the variousgroups namely; Sanjeev Prakashan Group, Haldia Groupand Moti Sons Groups. 9.Though the assessee claims to have purchased thegoods from these parties and has paid the amount byaccount payee cheque but there is finding that theparties from whom purchases were made were issuingsale bills by charging nominal amount ascommission/brokerage and after clearing of the chequein their respective accounts, huge amounts used to bewithdrawn and were paid back to the assessee orpurchaser like the assessee. In our view as well, thepayment by cheque is not sacrosanct nor can a non-genuine transaction be made genuine as there is aindirect finding recorded by the AO that the aboveparties from whom purchases were effected had paidback the money after retaining commission/brokerageby issuing simply the bogus bill. Admittedly, the partieswere not produced for the reasons best known to theassessee or on the premise that after purchases havingbeen effected, payments were made, the parties werenot under control of the assessee but the fact remainsthat on the given address by the assessee, on the desireof the assessee, summons under Section 131 were issuedby the AO and all the three summons returned back with the remarks “that no such party actually exists at thegiven address.”No effort was made by the assessee inproducing or proving the genuineness of the transactionby any other acceptable mode except that aconfirmatory letter was filed by the assessee which, inour view, was not at all sufficient for the reason thathaving known that the parties did really exist on recordsbut were not being produced before the AO, howconfirmation could have been obtained by the assesseeand if the assessee was able to obtain confirmatoryletter, he could have further produced the parties. Inour view as well, merely because the exports have beenaccepted to be just and proper, arguments of thecounsel for the assessee that purchases in the samemanner ought to have been accepted is required to beoutrightly rejected. It was for the assessee to prove thegenuineness of the transaction. It is a matter where thepurchases in all the cases are of sizable amount namelyfrom M/s. Ganpati Traders to the tune of Rs.9,95,500/-;from M/s. Ratnam Jewellery to the tune ofRs.10,04,500/- and from M/s Umrao Exports to the tuneof Rs.29,92,320/-. The amount is sizable and we are inagreement with the findings of all the three authoritiesthat when a doubt was created in the mind of the AO,on the basis of investigation being carried, it was moreso important to prove the genuineness of the purchases. Admittedly, the Tribunal even recorded a finding of factin this regard which is reproduced as under :- “We have heard the rival contentions of boththe parties and perused the materialavailable on record. The assessee has notchallenged the rejection of book result asdefects pointed out by the Assessing Officerare sufficient to reject the book result U/s145(3) of the Act. The department hadconducted survey and search in various casesas mentioned by the Assessing Officer as wellas the learned CIT(A). On investigation, it isfound that three parties were also indulgedin providing accommodation bills. Thesufficient opportunities have been given bythe Assessing Officer to prove thegenuineness of the purchases. The AssessingOfficer himself issued the notices to theseparties but either notices were not served ornot returned back. The assessee could notproduce these parties for verification duringthe course of assessment proceedings. Eventhe Assessing Officer provides reasonableopportunity of being heard to the assessee.The learned Assessing Officer applied Hon'bleGujarat High Court decision in the case ofSanjy Oil Cake Industries (supra) and ITATAhmadabad Bench decision in the case ofVijay Proteins where 25% disallowance heldreasonable on unverifiable purchases. TheA.R. Of the assessee tried to distinguish thiscase with facts and circumstances and arguedto apply past history of the case. The onus ison the assessee to prove these purchasesgenuine. The assessee also could not be ablebe lead any evidence in furtherance of filingof confirmatory letter or merely showing thatthe payments were made by account payeecheques. The assessee was aware of thewhereabouts of the parties and he shouldhave produced these parties before theAssessing Officer for verification ofpurchases, which could not be done at thestage of assessment proceedings. It has beenestablished that these parties were providingaccommodation bills, no goods were suppliedby them. The assessee only producedconfirmation, PAN and TIN number andclaimed that payments were made throughaccount payee cheques whereas in investigation, the cash has been withdrawnfrom the sellers account immediately afterclearance of the cheques. The past history ofthe assessee is also not reliable. This findingis also got support from the decision ofHon'ble Rajasthan High Court in the case ofVenus Arts & Gems order dated 20/8/2014wherein it has been held that order passed bythe ITAT for confirming G.P. After rejectionof books of accounts on the basis of variousdiscrepancies found by the Assessing Officer.In the Hon'ble Court's view, there is noquestion of law. Even the assessee may be100% exporter which does not preclude theAssessing Officer from enquiring into thegenuineness of the purchases. Therefore, wehave considered view that 15% N.P. Onunverifiable purchases is reasonable in thiscase. Accordingly, the assessee's appeal ispartly allowed.” 10.There is a finding of fact recorded by the AO that the summons under Section 131 were issued by post and the summons received back unserved with theendorsement that no such party exist on the givenaddress. Thereafter again, the inspector was deputedsince the appellant failed to produce the parties againand we have also observed herein above that out of thethree parties, two namely M/s. Ganpati Traders andM/s. Ratnam Jewellery no business activities werecarried on by these parties at the addresses given andsimilarly in the case of M/s Umrao Exports, survey cameto be conducted and it was found that the firm is notdoing any gems and jewellary business and only givingbills without actual delivery of the goods and neitherany stock nor books of accounts were found during thecourse of survey. 11.This Court in the case of M/s G.B. Impex Vs.Income Tax Officer (DB Income Tax Appeal No.43/2015),decided on 28/04/2016, has taken into considerationvarious judgments of this Court in the case of IndianWoolen Carpet Factory Vs. Income Tax AppellateTribunal & ors.: 2002 CTR 178 (Raj.) 420; Commissionerof Income-Tax Vs. Golecha Properties (Pvt.) Ltd. (InLiquidation): 1997 ITR 227 (Raj.) 391; Commissioner ofIncome-Tax Vs. Precision Finance Pvt. Ltd.: 1994 ITR 208(Cal.) 465; V.I.S.P. (P) Ltd. Vs. Commissioner of IncomeTax & Anr.: 2004 CTR 186 (MP) 718; Commissioner ofIncome-Tax Vs. La Medica :2001 ITR 250 (Delhi) 575, hasdismissed the appeal of G.B. Impex in that case on thesame self controversy involved and upheld the finding offacts recorded. 12.Since the self same controversy as involved in theinstant case has already been decided by this Court inthe case of M/s G.B. Impex Vs. Income Tax Officer(supra) where this Court has found that no substantialquestion arise out of the Tribunal and it is a finding offact which is based on the material on record and in ourview, the controversy involved in the present case isalso squarely covered by the judgment passed by thisCourt in the case of M/s G.B. Impex Vs. Income TaxOfficer (supra). In fact, the present appeal and appealof M/s G.B. Impex was decided by the Tribunal by a common order. 13.Accordingly, in our view, no question of law muchless substantial question of law can be said to arise outof the order passed by the Tribunal so as to call forinterference. 14.Consequently, the appeal, being devoid of merit,is accordingly dismissed. [J.K. Ranka],J. [M.N. Bhandari],J. Raghu/p.11/ Certificate:All corrections made in the judgment/order have beenincorporated in the judgment/order being e-mailed.Raghu, Sr. PA.