2011 (6) TMI 938 - AT - Income Tax

Summary

Issues Involved:

1. Restriction of trading addition by AO due to unverifiable purchases and low gross profit (G.P.) rate.
2. Confirmation of addition and rejection of books of account by the assessee.
3. Verification of purchases from Surat and Jaipur parties.

Summary:

Issue 1: Restriction of Trading Addition by AO

In the case of M/s. Dhandia Gems Corporation, the department objected to the restriction of the trading addition to Rs. 50,000/- made by the AO at Rs. 1,08,89,490/- due to unverifiable purchases and a low G.P. rate. Similarly, for M/s. Dhandia Exports, the department objected to the restriction of the trading addition to Rs. 50,000/- against an addition of Rs. 15,87,411/- made by the AO on account of unverifiable purchases.

Issue 2: Confirmation of Addition and Rejection of Books of Account by the Assessee

The assessees, through their cross objections, objected to the confirmation of the addition of Rs. 50,000/- and the rejection of their books of account. The AO rejected the books of account based on unverifiable purchases from Surat and Jaipur parties, relying on various judicial precedents. The AO disallowed 25% of the unverifiable purchases, which was contested by the assessees.

Issue 3: Verification of Purchases from Surat and Jaipur Parties

The CIT (A) found that the AO did not make independent inquiries regarding the Surat parties and relied solely on the ADIT Surat's report. The CIT (A) noted that the assessee was not given a proper opportunity to produce the Surat parties and that the purchases from these parties could not be conclusively proved as non-genuine. However, purchases from two Jaipur parties remained unverifiable, justifying the rejection of books of account u/s 145(3) for these purchases.

The CIT (A) concluded that the AO failed to find defects in the stock register maintained by the appellant and that the method of valuation of closing stock was consistent. The CIT (A) reduced the addition from Rs. 1,08,89,490/- to Rs. 50,000/- to account for unverifiable purchases, which was deemed reasonable.

Final Judgment:

The Tribunal found no infirmity in the CIT (A)'s findings and confirmed the addition of Rs. 50,000/- in both cases, as certain purchases remained unverifiable. The cross objections filed by the assessees were dismissed as not pressed. The appeals of the department and the cross objections of the assessees were dismissed. The order was pronounced in the open court on 10.6.2011.