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2024 (10) TMI 351 - AT - Income TaxAssessment u/s 153A - assessee has declared purchases from the persons who were simply issuing bogus purchases vouchers and there were no export sales by assessee and only laundering of unaccounted money was made for claiming deduction u/s 80HHC by bringing the foreign remittance in India through Hawala - second round of litigation - As argued genuineness of purchases made from other then the parties listed herein below cannot be doubted as there is nothing incriminating against such parties in the assessment order - CIT (A) confirmed the addition of income being 25% of unverifiable purchases treating the same to be made to inflate the export profit and directed to treat the same as Income from other sources HELD THAT - We have heard the rival contentions and perused the material available on record. The bench noted that in this case the Hon ble jurisdictional while allowing the appeal of the revenue set aside the assessment to be done a fresh. While doing so the Hon ble High Court has followed the finding so given in the case of M/s. Gems Paradise 2016 (11) TMI 1400 - RAJASTHAN HIGH COURT directing the assessing officer to verify the transactions are genuine or not. The bench noted that in that set aside proceeding the ld. AO did not verify the issue which was set aside by the High Court and the same addition which was done in the first round of litigation was done. Even the ld. CIT(A) also given the same finding that was recorded in the earlier order issued in the first round. Rejection of books of account - Section 145(3) can be invoked when the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, when the method of accounting provided in Section 145 (1) has not been regularly followed by the assessee and when the accounting standards notified u/s 145 (2) have not been regularly followed by the assessee. From the observations recorded in the order of the lower authority none of the condition is satisfied and same is also not evident from the finding of the lower authority. Not only that the bench also observed that when the provision of section 145(3) is to be invoked the assessment is to be completed as per the manner provided in section 144 and the proper opportunity is required to be given by pointing out the defects in the books of account which we observe that the same is not followed and thus the order is not correct. To drive home to this contention we get strength to support our view based on the provision of the Act and decision of Pink City Developers 2017 (11) TMI 1082 - RAJASTHAN HIGH COURT Based on the discussion so recorded even in the second round of litigation the ld. AO could not find any defects in the books of account, we considered ground no. 2 in favour of the assessee. Estimation of income - addition @ 25% of unverifiable purchases - Respectfully, following the rate of gross profit to be estimated in case where the issue of bogus purchase are involved and the estimation of profit we noted that in all the case the profit is higher that what is decided by the High Court. Even the high court while dealing with the case noted that where the assessee is shown higher profit no relief will be granted then what profit is disclosed by the assessee. Based on this observation we see no reason to sustain the estimate addition @ 25 % of purchases confirmed by the ld. CIT(A). In the result we follow the decision of Clarity Gold Private Limited 2017 (9) TMI 1640 - RAJASTHAN HIGH COURT no addition can be made even if the purchases held as unverifiable as the gross profit rate are higher in the year under consideration, then what is decided by the jurisdictional high as profit to be decided in such cases. The bench also noted that the assessee in his submission submitted GP chart of other comparable cases, which shows the GP declared by the assessee is in conformity of other parties in the same trade, this submission of the assessee has not been controverted by the revenue on facts. We also take note of the fact that the search party recorded the statement of Shri Ramesh Manihar u/s 132(4) of the Act, who is one of the partner in the assessee firm and he stated the profit rate is about 50% in his business of M/s. Govindam Exports. This statement submitted before the search party also confirms the GP rates declared by the assessee. Based on the discussion recorded herein above we hold that no further addition deserves to be made in the case of assessee on account of unverifiable purchases. Thus, ground no. 3 raised by the assessee is allowed.
Issues Involved:
1. Validity of assessment orders and additions made therein. 2. Rejection of books of accounts under Section 145(3) of the Income Tax Act. 3. Genuineness of purchases and estimation of profit on unverifiable purchases. 4. Compliance with Section 153D regarding approval for assessment orders. Detailed Analysis: 1. Validity of Assessment Orders and Additions: The primary issue was whether additions could be made in completed assessments without incriminating material. The assessee argued that no incriminating material was found during the search to justify additions for the assessment years 1998-99 to 2001-02. The assessee relied on the Supreme Court's decision in PCIT Central-3 V/s Abhisar Buildwell Private Limited, which prohibits additions in the absence of incriminating material. The Tribunal found that the assessment orders were not based on any new findings or evidence and were merely reiterations of previous assessments. Consequently, the Tribunal held that no additions could be made without incriminating material. 2. Rejection of Books of Accounts: The rejection of books of accounts was contested by the assessee, who argued that no defects were pointed out in the books, nor was a show-cause notice issued as required under Section 145(3). The Tribunal noted that the lower authorities failed to identify any specific defects or non-compliance with accounting standards. The Tribunal emphasized that the invocation of Section 145(3) requires specific findings of incorrectness or incompleteness, which were absent in this case. Therefore, the Tribunal held that the rejection of books was unjustified. 3. Genuineness of Purchases and Estimation of Profit: The Tribunal examined whether the estimation of profit at 25% on unverifiable purchases was justified. The assessee provided evidence of genuine transactions with the disputed parties, supported by statements and affidavits. The Tribunal referred to previous ITAT rulings and Rajasthan High Court decisions that confirmed the genuineness of transactions with these parties. The Tribunal also considered the gross profit rates declared by the assessee, which were higher than the industry average. Citing the Rajasthan High Court's decision in M/S Clarity Gold (P) Ltd., which set a benchmark gross profit rate of 12% for similar cases, the Tribunal concluded that no further additions were warranted since the assessee's declared profits exceeded this benchmark. 4. Compliance with Section 153D: The assessee challenged the assessment orders on the grounds of non-compliance with Section 153D, which mandates prior approval from a Joint Commissioner. The Tribunal noted that the assessment orders lacked any mention of such approval, raising doubts about compliance. The Tribunal referenced the Orissa High Court's decision in ACIT Vs. Serajuddin and Co., which emphasized the mandatory nature of Section 153D's approval requirement. Given the absence of evidence of such approval, the Tribunal found the assessment orders procedurally flawed. Conclusion: The Tribunal allowed the appeals filed by the assessee, holding that the assessment orders were invalid due to the absence of incriminating material, unjustified rejection of books of accounts, and procedural non-compliance with Section 153D. The Tribunal directed the deletion of additions made on unverifiable purchases, as the assessee's declared gross profits were higher than the industry standard. The decision underscores the importance of adhering to procedural requirements and relying on substantive evidence in tax assessments.
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