M/S. KACHWALA GEMS, JAIPUR versus JOINT COMMISSIONER OF INCOME TAX, JAIPUR

Citation: [2006] SUPP. 10 S.C.R. 992 · Decided: 14-12-2006 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Dismissed

Judgment (excerpt)

A 
MIS. KACHWALA GEMS, JAIPUR 
v. 
JOINT COMMISSIONER OF INCOME TAX, JAIPUR 
DECEMBER 14. 2006 
B 
(S.B. SINHA AND MARKANDEY KA TJU, JJ.] 
Income Tax Act, 1961: 
C 
. s. I 44-Best judgment assessment-Books of accounts of assessee rejected 
as being defective-Tax authorities recording finding of bogus purchases-
Held, such finding cannot be interfered with in instant appeal-Cogent 
reasons given for rejection of books of accounts-In best judgment assessment 
there is always a certain degree of guess work, but there is no arbitrariness 
on part of income tax authorities warranting interference. 
D 
Books of accounts of the appellant-assessee were found defective and 
the purchases shown were held to be bogus by the Assessing Officer. He 
assessed assessee's gross profit u/s 144 of Income Tax Act at the rate of 
40% on the basis of comparable cases, which was reduced to 35% by 
Commissioner (Appeals) and further to 30% by Income. Tax Appellate 
E Tribunal. 
F 
G 
H 
In the present ap.peal the assessee challenged the finding of bogus 
purchl;lses and rejection of books of accounts. 
Dismissing the appeal, the Court 
HELD:l. Whether there were bogus purchases or not, is a finding 
of fact, and this Court cannot interfere with the same in the instant appeal. 
As regards the rejection of the books of accounts, cogent reasons have been 
given by the Income Tax Authorities for doing so, and there is no reason to 
take a different view. [994-F-G] 
2. No doubt, the authorities concerned should try to make an honest 
and fair estimate of the income even in a best judgment assessment, and 
should not act totally arbitrarily, but there is necessarily some amount of guess 
work involved in such a case and it is the assessee himself who is to·blame as 
992 
KACHWALA GEMS, JAIPUR t•. JOINT COMMNR. OF INCOME TAX, JAIPUR [MARKANDEY KATJU, J. J 993 
he did not submit proper accounts. There was no arbitrariness in the instant A 
case on the part of the Income Tax Authorities. [994-H; 995-A) 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5809 of2006. 
From the final Judgment and Order dated 25.8.2004 of the High Court 
of Judicature for Rajashthan ·at Jaipur Bench, Jaipur in D.B. LT.A. No. 80/2004. B 
Pankaj Jain, Abhay Jain and K.C. Dua for the Appellant. 
Dr. A.E. Chelliah, Arijit Prasar, B.V. Balaram Das and Venanthakumar 
chelliah for the Respondent. 
The Judgment of the Court was delivered by 
MARKANDEY KAT JU, J. Leave granted. 
c 
This appeal has been filed against the impugned judgment of the 
Rajasthan High Court dated 25.8.2004 in Income Tax Appeal No.80 of2004. D 
Heard learned counsel for the parties and perused the record. 
The facts of the case are in a short compass. The appellant assessee 
deals in precious and semi precious stones. In the course of assessment the 
Assessing Officer noticed the following defects in the books of accounts of E 
the assessee : 
"I. The assessee has not maintained and kept any quantitative details/ 
stock register for the goods traded in by the assessee. 
2. There is no evidence on record or document to verify the basis of F 
the valuation of the closing stock shown by the assessee. 
The 
assessee is not able to prepare such details even with the help of 
books of accounts maintained, purchase bills & Sale Invoices. 
3. Provisions of Section 145(3) are clearly attracted in this case. 
4. The genuineness of purchases to the extent ofRs.42 lakhs (approx.) G 
is not proved without any doubt. 
5. The GP rate declared by the assessee at 13.49% during the 
assessment year is not a match to the result declared by the itself in 
the previous assessment years. 
H 
994 
SUPREME COURT REPORTS (2006] SUPP. IO S.C.R. 
A 
6. Mis. Gem Plaza, engaged in local sales of similar goods declared 
voluntarily rate of 35% in its assessment for the assessment year 
1997098. 
7. Mis. Dhadda Exports, another assessee dealing in same items, but 
doing export business declared GP ra~e of 43.8% (even without 
B 
considering the value of export incentives) in assessment year 1997-
98." 
Thereafter the books of accounts of the assessee were rejected by the 
Assessing Officer and he resorted to best judgment assessment under Section 
144 of the Income Tax Act. The Assessing Officer in the assessment order 
C mentioned some comparable cases and was of the view that the case of the 
assessee is more or less having similar facts as that of Mis. Gem Plaza where 
the Gross Profit has been taken as 35.48%. The Assessing Officer e

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