DCIT, Ludhiana V. M/s R.B. Knit Exports, Ludhiana

ITA 1331/CHANDI/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73483 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 24-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1331/CHD/2012 ASSESSMENT YEAR : 2009-10 D.C.I.T. C.C. VI, LUDHIANA VS. R.B. KNIT EXPORTS 415, INDUSTRIAL ARA A LUDHIANA AABFR 4116K (APPELLANT) (RESPONDENT) APPELLANT BY SHRI AKHILESH GUPTA RESPONDENT BY: SHRI ASHWANI KUMAR DATE OF HEARING 20.2.2014 DATE OF PRONOUNCEMENT 26.2 .2014 O R D E R PER T.R.SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 29.10.2012 OF THE LD CIT(A)-I, LUDHIANA. 2. IN THIS APPEAL THE REVENUE HAS RAISED FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS. 2,17,25,124/- MADE ON ACCOUNT OF DISALLOWANCE OF 50% OF THE EXPENDITURE C LAIMED UNDER THE HEAD FABRICATION CHARGES BY IGNORING THE FACTS THAT THE ASSESSEE FAILED TO FURNISH CONFIRMATION FROM THE PERSONS / PARTIES WHO HAD BEEN PAID FABRICATION CHARGES WITHOUT DEDUCTING TDS. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS. 2,17,25,124/- MADE O ACCOUNT OF DISALLOWANCE OF 50% OF THE EXPENDITURE C LAIMED UNDER THE HEAD FABRICATION CHARGES BY IGNORING THE FACT THAT THE ONUS OF PROVING CONTRARY TO THE AOS VIEW WAS ON THE ASSESSEE WHO F AILED TO DISCHARGE THE SAME DESPITE BEEN GIVEN ADEQUATE TIME AND DUE O PPORTUNITIES. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE FINDING OF LD. CIT(A) THAT THE AO INITIATED THE ENQ UIRY AT THE FAG END OF THE YEAR IS CORRECT, IGNORING THE FACTS BROUGHT BEF ORE HIM THAT IT WAS THE ASSESSEE WHO WITHHELD INFORMATION AT EVERY STEPS DU RING THE ASSESSMENT PROCEEDINGS TILL THE FAG END OF THE YEAR. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS INCURRED A TOTAL EXPENDITURE UNDER THE HEAD 2 FABRICATION CHARGES AMOUNTING TO RS. 93403944/-. INITIALLY AGAINST THE ENQUIRIES NO DETAILS WERE FILED. ULTIMA TELY IT WAS SUBMITTED THAT IN MANY CASES TDS HAS BEEN DEDUCTED AND THE NAMES AND ADDRESS OF THE PARTIES WERE SUBMITTED. H OWEVER, IN SOME CASES TDS WAS NOT DEDUCTED AGAINST THE PAYM ENTS WHICH WERE LESS THAN RS. 20,000/-. NAMES AND ADDRE SSES OF THE PARTIES TO WHOM FABRICATION CHARGES HAVE BEEN P AID TO THE EXTENT OF RS. 2,45,84,295/- WERE PROVIDED. IT WAS FURTHER NOTED THAT THE ASSESSEE HAS NOT GIVEN COMPLETE ADDRESSES IN THE FOLLOWING CASES. A. IN MANY CASES, ASSESSEE HAS NOT PROVIDED COMPLET E ADDRESSES OF THE PARTIES. A FEW INSTANCES ARE MENTIONED BELOW: CHANDAN GIASPURA, LUDHIANA VEENA DEVI THOKA ISLAM GANJ, LUDHIANA GEETA DEVI THOKA BALMIKI COLONY, LUDHIANA IT WAS ALSO NOTED THAT MANY PERSONS WERE STATED TO BE RESIDING IN THE SAME PLACE FOR EXAMPLE IN FOLLOWING CASES: B. AS PER THE LIST SUBMITTED BY ASSESSEE, MANY FABR ICATORS ARE RESIDING AT THE SAME ADDRESS. A FEW INSTANCES ARE MENTIONED BEL OW: HIMMAT SINGH PRESS MAN H.NO. 1004, GALI NO. 6, JAN AK PURI, LDH RAVI SHANKAR CUTTER H.NO. 1004, GALI NO. 6, JANAK PURI, LDH PRIYA LAL HAND PRESS H.NO. 1004, GALI NO. 6, JANAK PURI, LDH THEREFORE AN INSPECTOR WAS DEPUTED TO MAKE ENQUIRIE S AND THE INSPECTOR AFTER THE ENQUIRIES SUBMITTED A REPORT WH ICH HAS BEEN REPRODUCED AT PAGE 3 TO 5 OF THE ASSESSMENT ORDER. THE MAIN GIST OF THE REPORT IS THAT MANY ADDRESSES WERE NOT FOUND IN THE GIVEN ADDRESSES. MANY PERSONS WERE NOT FOUND RESID ING IN SUCH ADDRESSES. THE ASSESSEE WAS CONFRONTED WITH T HESE ENQUIRIES. IN RESPONSE IT WAS MAINLY STATED THAT MOST OF THE LABOUR ENGAGED IN THE GARMENT INDUSTRY DOING VARIOU S JOBS WERE MIGRANT LABOUR COMING FROM DIFFERENT PARTS OF THE C OUNTRY AND WERE TEMPORARILY STAYING FOR A FEW MONTHS. SUCH LA BOUR FORCE 3 HAS LESS LOYALTY TOWARDS A PARTICULAR UNIT AND SHIF TED THEIR JOBS WHENEVER AN OPPORTUNITY ARISES. SUCH LABOUR, THERE FORE KEEPS ON MOVING FROM UNIT TO UNIT. IT WAS ALSO SUBMITTED THAT VERY LITTLE TIME WAS GIVEN TO THE ASSESSEE FOR FURNISHIN G COMPLETE DETAILS. HOWEVER, THE ASSESSING OFFICER DID NOT AG REE WITH THESE SUBMISSIONS AND DISALLOWED 50% OF THE EXPENSE S WHERE TDS HAS NOT BEEN DEDUCTED AND THUS MADE AN ADDITION OF RS. 2,17,25,124/-. 4 BEFORE THE LD. CIT(A) THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER HAVE BEEN REITERATED AND FURTHER ELABORATIONS HAVE BEEN MADE. IT WAS CONTENDED THAT IT WAS POSSI BLE IN MANY CASES THE LABOUR LEAVE THEIR PLACES. CERTAIN DEFECTS WERE POINTED OUT IN THE ENQUIRIES MADE BY THE INSPE CTOR. FURTHER IT WAS STATED THAT THE ASSESSING OFFICER HA D GIVEN A VERY LITTLE TIME TO PROVE ITS CLAIM. REFERENCE WAS ALSO MADE TO COMPARATIVE GROSS PROFIT RATE AND NET PROFIT RATE A ND PROPORTION OF FABRICATION EXPENSES IN THE EARLIER YEARS. 5 THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS NO TED THAT FIRST ENQUIRY IN RESPECT OF FABRICATION CHARGE S WAS MADE ON 18.11.2011 WHICH MEANS VERY LITTLE TIME WAS GIVEN T O THE ASSESSEE TO PROVE ITS CLAIM. HE ACCEPTED FOLLOWING ERRORS IN INSPECTORS REPORT: SL. NO. NAME OF FABRICATOR COMMENTS OF INSPECTOR FACTUAL POSITION (I) PYARE LAL HAND PRESS, H.NO. 1004, ST. NO. 6, JANAK PURI, LUDHIANA NO SUCH PERSON EXISTS PERSON PRODUCED BEFORE THE LEARNED ASSESSING OFFICER FOR VERIFICATION. ADDRESS PROOF ALSO FILED. (II) KARTAR CHAND HAND PRESS, H.NO. 1001, ST. NO. 6, JANAK PURI, LUDHIANA FOUND, BUT HE DOES NOT WORKS IN R.B. KNIT EXPORT PERSON PRODUCED BEFORE THE LEARNED ASSESSING OFFICER FOR VERIFICATION. 4 ADDRESS PROOF ALSO FILED. (III) KUMAR LABEL-MASTER, PLOT NO. 1020. ST. NO. 6, JANAK PURI, LUDHIANA NO SUCH PERSON EXISTS SH. RAMESH KUMAR PROP. OF KUMAR LABEL MASTER IS PRODUCED BEFORE THE LEARNED ASSESSING OFFICER FOR VERIFICATION. II) IN ADDITION, IT IS ALSO SUBMITTED THAT SUBSEQU ENT TO THE FINALIZATION OF THE ASSESSMENT GIVEN THE FURTHER TIME AVAILABLE TO THE APPELLANT FIRM AN ADDITIONAL EXERCISE WAS ALSO UNDERTAKEN IN RESPECT OF THE FIND INGS CONVEYED BY THE INCOME TAX INSPECTOR IN HIS REPORTED 27-12-2011 WHI CH ARE BEING ENUMERATED BELOW FOR YOUR HONOURS KIND CONSIDERATION:- *(A) THE LIST CONTAINS 37 NAMES OUT OF WHICH ONE NA ME IS REPEATED. AS SUCH THE SAME CONSISTS OF ONLY 36 PERSONS, OUT OF THE SA ID, 17 PEOPLE HAVE SUBSEQUENTLY BEEN TRACED AND TWO PEOPLE HAVE SINCE EXPIRED. (B) THE ADDRESSES MENTIONED AGAINST MANY CONTRACTOR S MENTIONS HARGOBIND NAGAR, LUDHIANA. IT MAY BE MENTIONED THAT THERE ARE TWO HARGOBIND NAGARS IN LUDHIANA VIZ. ONE LOCATED NEAR APOLLO HOSPITAL AND OTHER NEAR TRANSPORT NAGAR. IT SEEMS THAT THE INCOME TAX INSPECTOR HAS GONE TO THE NEW HARGOBIND NAGAR (NEAR TRANSPORT NAGAR) WHEREAS THE ENTIRE LABOUR WA S RESIDING IN HARGOBIND NAGAR LOCATED NEAR APOLLO HOSPITAL. (C) WITH RESPECT TO 13 PEOPLE LIVING IN HOUSE NO. 1 3988 PRABHAT NAGAR, LUDHIANA AGAINST WHICH IT HAS BEEN MENTIONED THAT N O SUCH PERSONS EXISTS, IT IS STATED THAT THE FINDINGS OF THE APPELLANT FIRM THAT THE OWNER AND THE WIFE HAVE DIED AND THE SON LIVES IN SOME VILLAGE NEAR LUDHIAN A AND COMES TO COLLECT MONTHLY RENT AND THE HOUSE IS FOR RENTALS ONLY. DAL BIR SINGH IS ONE OF THE TENANTS IN THE HOUSE WHO RUNS A SHOP CLOSE BY. HE W AS ASKED BY INSPECTOR HOW LONG HAS HE BEEN RESIDING THERE SINCE A VOTER LIST HAD TO BE MADE APART FROM THIS NOTHING ELSE WAS ENQUIRED FROM HIM. MR. AMAR N ATH WHO HAS DIED WAS THE CONTRACTOR FOR ALL THESE PEOPLE AND ONCE HE DIES TH IS LABOUR GRADUALLY WENT AWAY. HOWEVER, WE HAVE BEEN ABLE TO TRACE 3 PEOPLE OUT OF THE LIST. THE ABOVE FINDINGS CLEARLY POINT OUT TO THE PERFUNC TORY AND CASUAL MANNER IN WHICH THE ENTIRE ENQUIRY HAS BEEN CARRIED OUT BY TH E INCOME-TAX INSPECTOR THEREBY CASTING SERIOUS DOUBTS O ITS AUTHENTICITY, VERACITY AND RELIABILITY. III) IN ADDITION, IT IS ALSO SUBMITTED THAT THE REP ORT OF THE INCOME TAX INSPECTOR, THE CONTENTS OF WHICH WERE SUPPLIED TO T HE APPELLANT FIRM VIDE LETTER DT. 27.12.2011 BY THE LEARNED ASSESSING OFFICER NOT ONLY SUFFER FROM INCONSISTENCIES, INACCURACIES AND ERRORS AS LISTED OUT ABOVE BUT DOES NOT FULFILL THE RELEVANT CRITERIA OF FURNISHING A REPORT IN AS MUCH AS NONE OF THEM IS BACKED BY ANY DOCUMENTARY OR CIRCUMSTANTIAL EVIDENCE SUCH AS RECORDED STATEMENT ETC. FURTHER, THE INCOME TAX INSPECTOR WAS INSTRUCTED BY THE LEARNED ASSESSING OFFICER ON 27-12-2011 TO CARRY OUT THE SAID EXERCIS E COVERING OUT DIFFERENT GEOGRAPHICAL LOCATIONS IN LUDHIANA WHICH REPORT WAS COMPLIED ALLEGEDLY ON THE BASIS OF PERSONAL VISITS ON THE SAME DAY ITSELF AND THE REPORT ALSO SUBMITTED ON THE SAME DAY. TO PUT IT DIFFERENTLY, THE DIRECTIONS FOR CARRYING OUT INQUIRIES, THE CONDUCT OF INQUIRIES AND THE SUBMISSION OF THE REPO RT WERE CARRIED OUT WITHIN THE SPACE OF ONE WORKING DAY AND WE MAY ALSO ADD HE RE THAT THE INQUIRIES WERE MEANT TO BE CONDUCTED IN RESPECT OF 36 DIFFERENT FA BRICATORS. GIVEN THESE FACTS, IT CAN ONLY BE IMAGINED AND CONJECTURED AS TO THE Q UALITY OF INQUIRES AND THE MANNER IN WHICH THEY WOULD HAVE BEEN CONDUCTED. IT IS CLEAR THAT IN THE LIMITED TIME AVAILABLE, THE INQUIRIES WOULD HAVE BEEN CONDU CTED IN A SLIP-SHOD AND RUSHED MANNER WHEREBY CERTAIN GROUND REALITIES, REL EVANT FACTS AND CLINCHING EVIDENCE WOULD HAVE BEEN IGNORED. IN FACT, SEVERAL INCONSISTENCIES IN THE REPORT OF THE INCOME TAX INSPECTOR HAVE ALREADY BEE N POINTED OUT ABOVE WHICH WOULD FURTHER JUSTIFY AND PROVE THE APPELLANT FIRM S SUBMISSIONS AS TO THE UNRELIABILITY AND LACK OF DEPENDABILITY OF HIS REPO RT. IN VIEW OF THE SAME, GOING BY PRINCIPLE OF SOUND LOGIC, THE REPORT OF THE INCO ME TAX INSPECTOR DESERVES TO BE IGNORED AND NEGATED. 5 THE LD. CIT(A) FURTHER NOTED THAT COMPARATIVE GROSS PROFIT RATE READS AS UNDER: A.Y. 2007-2008 A.Y. 2008-2009 A.Y. 2009-2010 TOTAL TURNOVER (RS.) 324,521,861.00 312,347,116.00 325,587,422.00 GROSS PROFIT (RS.) 82,955,433.00 85,249,668.00 95,0 44,444.00 GROSS PROFIT RATE 25.56% 27.29% 29.19% HE ALSO NOTED THAT FABRICATION CHARGES HAVE BEEN PR OPOSED ON A LOWER SIDE WHICH IS EVIDENT FROM THE FOLLOWING CH ART: ASST. YEAR SALE ADJUSTMENT OF KNITWEAR FABRICATION CHARGES % OF FABRICATION CHARGES TO SALE 2009-10 2991.24 937.03 31.33 2008-09 2851.42 1068.57 37.48 2007-08 3080.00 957.20 31.08 2006-07 2823.67 972.30 34.43 IN THE ABOVE BACKGROUND AS WELL AS VARIOUS LEGAL DE CISIONS RELIED ON BY THE ASSESSEE, THE LD. CIT(A) DELETED T HE ADDITION. 6 BEFORE US, THE LD. D.R. FOR THE REVENUE CARRIED U S THROUGH VARIOUS PARAS OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSING OFFICER HAS CLEARLY FOUND SO MAN Y DEFECTS STILL THE LD. CIT(A) HAS ALLOWED RELIEF BY MERELY R ELYING ON THE PROFITABILITY AND FABRICATION CHARGES RATIO. 7 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESS EE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). HE ALSO SUBMITTED THAT IN THIS CASE THE ASSESSEE HAS FILED RETURN OF INCOME DECLARING INCOME OF RS. 2,80,94,049/- ON TOT AL EXPORTS APPROXIMATELY 32.5 CRORES WITHOUT CLAIMING ANY DEDU CTION UNDER ANY PROVISIONS OF LAW. THIS ITSELF SHOW THAT THE A SSESSEE HAD NO INTENTION TO HIDE ANY PROFIT FROM THE DEPARTMEN T. 8 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREFU LLY AND WE ARE SATISFIED WITH THE REASONING GIVEN BY THE LD . CIT(A) FOR ALLOWING RELIEF. NO DOUBT GROSS PROFIT RATE DURING THE YEAR WAS 6 29.19 FROM 27.29% IN EARLIER YEAR AND SIMILARLY FAB RICATION CHARGES HAVE ALSO GONE DOWN FROM APPROXIMATELY 35% IN THE EARLIER YEAR TO 31.33%. HOWEVER, AT THE SAME TIME ALL THE DEFECTS POINTED OUT BY THE ASSESSING OFFICER HAVE N OT BEEN CLARIFIED BY THE ASSESSEE BEFORE THE LD. CIT(A). I T HAS ALSO TO BE APPRECIATED THAT IT IS VERY DIFFICULT THAT THE M IGRANTS WHO COME TEMPORARILY FROM VARIOUS PARTS OF THE COUNTRY. BUT AS WE HAVE OBSERVED EARLIER ALL THE DEFECTS HAVE NOT BEEN FULLY EXPLAINED BY THE ASSESSEE, THEREFORE TO AVOID ANY L EAKAGE OF REVENUE AND OVER BOOKING OF FABRICATION CHARGES WE ARE OF THE OPINION THAT IF AN ADDITION OF RS. 15 LAKHS IS MADE THAT WOULD MEET THE ENDS OF JUSTICE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO MAKE AN ADDITION OF RS. 15 LAKHS ON ACCOUNT OF FABRICATION CHARGES. 9. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.2.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26.2.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR