The ACIT, Circle-1, Bhavnagar V. M/s. Jalpa Diamond, Bhavnagar

ITA 1403/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9995 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-08-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 22-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T P HEMANI
• Assessee Lawyers: VIMALENDU VERMA
• Keywords: Unexplained expenditure
• Section: 80HHC; 263

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI MUKUL KR. SHRAWAT, JM AND A. N. PAHUJ A, AM ASSTT. CIT, CIRCLE-1, BHAVNAGAR. VS. M/S JALPA DIAMOND, PLOT NO.1021-B, OPP. VIRBHADRA AKHADA, AMBAVADI, BHAVNAGAR. (APPELLANT) .. (RESPONDENT) REVENUE BY :- SHRI VIMALENDU VERMA, SR.DR REVENUEBY:- SHRI T. P. HEMANI, AR O R D E R PER MUKUL KR. SHRAWAT, JUDICIAL MEMBER . THE REVENUE IS IN APPEAL ARISING FROM THE ORDER OF CIT(A)XX, AHMEDABAD DATED 31.12.2007 AND THE ASSESSEE HAS FIL ED CROSS OBJECTIONS. 2. ALL THE GROUNDS OF REVENUE ARE IN RESPECT OF ACC EPTING THE LABOUR CHARGES PAID TO VARIOUS PARTIES BY LD. CIT(A). HOWE VER, THE PAYMENTS WERE STATED TO BE MADE IN CASH. IN THIS CONTEXT GRO UND NO.1 TO 5 AS RAISED BY THE REVENUE ARE REPRODUCED BELOW :- (1) THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.1,42,100/- MADE BY THE AO ON ACCOUNT OF LABOUR WORK PAYMENT TO M/S JENISH EXPORTS. (2) THE LD. CIT(A) ERRED IN LAW AND ON FACTS O F THE CASE IN DELETING THE ADDITION OF RS.1,86,503/- MADE BY THE AO ON ACCOUNT OF LABOUR WORK PAYMENT TO ANUBHAI P. VALANI. ITA NO.1403/AHD/2008 ALONG WITH CO NO.108/AHD/2008 ASST. YEAR :2004-05 2 (3) THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.49,725/- MADE BY THE AO ON ACCOUNT O F LABOUR WORK PAYMENT TO ZAVERI MANJIBHAI. (4) THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.87,248/- MADE BY THE AO ON ACCOUNT O F LABOUR WORK PAYMENT TO BABUBHAI M. HADIYA. (5) THE LD. CIT(A) ERRED IN LAW AND ON FACTS TO IGN ORE THAT THE ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE TRANSACT IONS OF THE SO CALLED LABOUR WORK PAYMENT CLAIMED BY THE ASSESSEE. 3. THE FACTS IN BRIEF AS EMERGED FROM THE CORRESPON DING ASSESSMENT ORDER PASSED UNDER SECTION 143(3), DATED 29.12.2008 WHEREIN IT IS STATED THAT THE ASSESSEE FIRM IS IN THE BUSINESS OF MANUFA CTURING AND EXPORT OF DIAMONDS. AS FAR AS THE POSITION OF THE PERCENTAGE OF GP WAS CONCERNED IT WAS BETTER COMPARING TO IMMEDIATE PAST ASST. YEAR A S IS EVIDENT FROM THE FOLLOWING CHART:- SL. NO. PARTICULARS ASST. YEAR 2004-05 ASST. YEAR 2003-04 ASST. YEAR 2002-03 1. TURNOVER 166621968 161834509 67610844 2. GROSS PROFIT 11766894 10608018 8213207 3. GROSS PROFIT % 7.06% 6.55% 12.15% HOWEVER, AO HAS RAISED QUERIES IN RESPECT OF THE LA BOUR PAYMENTS. FEW LETTERS WERE ISSUED TO VARIOUS PARTIES FOR CONFIRMA TION OF LABOUR PAYMENTS. THE ASSESSEE WAS ALSO ASKED TO PRODUCE THE PARTIES TO PROVE THE GENUINENESS OF THE PAYMENTS. THE ADDITION WAS MADE AS FOLLOWS :- 1. JENISHISH EXPORTS 1,42,100 2. ANUBHAI PRAGJIBHAI VALANI 1,86,503 3. ZAVERIBHAI MANJIBHAI 49,725 4. GHANSHYAMBHAI JIVARAJBHAI 73,205 5. BABUBHAI MOHANBHAI HADIYA 87,248 5,38, 781 3 ALL THESE ADDITIONS HAVE PRIMARILY BEEN MADE BY THE AO FIRSTLY BECAUSE THE PAYMENTS WERE MADE IN CASH AND SECONDLY THE LET TERS ISSUED FOR PRESENCE OF THE PERSONS HAVE NOT BEEN COMPLIED WITH . ON THE OTHER HAND, THE ASSESSEES CLAIM WAS THAT THE PAYMENTS COULD BE CONFIRMED THROUGH CASH VOUCHERS FILED. THE AO HAS NOT ACCEPTED SUCH E VIDENCES AND HELD THAT THE PAYMENTS WERE NOT GENUINE, THEREFORE, A TO TAL ADDITION OF RS.5,38,781/- WAS MADE. 4. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLAT E AUTHORITY. THE LD. CIT(A) HAS EXAMINED THE FACTS OF THE CASE IN DETAIL AND THEREAFTER HELD THAT IN THE CASE OF JENISHISH EXPORTS, ANUBHAI PRAG NIBHAI VALANI, ZAVERI MANJIBHAI AND BABUBHAI M. HADIYA THE COPY OF CONFIR MATION, COPY OF PAN CARD AND OTHER DETAILS WERE SUBMITTED DURING TH E ASSESSMENT PROCEEDINGS. IN SOME OF THE CASES IT HAS ALSO BEEN MENTIONED THAT THE PARTIES IN QUESTION HAVE ALSO BEEN PRODUCED. IT HAS ALSO BEEN OPINED THAT THE BOOKS OF ACCOUNT HAVE DULY BEEN AUDITED HENCE T HERE WAS NO QUESTION OF DOUBTING THOSE EXPENDITURE WHICH HAVE DULY BEEN AUDITED BY A QUALIFIED CHARTERED ACCOUNTANT. THE LD. CIT(A) HAS ALSO TAKEN INTO CONSIDERATION THE FACT THAT THE PAYMENTS MADE TO LA BOUR COULD SOMETIMES BE NOT AFFIRMED BY PHYSICALLY PRODUCING THE SAID LA BOUR BECAUSE AFTER LAPSE OF TIME IT BECOMES DIFFICULT TO CONTACT SUCH LABOUR WHO HAS LEFT THE JOB. HOWEVER, THE PAYMENT MADE TO THE LABOURS COULD ONLY BE VERIFIED BY THE WAGES REGISTER MAINTAINED AND OTHER CORROBORATI VE EVIDENCES. THE LD. CIT(A) HAS ALSO FOUND THAT IN SOME OF THE CASES AFF IDAVIT OF SOME OF THE LABOURERS WAS ALSO PRODUCED. CONSIDERING ALL THOSE FACTS, WE ARE OF THE VIEW THAT THERE WAS NO INFIRMITY IN THE FINDING OF LD. CIT(A). WE HAVE ALSO NOTICED THAT IN ONE OF THE CASES THE EVIDENCE WAS NOT SATISFACTORY HENCE THE PAYMENT MADE TO GHANSYAMBHAI JIVRAJBHAI W AS CONFIRMED BY THE LD. CIT(A). THE MATTER BEING DECIDED ON APPRECI ATION OF THE FACTS OF 4 THE CASE, THEREFORE, IN THE ABSENCE OF ANY CONTRARY MATERIAL OR EVIDENCE THE VIEW TAKEN BY THE LD. CIT(A) IS HEREBY AFFIRMED . ALL THESE GROUNDS OF THE REVENUE ARE THUS DISMISSED. 5. THE LAST GROUND NO.6 IS AS UNDER :- (6) THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CAS E IN DIRECTING THE AO TO ALLOW THE CLAIM OF THE ASSESSEE IN RESPEC T OF DEDUCTION U/S 80 HHC OF THE ACT OF RS.7,36,402/-. 6. IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS I NCLUDED THE AMOUNT OF DONATION OF RS.4,56,765/- IN THE PROFIT FOR WORK ING THE DEDUCTION U/S 80 HHC OF I.T. ACT, 1961. FURTHER IT HAS ALSO BEEN NOT ICED THAT FOR THE COMPUTATION OF 80HHC THE ASSESSEE HAS INCLUDED AN A MOUNT OF LOSS OF GOODS DUE TO ROBBERY OF RS.24,81,843/-. ACCORDING T O THE AO BOTH THESE AMOUNTS DID NOT QUALIFY FOR THE WORKING OF THE DEDU CTION U/S 80 HHC, THEREFORE, FOLLOWING THE DECISION OF HON. SUPREME C OURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278 THE CLAI M TO THAT EXTENT WAS REVISED. 7. WHEN THE MATTER WENT IN APPEAL, THE LD. CIT(A) F OLLOWED THE DECISION OF THE TRIBUNAL A BENCH AHMEDABAD IN ASS ESSEES OWN CASE FOR ASST. YEAR 2003-04 IN ITA NO.1843/AHD/2007 VIDE ORDER DATED 28.09.2007 AND HELD THAT ONCE ASSESSEES CLAIM HAS ALREADY BEEN ALLOWED IN AN EARLIER YEAR, THEREFORE, ON THE SAME LINE THE SAME IS TO BE ALLOWED FOR THE YEAR UNDER CONSIDERATION. 8. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES AND AFTER PERUSAL OF THE ACCOUNTS WE HAVE NOTICED THAT FOR ASST. YEAR 20 03-04 THE ISSUE WAS IN RESPECT OF REVISION OF AN ASSESSMENT ORDER BY INVOK ING THE PROVISIONS OF SECTION 263 OF THE ACT. THE SCOPE AND THE AMBIT IN THAT APPEAL WAS ALTOGETHER DIFFERENT THAN THE ISSUE NOW RAISED BY T HE REVENUE. IT IS WELL 5 KNOWN THAT SECTION 80 HHC INCENTIVE IS IN RESPECT O F THE EXPORT ACTIVITY. ONLY THOSE AMOUNTS WHICH ARE RELATED TO EXPORT ACTI VITY CAN QUALIFY FOR THE COMPUTATION OF DEDUCTION. THEREFORE, ONE HAS TO EXAMINE WHETHER THE AMOUNT OF DONATION AND THE AMOUNT OF LOSS WERE PART OF THE OPERATIONAL INCOME. TO ASCERTAIN THE QUANTUM OF OPERATIONAL IN COME ONE HAS TO FIRST EXAMINE THE DOMINANT BUSINESS OF AN ASSESSEE, SO AS TO SEE WHETHER THERE IS A NEXUS OF IMPUGNED RECEIPT WITH THE EXPORT ACTI VITY. THE RECEIPTS WHETHER FIT FOR CLAIM MUST BE INCIDENTIAL TO THE DO MINANT EXPORT BUSINESS; SO THE HONBLE COURTS HAVE NOW SETTLED THE LAW THAT THERE SHOULD BE A DIRECT NEXUS BETWEEN THE PROFITS AND THE EXPORT ACT IVITY FOR CLAIM 80HHC DEDUCTION. EVERY TYPE OF RECEIPTS MAY NOT QUALIFY T HE TEST OF NEXUS WITH THE EXPORT PROFITS. NUMEROUS WELL ESTABLISHED CITA TION ARE BANGLORE CLOTHING 260 ITR 371; PINK STAR 245 ITR 757; K.K. D OSHI & CO. 245 ITR 849; S.G.JHANVI CONSULTANCY, 245 ITR 854. HOWEV ER, THE ASSESSEE HAS TRIED TO EXPLAIN THAT THESE TWO AMOUNTS HAVE NO T BEEN MADE PART OF THE PROFIT FOR THE PURPOSES OF COMPUTATION OF THE SAID DEDUCTION. THEREFORE, IT WAS INCORRECT ON THE PART OF THE AO TO REDUCE THESE AMOUNTS FOR THE PURPOSES OF COMPUTATION OF DEDUCTION. IT HAS ALSO B EEN EXPLAINED THAT AS PER PROFIT AND LOSS ACCOUNT ON ONE HAND THE LOSS WA S DEBITED TO PROFIT AND LOSS ACCOUNT, HOWEVER, ON THE OTHER HAND, A CONTRA ENTRY WAS PASSED. THESE FACTS HAVE TO BE EXAMINED AFRESH IN THE LIGHT OF THE DECISION OF PANDIAN CHEMICALS LTD. (SUPRA) AND FEW OTHER DECIS IONS CITED, SO AS TO ESTABLISH THE DIRECT AND IMMEDIATE NEXUS OF THESE T WO RECEIPTS WITH THE EXPORT ACTIVITY OF THE ASSESSEE. THE ACCOUNTS NOW P RODUCED BEFORE US DESERVE RE-ADJUDICATION AFTER PROPER INVESTIGATION AT THE STAGE OF THE AO. THEREFORE, WE REMIT THIS GROUND TO THAT STAGE. IN V IEW OF THIS GROUND NO.6 MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. THE REVENUES APPEAL IS PARTLY ALLOWED. 6 CROSS OBJECTION OF THE ASSESSEE : 10. IN RESPECT OF JOB WORK OF DIAMOND POLISHING AN AMOUNT OF RS.2,65,055/- WAS CLAIMED BEING MADE TO ONE SHRI KA BABHAI SHEFABHAI. IT WAS FOUND THAT THE ENTIRE AMOUNT WAS RECEIVED BY TH E SAID PARTY AND NO BALANCE WAS OUTSTANDING AS ON 31.3.2004. AS FOR THE I.T. RETURN OF THE SAID PARTY THERE WAS NO SUM RECEIVABLE FROM THE ASSESSEE . AS AGAINST THAT, ON PERUSAL OF THE COPY OF ACCOUNT OF THE SAID PARTY IN THE BOOKS OF THE ASSESSEE AN AMOUNT OF RS.2,62,706/- WAS SHOWN AS OU TSTANDING. DUE TO SAID DISCREPANCY THE AMOUNT IN QUESTION WAS HELD AS UNEXPLAINED EXPENDITURE AND TAXED BY INVOKING THE PROVISIONS OF SECTION 69C. THE FIRST APPELLATE AUTHORITY HAS AFFIRMED THE ACTION O F THE AO. 11. ON HEARING THE SUBMISSIONS OF BOTH THE SIDES WE HAVE NOTICED THAT THE ONLY REASON FOR THE DISALLOWANCE WAS THAT ON ON E HAND AN AMOUNT WAS SHOWN AS LIABILITY BY THE ASSESSEE AS ON THE CLOSE OF THE ACCOUNTING PERIOD, HOWEVER, ON THE OTHER HAND, THE SAID PARTY HAS INFORMED THAT NO AMOUNT WAS OUTSTANDING AND THE ENTIRE AMOUNT IN QUE STION WAS DULY RECEIVED. SINCE THE SAID PARTY HAD CONFIRMED THAT T HERE WAS NO SUM RECEIVABLE FROM THE ASSESSEE HENCE A DISPUTE HAS AR ISEN WHETHER THE ASSESSEES ACCOUNTED VERSION WAS CORRECT OR NOT. IN FACT THE MATTER COULD HAVE BEEN RESOLVED IF RECONCILIATION WAS FILED BY T HE ASSESSEE TO REMOE THE SAID DISCREPANCY. IT WOULD BE FAIR AND JUST IF WE RESTORE THIS GROUND BACK TO THE AO FOR THIS PURPOSE SO THAT THE RECONCI LIATION CAN BE EXAMINED BY THE AO. WE ORDER ACCORDINGLY. HENCE THI S GROUND OF THE CO MAY BE TREATED AS ALLOWED ONLY FOR STATISTICAL PURP OSES. 12. THERE IS ANOTHER GROUND WHICH IS GROUND NO.3 RE ADS AS FOLLOWS:- 7 GROUND NO.3 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN DISALLOWING RS.73,205/- OUT OF DIAMOND POLISHING LABOUR WORK PAYMENT MADE TO SHRI GHANSHYAMBHAI JIVRAJBHAI. 13. IN THE LIGHT OF ABOVE FACTUAL BACKGROUND DISCUS SED SUPRA IN REVENUES APPEAL, THE LD. CIT(A) HAS FOUND THAT THE RE WERE CERTAIN VARIATIONS IN THE PAYMENT WHICH WERE OTHERWISE CONF IRMED THROUGH AN EVIDENCE. RATHER BEFORE LD. CIT(A) THE ASSESSEE HAD ACCEPTED THE SAID DISCREPANCY. ONCE ASSESSEE HAD FAILED TO FURNISH A SATISFACTORY EXPLANATION IN RESPECT OF THE SAID DISCREPANCY, THE REFORE, LD. CIT(A) HAS THOUGHT IT PROPER TO AFFIRM THE ADDITION. 14. EVEN BEFORE US, THE ASSESSEE HAS NOT MADE OUT H IS CASE, THEREFORE, THE VIEW TAKEN AND THE REASONS ASSIGNED THEREIN ARE HEREBY CONFIRMED. THIS GROUND OF THE CO IS, THEREFORE, DISMISSED. 15. IN THE RESULT, REVENUES APPEAL AND THE CROSS O BJECTION OF THE ASSESSEE BOTH ARE PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 31.8.10. SD/- SD/- (A. N. PAHUJA) (MUKUL KR.SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR