The ACIT, Central Circle-1, Surat V. Shri Kishorbhai V.Sakaria, Surat

ITA 1430/AHD/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6799 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 10-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS CHHAVI ANUPAM
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Unexplained investment; Search and seizure; Salary income; Corroborative evidences
• Section: 143(3); 153A; 133(6); 250; 145; 2

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI MUKUL KR. SHRAWAT, JM AND D.C.AGRAWAL , AM ASSTT. C.I.T., CEN.CIR.1, SURAT. VS. SHRI KISHOREBHAI V. SAKARIA, 50, SAVANI DIAMOND INDUSTRIAL SOCIETY, B/H GITANJALI CINEMA, VARACHHA ROAD, SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- MRS. CHHAVI ANUPAM, CIT, DR RESPONDENT BY:- SHRI VIJAY RANJAN, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS _ (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIR ECTING TO DELETE THE ADDITION OF RS.3,86,630/- MADE ON ACCOUN T OF UNDISCLOSED INVESTMENT IN JEWELLERY. (2) THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN DIR ECTING TO DELETE THE ADDITION OF RS.8,50,465/- MADE ON ACCOUNT OF DI SALLOWANCE OF 50% OF JOB CHARGES PAID FOR PROCESSING OF DIAMON DS BY INVOKING PROVISIONS OF SECTION 145 OF THE ACT. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A N INDIVIDUAL AND IS ALSO PARTNER IN M/S SAKARIA DIAMONDS. A SEARCH AND SEIZURE OPERATION WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE ON 24.7 .2003. CONSEQUENTLY ITA NO.1430/AHD/2007 ASST. YEAR 2004-05 ITA NO.1430/AHD/2007 ASST. YEAR 2004-05 2 ORDER U/S 143(3) READ WITH SECTION 153A WAS PASSED ON 17.3.2006. THE AO MADE TWO ADDITIONS AS UNDER :- 1. INVESTMENT OUT OF UNDISCLOSED SOURCES RS.3,86,6 30/- 2. 50% OF THE JOB CHARGES RS.8,50,465/- 3. IN RESPECT OF FIRST ADDITION THE AO NOTED THAT D URING THE COURSE OF SEARCH FOLLOWING JEWELLERY BELONGING TO THE ASSESSE E WERE FOUND :- (1) FOUND FROM THE RESIDENCE AT MUMBAI 422.25 GMS. (2) FOUND FROM RESIDENCE OF SHRI CHHAGAN SAKARIA, DHARMISTHA SOC., SURAT. 129.60 GMS. (3) FOUND FROM RESIDENCE OF SHRI KESHAVBHAI T. SAKARIA, DHARMISTHA SOC., SURAT 615.00 GMS. TOTAL 1166.85 GSM OUT OF THIS ASSESSEE HAD DISCLOSED ONLY JEWELLERY O F 182.300 GMS. LEAVING DEFICIENCY OF 984.300 GMS. IT WAS EXPLAINED TO THE AO THAT ASSESSEE HAS, IN HIS FAMILY, TWO MARRIED FEMALES AND ONE UNMARRIE D FEMALE AND TWO MALE MEMBERS. ACCORDING TO THE CIRCULAR OF THE BOA RD, TOTAL 1450 GMS OF JEWELLERY SHOULD BE TREATED AS EXPLAINED AS UNDER : - 2 MARRIED FEMALE 2 X 500 = 1000 GMS 1 UNMARRIED FEMALE 1 X 250 = 250 GMS 2 MALE PERSONS 2 X 100 = 200 GMS ------------ 1450 GMS ------------ 4. THE AO, HOWEVER, ALLOWED 150 GMS EACH PER MARRIE D LADY AND THUS TREATED BALANCE OF 684.300 GMS AS UNEXPLAINED AND A PPLYING RATE OF 565 PER GM HE WORKED OUT UNEXPLAINED INVESTMENT IN JEW ELLERY AT RS.3,86,630/-. ITA NO.1430/AHD/2007 ASST. YEAR 2004-05 3 5. THE LD. CIT(A), HOWEVER, DELETED THE ADDITION RE LYING ON THE CBDT CIRCULAR. HE ALSO RELIED ON THE DECISION OF TH E TRIBUNAL, AHMEDABAD BENCH IN THE CASE OF SHRI MANILAL DAVE RE PORTED AT 70 TTJ 801 WHEREIN BOARDS CIRCULAR NO.1916 DATED 11.05.19 94 HAS BEEN REFERRED TO. 6. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VIE W THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). THE RE ASONS ARE THAT EVEN THOUGH THE BOARD CIRCULAR IS A GUIDELINE FOR NOT EF FECTING SEIZURE DURING THE COURSE OF SEARCH STILL THEN NON-SEIZURE IS DIRE CTED BY IMPLIEDLY ACCEPTING THAT JEWELLERY TO THIS EXTENT CAN BE TREA TED AS BELONGING TO THE FAMILY MEMBERS WITHOUT THEY BEING ASKED TO FURNISH SUPPORTIVE EVIDENCE. ONCE INTENT OF THE BOARD CIRCULAR IS NOT TO INSIST FOR SUPPORTING EVIDENCE MEANING THEREBY THAT SUCH JEWELLERY SHOULD BE TREAT ED AS EXPLAINED, THEN THERE IS NO REASON TO MAKE ADDITION IN RESPECT OF J EWELLERY TO THIS EXTENT. ACCORDINGLY, WE CONFIRM THE ORDER OF LD. CIT(A) IN DELETING THE ADDITION. 7. THE NEXT ISSUE IS REGARDING THE ADDITION OF 50% OF JOB CHARGES AT RS.8,50,464/-. 8. THE FACTS OF THE CASE ARE THAT ASSESSEE IS DERIV ING INCOME FROM SALARY, HOUSE PROPERTY, BUSINESS AND PROFESSION AND SHARE OF PROFIT FROM PARTNERSHIP FIRM. ASSESSEE IS A PARTNER IN M/S SAKA RIA DIAMOND WHICH IS ENGAGED IN THE BUSINESS OF PROCESSING DIAMONDS ON J OB WORK BASIS. THE ASSESSEE IS ALSO RUNNING A PROPRIETARY CONCERN IN T HE NAME OF M/S PARTH EXPORT. THE ASSESSEE IMPORTS ROUGH DIAMONDS AND GET IT PROCESSED ON JOB WORK BASIS AND EXPORT THE SAME. THE ASSESSEE HAS BE EN ENTITLED TO DEDUCTION U/S 80 HHC. DURING THE COURSE OF ASSESSME NT PROCEEDINGS, THE AO NOTED THAT DURING THE COURSE OF SEARCH SAKARIA D IAMOND HAS ADMITTED THAT JOB WORK EXPENSES HAVE BEEN INFLATED BY 100%.T HIS STATEMENT WAS ITA NO.1430/AHD/2007 ASST. YEAR 2004-05 4 GIVEN BY THEM BEFORE INCOME-TAX SETTLEMENT COMMISSI ON. ON THE BASIS OF THIS ADMISSION THE AO INFERRED THAT ASSESSEE MUS T HAVE ALSO INFLATED THE LABOUR CHARGES. HE ALSO OBSERVED THAT JOB WORKE RS ARE SALARIED EMPLOYEES OF THE GROUP. PAN CARDS OF THE WORKERS WE RE FOUND AT THE PREMISES OF SAKARIA DIAMOND GROUP. STEREOTYPED LETT ERS WERE SENT FROM ALL THE WORKERS TO THE AO IN RESPONSE TO NOTICES IS SUED U/S 133(6) BY HIM. JOB WORK WAS CARRIED OUT IN OCTOBER, 2003 WHEREAS P AYMENTS WERE MADE IN JANUARY, 2004. WORKERS DID NOT HAVE THE MACHINER Y REQUIRED FOR DIAMOND PROCESSING NOR THE ELECTRIC CONNECTION. ON THIS BASIS HE DISALLOWED LABOUR CHARGES AT RS.8,50,465/- BEING 50 % OF RS.17,00,930/-. 9. THE LD. CIT(A) DELETED THE ADDITION BY HOLDING T HAT NATURE OF WORK OF SAKARIA DIAMOND IS DIFFERENT. THE SEARCH CARRIED OUT AT SAKARIA DIAMOND WAS ON 24.7.2003 WHEREAS DIAMONDS WERE PROC ESSED FOR THE ASSESSEE AFTER OCTOBER, 2003. THE ASSESSEE HAS MADE PAYMENT TO THE SUPERVISOR BY CHEQUES AND THERE IS NO INFORMATION O R EVIDENCE THAT ANY AMOUNT SO PAID HAS COME BACK TO THE ASSESSEE. IT IS ALSO NOTED BY LD. CIT(A) THAT JOB WORKERS ARE ASSESSED TO TAX. THEY H AVE RESPONDED TO THE NOTICE ISSUED U/S 133(6). THERE IS NO ALLEGATION TH AT JOB WORKERS HAVE NOT CARRIED OUT ANY WORK. IN FACT THEY HAVE PROCESSED T HE DIAMOND FOR THE ASSESSEE FOR WHICH PAYMENT HAS BEEN MADE TO THEM. 10. THE LD. DR SUBMITTED THAT THE FACT OF FINDING P ANS OF THE WORKERS AT THE PREMISES OF SAKARIA DIAMOND CLEARLY SHOWS TH AT THEY ARE THE WORKERS OF SAKARIA DIAMOND. THE MODUS OPERANDI ADOP TED BY THE ASSESSEE CANNOT BE DIFFERENT THAN WHAT IS ADOPTED B Y SAKARIA DIAMOND. IF SAKARIA DIAMOND SUBMITS THOSE BEFORE THE SETTLEMENT COMMISSION THAT IT HAS INFLATED THE LABOUR PAYMENT BY 100% THEN THERE IS NO REASONS TO HOLD THAT PARTNER OF SAKARIA DIAMOND WILL NOT DO THE SAM E. ITA NO.1430/AHD/2007 ASST. YEAR 2004-05 5 11. ON THE OTHER HAND, LD. AR SUBMITTED THAT PAYMEN T FOR JOB WORK HAS BEEN MADE TO THE SUPERVISORS WHO HAVE KARIGARS WORK ING UNDER THEM. ALL THE SUPERVISORS AND KARIGARS ARE NOT THE EMPLOYEES OF SAKARIA DIAMOND. THEY ARE INDEPENDENT JOB WORKERS. THERE ARE ABOUT E IGHT SUCH WORKERS WHO HAVE DONE THE WORK FOR THE ASSESSEE. THE FACT T HAT THESE SUPERVISORS HAVE MACHINERY AND ELECTRIC CONNECTION IS BORNE OUT FROM THEIR INCOME- TAX RETURNS WHERE NECESSARY EXPENDITURE AND DEPRECI ATION ETC. HAVE BEEN CLAIMED. ALL THESE SUPERVISORS ARE ASSESSED TO TAX. THEIR PAN DETAILS AND COPIES OF RETURNS HAVE BEEN SUBMITTED BEFORE LD. CI T(A). THE PAYMENT MADE BY THE ASSESSEE IS THROUGH ACCOUNT PAYEE CHEQU ES AND IS FULLY VOUCHED. MONTH-WISE PURCHASE AND SALE HAVE BEEN CLE ARLY GIVEN BY THE ASSESSEE. THE ASSESSEE HAS ALSO GIVEN QUANTITATIVE TALLY WHICH IS VERIFIABLE. THE ASSESSEE HAS ALSO MAINTAINED JANGAD REGISTER WHICH CONTAINS THE DETAILS OF WORK DONE BY JOB WORKERS. F URTHER THE AO HAS NOT REJECTED THE BOOKS MAINTAINED BY THE ASSESSEE. THER EFORE, LABOUR CHARGES CANNOT BE DISALLOWED WITHOUT REJECTING THE BOOKS. T HE LD. AR REFERRED TO FOLLOWING THREE JUDGMENTS:- CIT VS. VIKRAM PLASTICS (1999) 239 ITR 161 (GUJ) CIT VS. RAJNI KANT DAVE (2006) 281 ITR 6 (ALL) CIT VS. PARADISE HOLIDAYS (2010) 325 ITR 13 (DEL) THEREAFTER HE SUBMITTED THAT DISALLOWANCE CAN BE MA DE IF PAYMENT IS BOGUS OR THERE IS ALLEGATION THAT WORKERS HAVE NOT CARRIED OUT THE DESIRED WORK OR IF IT IS FOUND THAT PAYMENT HAS BEEN MADE F OR NON-BUSINESS PURPOSES. THERE IS NO ALLEGATION THAT ANY MONEY HAS COME BACK TO THE ASSESSEE OR THERE IS ALSO NO ALLEGATION THAT PAYMEN T IS EXCESSIVE AS NO COMPARISON WITH MARKET HAS BEEN GIVEN. ITA NO.1430/AHD/2007 ASST. YEAR 2004-05 6 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ADDITION HAS BEEN MADE WITHOUT THERE BEING ADEQUATE MATERIAL TO SUPPORT. IF THE WO RKERS TO WHOM JOB CHARGES WERE PAID WERE EMPLOYEES OF SAKARIA DIAMOND THEN OFFICIAL ENQUIRY BY SUMMONING AND RECORDING THEIR STATEMENT SHOULD HAVE BEEN DONE. FURTHER THE RECORD OF SAKARIA DIAMOND SHOULD HAVE BEEN VERIFIED AS TO WHETHER ANY ONE OF THEM IS EMPLOYED BY SAKARIA D IAMOND. THE NATURE OF WORK DONE BY ASSESSEE AND BY SAKARIA DIAMON SHOU LD HAVE BEEN COMPARED AND A FINDING BE GIVEN THAT THEY ARE EXACT LY THE SAME. IT HAS TO BE SHOWN AS TO WHO HAS SIGNED THE STATEMENT OF FACT S BEFORE INCOME-TAX SETTLEMENT COMMISSION. THE RATES AT WHICH ASSESSEE HAS MADE THE PAYMENT FOR JOB WORK, SHOULD HAVE BEEN COMPARED WIT H MARKET RATE FOR THE WORK OF SIMILAR NATURE. IN ANY CASE WITHOUT REJ ECTING THE BOOKS SUCH DISALLOWANCE CANNOT BE MADE. 13. SIMILAR ISSUE HAD COME BEFORE THE TRIBUNAL THE CASE OF ACIT, CIR.5, BARODA VS. M/S MAHALAXMI BUILDERS IN ITA NO. 161/AHD/2008 ASST. YEAR 2003-04, PRONOUNCED ON 25.3.2011 WHEREIN THE TRIBUNAL HAS DECIDED THE ISSUE BY FOLLOWING OBSERVATIONS:- 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD. WE OBSERVE THAT AO HAS IN FACT ESTIMATED THE PROFIT S FROM NON ELIGIBLE BUSINESS BY REJECTING THE LOSS SHOWN BY THE ASSESSEE. IN OUR CO NSIDERED VIEW SUCH ESTIMATION IS NOT PERMISSIBLE UNLESS BOOKS OF ACCOUNTS ARE REJECTED B Y THE AO. IN ENTIRE ORDER OF THE AO WE DO NOT FIND ANY OBSERVATION ABOUT DEFECTS IN THE BOOKS OF ACCOUNT POINTED OUT BY THE AO. ONCE BOOKS OF ACCOUNT ARE NOT REJECTED PROF ITS OF BUSINESS EITHER OF ELIGIBLE BUSINESS OR OF NON ELIGIBLE BUSINESS CANNOT BE ESTI MATED. THEREFORE, THE CALCULATION DONE BY THE ASSESSEE AND CERTIFIED BY THE AUDITORS HAS TO BE ACCEPTED. EVEN THOUGH AO MAY NOT AGREE WHEN AND HOW ASSESSEE WOULD HAVE INCU RRED EXPENDITURE WHILE EARNING PROFITS ON NON-ELIGIBLE PORTION BUT THIS IS MERELY A SUSPICION. ONCE ACCOUNTS ARE AUDITED AND ACCEPTED BY THE AO SUCH AS BY ACCEP TING THE TOTAL PROFIT AS DECLARED BY THE ASSESSEE THEY CANNOT BE TREATED AS REJECTED FOR ONE PART OF THE BUSINESS I.E. CONSTRUCTION OF NON ELIGIBLE PORTION OF THE PROJECT . OUR VIEW THAT PROFITS CANNOT BE ESTIMATED WITHOUT POINTING OUT DEFECTS AND REJECTIN G THE BOOKS BY INVOKING THE PROVISIONS OF SECTION 145(3) EARLIER U/S 145(1). IT IS SUPPORTED BY FOLLOWING SEVERAL AUTHORITIES: ITA NO.1430/AHD/2007 ASST. YEAR 2004-05 7 HON. GAUHATI HIGH COURT IN MADNANI CONSTRUCTION COR PN. (P) LTD. VS. CIT (2008) 296 ITR 45 (GAU) HAS HELD THAT ACCOUNTS CANNOT BE REJECTED IF AO DI D NOT FIND BOOKS OF ACCOUNTS INCORRECT OR ANY INFIRMITY IN THE AUDIT REPORT AND THEREFORE, RESORT TO BEST JUDGMENT ASSESSMENT CANNOT BE TAKEN. IN CIT VS. RAJNIKANT DAVE (2006) 281 ITR 06 (ALL) IT IS HELD THAT IF THERE IS NO FINDING THAT BOOKS OF ACCOUNTS ARE INCOMPLETE OR IN CORRECT ACCOUNTS CANNOT BE REJECTED. IN ASHOK REFRACTORY (P) LTD. VS. CIT (2005) 279 ITR 45 7 (CAL) IT IS HELD THAT EVEN THOUGH THERE MAY BE ABSENCE OF STOCK REGISTER OR IT EM-WISE ACCOUNTING OF STOCK BUT IF THERE IS NO FINDING THAT INCOME CANNOT BE DEDUCED F ROM THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE THEN ACCOUNTS CANNOT BE RE JECTED AND SECTION 145 CANNOT BE INVOKED. SIMILAR VIEW WAS TAKEN BY HON. CALCUTTA HIGH COURT IN JUGGILAL KAMLAPATH UDYO G LTD. VS. CIT (2005) 278 ITR 52 (CAL) WHEREIN IT IS HELD THAT IF THERE IS NO FINDING THAT INCOME CANNOT BE DEDUCED FROM THE ACCOUNTS MAINTAIN ED BY THE ASSESSEE THEN REJECTION OF ACCOUNTS WOULD BE INVALID. HON. GUJARAT HIGH COURT IN CIT VS. VIKRAM PLASTICS (1999) 239 ITR 161 (GUJ) HELD THAT WHERE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED R EGULARLY AND NO DEFECTS HAVE BEEN FOUND IN THE ACCOUNTS THEN TRIBUNAL WILL BE JU STIFIED IN HOLDING THAT ACCOUNTS CANNOT BE REJECTED UNDER SECTION 145. UNDER THIS SI TUATION THE ACTION OF THE LD. AO AND THAT OF LD. CIT(A) CANNOT BE UPHELD IN ESTIMATI NG THE PROFITS OF PART OF THE BUSINESS AND ACCEPTING THE PROFITS OF THE OTHER PAR T. IN VIEW OF ABOVE, WE DECLINE TO INTERFERE IN THE ORDER PASSED BY LD. CIT(A). THIS G ROUND OF REVENUE IS ALSO REJECTED. IN VIEW OF ABOVE AS THERE IS NO REJECTION OF THE BO OKS, WE UPHOLD THE ORDER OF LD. CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 21/4/11. SD/- SD/- (MUKUL KR. SHRAWAT) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 21/4/11. MAHATA/- ITA NO.1430/AHD/2007 ASST. YEAR 2004-05 8 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 ITAT, AHMEDABAD 1.DATE OF DICTATION 7/4/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 15/4/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..