The ITO, Ward-8(3), Surat V. Shri Bharatbhai Nanjibhai Bhoot, Surat

ITA 1599/AHD/2009

• Counselvise Citation: 159920514 RSA 2009
• Duration Of Justice: 2 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJ MEHRA
• Assessee Lawyers: P M MEHTA
• Section: 143(3)

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH . .. . . .. . , , , , !' !' !' !', , , , #$ #$ #$ #$ %&' ( %&' ( %&' ( %&' (, , , , ) ) ) ) & ' & ' & ' & ' BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND BHAVNESH SAINI, JUDICIAL MEMBER) ITA NO.1599/AHD/2009 WITH CO NO.142/AHD/2009 [ASSTT.YEAR : 2006-2007 ITO, WARD-8(1) SURAT. /VS. SHRI BHARATBHAI NANJIBHAI BHOOT 99, SAHJANANAD SOC., B/H. AROYA KENDRA KATARGAM ROAD, SURAT. ( (( (+, +, +, +, / APPELLANT) ( (( (-.+, -.+, -.+, -.+, / RESPONDENT) ) / 0 &/ REVENUE BY : SHRI RAJ MEHRA 23 / 0 &/ ASSESSEE BY : SHRI P.M. MEHTA 45 / 36/ DATE OF HEARING : 11TH AUGUST, 2011 789 / 36/ DATE OF PRONOUNCEMENT : 30 TH AUGUST, 2011 &' / O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THIS IS REVENUES APPEAL AND ASSESSEES CO AGAINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, SURAT DATED 26.02.2009 ARISING OUT OF THE ORDER OF THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE REVENUES APPEAL RAISES THE FOLLOWING GROUND S: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD.CIT(A) IS RIGHT TO HOLD THAT THE AO CANNOT REJEC T THE BOOK RESULT U/S.145 OF THE ITAT ACT, 1961? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) IS RIGHT IN DELETING RS.21,00,260/- ADDED BY THE AO UNDER THE HEAD NET PROFIT ? IT IS THEREFORE PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. ITA NO.1599/AHD/2009 WITH CO NO.142/AHD/2009 -2- THE ASSESSEES CO RAISES THE FOLLOWING GROUNDS: 1. THE LD.CIT(A) GROSSLY ERRED IN CONFIRMING THE D ISALLOWANCE OF SALARY TO THE EXTENT OF RS.2,50,000/- 2. THE LD.CIT9A) GROSSLY ERRED IN CONFIRMING THE DI SALLOWANCE OUT OF FACTORY EXPENSES TO THE EXTENT OF RS.19,961/- BE ING 10% OF THE TOTAL EXPENDITURE. 3. THE LD.CIT(A) GROSSLY ERRED IN CONFIRMING THE DI SALLOWANCE OUT OF SARAN EXPENSES TO THE EXTENT OF RS.9,519/- BEING 10 % OF THE TOTAL EXPENDITURE. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE DERI VES INCOME FROM BUSINESS OF DIAMOND POLISHING. THE AO DISALLOWED 20% OUT OF LABOUR CHARGES, FACTORY EXPENSES AND SARAN MANJAI EXPENSES AMOUNTING TO RS.24,09,220/-. ON APPEAL, THE CIT(A) REDUCED THE DISALLOWANCE OUT OF LABOUR E XPENSES TO RS.2,50,000/-. THE DISALLOWANCE OUT FACTORY EXPENSES AND SARAN MANJAI EXPENSES WAS REDUCED TO 10% AS AGAINST 20% DISALLOWED BY THE ITO. THE R EVENUE IS AGGRIEVED WITH THE RELIEF ALLOWED WHILE THE ASSESSEE IS AGGRIEVED WITH THE DISALLOWANCE SUSTAINED. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE COMPARATIVE POSITION OF LABOUR EXPENSES IN THE YEAR UNDER CONSIDERATION AND PRECEDING TWO YEARS IS AS UNDER: ASSESSMENT YEAR PARTICULARS 2006-2007 2005-2006 2004-2005 SALES 1,29,11,694 64,22,892 76,35,564 LABOUR EXPENSES 1,17,51,300 58,18,885 70,34,726 LABOUR TO SALES RATIO 0.91 0.91 0.92 FROM THE ABOVE IT IS EVIDENT THAT THE RATIO OF LABO UR EXPENSES TO SALES IS LOWER IN THE YEAR UNDER CONSIDERATION AS COMPARED TO A.Y.200 4-05 AND SIMILAR TO A.Y.2005-06. THAT IN THE PRECEDING TWO YEARS, THE REVENUE HAS ACCEPTED THE LABOUR EXPENSES INCURRED BY THE ASSESSEE. THAT THE AO HAS NOT GIVEN ANY ITA NO.1599/AHD/2009 WITH CO NO.142/AHD/2009 -3- JUSTIFICATION FOR DISALLOWING 20% OUT OF THE LABOUR EXPENSES. THE BUSINESS OF THE ASSESSEE IS THE PROCESSING AND POLISHING OF DIA MONDS WHICH IS BEING DONE BY THE LABOURERS ONLY AND THEREFORE LABOUR EXPENSES ARE BOUND TO BE SUBSTANTIAL. SIMILARLY, LABOUR EXPENSES I.E. 0.99% OF THE SALES HAS BEEN ACCEPTED AS REASONABLE BY THE REVENUE IN THE EARLIER YEAR. THE CIT(A) HAS SUSTAINED THE DISALLOWANCE AT RS.2,50,000/- FOLLOWING THE DECISIO N OF THE ITAT, AHMEDABAD IN THE CASE OF ATUL M. JHAVERI (HUF) VS. ITO, ITA N O.2128/AHD/2003. HOWEVER, THE FACTS OF EACH CASE WOULD BE DIFFERENT AND WHEN IN THE ASSESSEES OWN CASE SIMILAR LABOUR EXPENSES IS ACCEPTED BY THE REVENUE AS REASONABLE IN THE EARLIER YEARS, THERE WOULD NOT BE ANY JUSTIFICA TION FOR DISALLOWANCE OF ANY PART OF THE LABOUR EXPENSES. MOREOVER, THE AO HAS NOT POINTED OUT ANY LABOUR EXPENSES TO BE BOGUS OR INFLATED. HE DISALLOWED PA RT OF THE LABOUR EXPENSES MERELY ON ESTIMATED BASIS. SINCE THE LABOUR EXPENS ES CLAIMED IN THE YEAR UNDER CONSIDERATION IS SIMILAR TO THE LABOUR EXPENSES ACC EPTED BY THE REVENUE IN THE EARLIER YEARS, WE DO NOT FIND ANY JUSTIFICATION FOR DISALLOWANCE OUT OF LABOUR EXPENSES. THEREFORE, THE DISALLOWANCE SUSTAINED AT RS.2,50,000/- BY THE CIT(A) IS DELETED. SO FAR AS THE DISALLOWANCE OUT OF FACTORY EXPENSES AND SARAN MANJAI EXPENSES ARE CONCERNED, WE ARE OF THE OPINION THAT THE CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE AT 10 %. WE THEREFORE UPHOLD THE ORDER OF THE CIT(A) IN THIS REGARD. 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED WHI LE THE ASSESSEES CO IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON, THE DATE MENTION ED HEREINABOVE. SD/- SD/- ( %&' ( %&' ( %&' ( %&' ( /BHAVNESH SAINI ) ) ) ) ) /JUDICIAL MEMBER ( . .. . . .. . G.D. AGARWAL) !' !' !' !' /VICE-PRESIDENT PLACE : AHMEDABAD