The ACIT, Circle-9, Surat V. M/s. J.S. Diamond, Surat

ITA 1791/AHD/2009

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0510 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 28-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y P VERMA
• Assessee Lawyers: KK SHAH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMADABAD BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 1791/AHD/2009 ASSESSMENT YEAR :2006-07 ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-9 ROOM NO. 423, 4 TH FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT V/S . M/S. J.S. DIAMOND 1 ST FLOOR, PARTH COMPLEX, HIRA BAUG, VARACHHA ROAD, SURAT. PAN NO. A A E F J9473A (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI Y.P. VERMA, SR. D.R. /BY RESPONDENT SHRI K.K. SHAH, A.R. /DATE OF HEARING 14.12.2012 /DATE OF PRONOUNCEMENT 22.02.2013 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WHIC H HAS EMANATED FROM THE ORDER OF CIT(A)-V, SURAT, DATED 27.03.2009 FOR A.Y. 2006-07. THE SOLE GROUND OF APPEAL IS AGAINST DELETING THE ADDIT ION OF RS.10,39,217/- MADE BY THE A.O. ON ACCOUNT OF NET PROFIT. 2. THE LD. A.O. OBSERVED THAT THE APPELLANT IS INVO LVED IN THE BUSINESS OF DIAMOND MANUFACTURERS, EXPORTERS AND IMPORTERS. IN A.Y. 2006-07, THE APPELLANT HAD SHOWN TURN OVER OF RS. 23,46,35,236/- AND NET PROFIT OF RS. 14,30,242/- @ .16%. HE FURTHER OBSERVED THAT DURIN G THE COURSE OF ITA NO. 1791/AHD/09 A.Y. 06-07 PAGE 2 ASSESSMENT VARIOUS DETAILS FURNISHED BY THE ASSESSE E HAS BEEN VERIFIED AND PLACED ON RECORD. HOWEVER, DURING THE VERIFICATION OF BOOKS OF ACCOUNT OF THE ASSESSEE, THE ASSESSEE HAD CLAIMED THAT HE HAD PROC EEDS 4,10,816 CT. OF MAKEABLE ROUGH DIAMONDS OUT OF THE TOTAL ROUGH DIAM ONDS RECEIVED BY THE ASSESSEE FROM THE PRINCIPAL. AS PER THE QUANTITY D ETAILS FURNISHED BY THE ASSESSEE AVERAGE JOB CHARGES PER LABOUR CONTACTOR C OMES RS.545/- PER CT. AND HE CLAIMED THAT RS.400/- TO RS.700/- PAID BY HI M TO THE LABOUR CONTRACTOR BASED ON THE QUALITY OF ROUGH DIAMONDS. BUT DURING THE VERIFICATION OF BOOKS OF ACCOUNT NO SUCH QUALITY WISE DETAILS WERE SEEN O N THE BILLS OF LABOUR CONTRACTOR. FURTHER, A.R. OF THE ASSESSEE CONTENDE D THAT HE HAS RECEIVED LABOUR CHARGES FROM THE PRINCIPAL FOR MAKEABLE DIAM OND + LASER + SAWING + ASSORTMENT. IN THE TERMS OF RS.400 TO RS.700/- PER CT. ON MAKEABLE DIAMOND AND LASER CHARGES RS.25/- PER CT. AND FOR SAWING RS .50/- TO RS.22/- PER CT. HE WAS ALSO ASKED TO SPECIFIED THE POLICY FOLLOWED BY IT IN CHARGING THE PRINCIPAL IN CASE OF ROUGH DIAMOND REJECTED. AS PER THE SALARY PAYMENT REGISTER SALARY WAS MAINLY PAID TO WORKS AND ASSORTMENT LASER + PLA NNING. AFTER VERIFICATION ALL THE DETAILS FURNISHED BY THE ASSESSEE AND ON VE RIFICATION OF BOOKS OF A/C. OF THE ASSESSEE THE FOLLOWING ISSUES HAS EMERGED. WHI CH ARE CAPSULE IN THE FORM OF SHOW-CAUSE NOTICE AND THE SAME IS ISSUED TO THE ASSESSEE VIDE LETTER DTD. 22.12.2008 ASKING HIM TO FURNISH THE REPLY BY 26.12.2008. THE RELEVANT PORTION OF THE SHOW CAUSE NOTICE IS REPRODUCE AS BE LOW:- MONTH RECEIVED PAYMENT APRIL 349/CT 537/CT MAY 370/CT 492/CT ITA NO. 1791/AHD/09 A.Y. 06-07 PAGE 3 JUNE 334/CT 531/CT JULY 359/CT 493/CT AUG 372/CT 551/CT SEP 389/CT 564/CT OCT 374/CT 552/CT DEC 441/CT 912/CT JAN 415/CT 478/CT FEB 447/CT 547/CT MARCH 451/CT 549/CT AS PER THE ABOVE TABLE THE LABOUR CHARGES RECEIVE D BY YOU ARE QUITE LESSER THAN THE PAYMENT MADE BY YOU TO YO UR LABOUR CONTRACTORS. FURHTER YOU ARE CLAIMING THAT YOU CHA RGE THE LABOUR EXPENSES ON THE MAKEABLE DIAMONDS WHICH COMES TO 41 0816 CTS OUT OF THE TOTAL MANUFACTURED ROUGH DIAMONDS OF 600 106 CTS. FOR ARRIVING AT THE MAKEABLE DIAMONDS YOU HAVE TO DO LO T OF PROCESSES LIKE ASSORTMENT OF ROUGH DIAMONDS RECEIVED AND LASE R CUTTING AND SAWING WHICH REQUIRES SUBSTANTIAL AMOUNT OF LABOUR AND EXPENSES FROM YOUR SIDE. AS PER THE P&L A/C PROCESSING CHAR GES CLAIMED BY YOU ALSO INDICATES THE ELECTRICITY EXPENSES OF RS.2 2,46,050/- WHICH HAS BEEN INCURRED WITHIN YOUR FACTORY AND SALARY EX PENSES OF RS.43,57,900/- ALSO SHOWN UNDER ADMINISTRATIVE EXPE NSES. THIS MEANS TOTAL OF RS.66,03,950/- HAS BEEN INCURRED BY YOU FOR MAKING MAKEABLE DIAMONDS OUT OF 600106 CTS. THIS MEANS RS .11/CT. AS PER THE CALCULATION SHEET FURNISHED BY YOU VIDE LET TER DT.18.12.2008 ASSORTMENT CHARGES RATE HAS BEEN MENTIONED AS RS. 2 0/CT. AND LASER SAW @ 15/CT AND PLATE SAW @ 12/CT. EVEN DURING THE COURSE OF VERIFICATION OF THE BOOKS OF ACCOUNTS IT WAS MENTIO NED BY YOU AND ACCOUNTANT THAT RS.25/CT FOR LASER AND RS.15 TO 22/ CT OF SAWING IS CHARGED FROM THE PRINCIPLE. ACCORDINGLY EVEN MINIM UM RS.30/CT IS TAKEN AS YOUR CHARGES ON THE PRINCIPLE FOR PROCESSI NG OF ROUGH DIAMONDS LIKE ASSORTMENT AND LASER CUTTING AND SAWI NG TOTAL INCOME OUT OF THESE ACTIVITIES SHOULD BE AROUND RS.1,80,03 ,180/- ON TOTAL ITA NO. 1791/AHD/09 A.Y. 06-07 PAGE 4 CONSUMPTION OF 600106 CTS WHICH IS EXCLUSIVELY OF Y OURS AND AFTER DEDUCTION OF THESE CHARGES LABOUR CONTRACTORS NEED TO BE PAID AND COMMISSION INCOME OUT OF THE REST OF THE AMOUNT SHO ULD BE AROUND 1% AS PER THE TREND INCASE OF LABOUR CONTRACTORS. FURTHER ON EXAMINATION OF THE LABOUR CONTRACTORS BILLS THERE I S NO MENTIONING OF ANY QUALITY OF ROUGH DIAMONDS ONLY NO. OF CARAT GIV EN TO THEM IS PRESENT AND THE BASIS ON WHICH PAYMENT HAS BEEN MAD E TO THEM IS NOT VERIFIABLE. YOUR CLAIM THAT THE BASED ON THE Q UALITY OF ROUGH DIAMONDS THE LABOUR CHARGES VARY FROM RS.400 TO 700 CANNOT BE VERIFIABLE. AS INDICATED IN THE ABOVE TABLE JUSTIF ICATION OF THE PAYMENT OF SUCH HIGH CHARGES TO THE LABOUR CONTRACT ORS INSPITE OF DOING MAJOR PROCESSES LIKE ASSORTMENT LASER CUTTING ETC. FURTHER AS PER THE BILLS OF THE PRINCIPLE THE ROUGH QUALITY HA S BEEN INDICATED FOR EACH ROUGH DIAMOND DELIVERED TO YOU BUT NO SUCH DET AILS HAS BEEN THERE ON THE SUBCONTRACTOR BILLS. THE APPELLANT WAS GIVEN REASONABLE OPPORTUNITY OF B EING HEARD WHO HAS ALSO REPLIED THE QUERY BUT THE LD. A.O. FINALLY CONCLUDE D AS UNDER: DURING THE VERIFICATION OF BOOKS OF A/C ASSESSEE W AS UNABLE TO SHOW ANY QUALITATIVE DETAILS ON THE BILLS OF SUB CONTRAC TOR TO WHOM ASSESSEE HAS GIVEN THE JOB WORK. HENCE, THE BASIS ON WHICH PAYMENT TO JOB WORK CONTRACTORS MADE BY THE ASSESSE E IN THE RANGE OF RS. 400/- TO RS. 700/- CANNOT BE VERIFIABLE FROM THE BILLS FURNISHED BY THE ASSESSEE DURING THE VERIFICATION OF BOOKS OF A/C. THE CONTENTION OF THE ASSESSEE REGARDING PAYMENT MADE T O LABOUR CONTRACTORS CANNOT BE VERIFIABLE COMPLETELY. THE T OTAL NET PROFIT SHOWN BY THE ASSESSEE INCLUDING INTEREST ON CAPITAL AND REMUNERATION TO THE PARTNERS COMES TO 1.06% WHICH I S VERY LOW IN COMPARISON TO COMPARABLE CONCERN OPERATING IN THE S IMILAR ENVIRONMENT WERE SHOWING BETTER N.P THEN THAT OF TH E ASSESSEE WHOSE DATA IS GIVEN BELOW FOR COMPARISON. ITA NO. 1791/AHD/09 A.Y. 06-07 PAGE 5 NAME OF THE FIRM TURNOVER N.P M/S. GOPAL DIAMOND 9.66 CRORES 2.13% M/S. PAYAL DIAMOND 22 CRORES 1.50% VRAJ DIAMOND 24 CRORES 2.91% SHRI BHIMJIBHAI KAKADIYA 21 CRORES 1.89% IN VIEW OF THE ABOVE ASSESSEE N.P IS VERY MUCH LOWE R THAN COMPARABLE THE CONCERNS. THE ASSESSEE ARGUMENT THA T IT HAS MADE GROSS PROFIT AND NET PROFIT OUT OF THE ACTIVITIES P ERFORMED BY IT IS NOTHING BUT MANIPULATION OF THE FIGURES AS PER HIS CONVENIENCE. EVEN THOUGH, THE ASSESSEE HAS PROCESSED ROUGH DIAMO ND TO EXTENT OF 30% OF ENTIRE PROCESS STILL HE WAS CLAIMING VERY LESS CHARGES I.E. RS.10/- TO RS.15/- PER CT. THE MANUFACTURING EXPEN SES INCURRED BY THE ASSESSEE THROUGH ASSORTMENT, LASER, SAWING, ETC . COMES TO RS.66,03,950/- ON THE PROCESSING OF RS.6,00,106/- C T. THERE IS NO PROFIT SHOWN BY THE ASSESSEE FOR PROCESSING ROUGH D IAMONDS TO EXTENT OF 30% OF THE ENTIRE PROCESS OF MANUFACTURIN G OF ROUGH DIAMONDS. HENCE, THIS CONCLUSIVELY PROVES THAT ASS ESSEE WAS NOT SHOWING HIS REAL INCOME AND RESORTING TO UNDER STAT EMENT OF INCOME EITHER THROUGH INFLATION OF EXPENSES ARE THROUGH EX CESS PAYMENT SHOWN BY HIM TO THE LABOUR CONTRACTORS. WHICH IS N OT COMPLETELY VERIFIABLE IN THE FACE OF OUT STANDING LABOUR CHARG ES OF RS.1,52,19,453/-. EVEN VERIFICATION OF THE SOME OF THE LABOUR CONTRACTOR WAS ALSO NOT DONE IN VIEW OF THE NON AVA ILABILITY OF THESE LABOUR CONTRACTOR AT THE GIVEN ADDRESS BY THE ASSES SEE. HONBLE ITA NO. 1791/AHD/09 A.Y. 06-07 PAGE 6 ITAT HELD IN ITS DECISION IN THE CASE ACIT VS. P.C. MUNDRA 80 TTJ 945 HELD THAT EVEN IN THE CASE OF ASSESSEE HOW WAS DOING ONLY BILLING BUSINESS AND NOT A MANUFACTURER/DEALER, THE A.O HAS TO COMPUTE NET PROFIT AT 1.5% OF THE TURNOVER. HENCE IN THE LIGHT OF ABOVE DECISION AND THE N.P RATIO OF COMPARABLE CONC ERNS CLEARLY INDICATES THAT MINIMUM PROFIT IN THE CASE OF LABOUR JOB WORK BUSINESS IS NOT BELOW 1.5% OF THE TOTAL TURNOVER. THUS, TOTAL ADDITION OF RS.10,39,217/- WAS MADE BY THE A.O. IN THE INCOME OF THE ASSESSEE. 4. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE CIT(A), WHO HAS DELETED THE ADDITION AFTER CONSIDERING THE REASONS OF REJECTION OF BOOK POINTED OUT BY THE A.O . ON PAGE NOS. 3 TO 7 AND CONCLUDED THAT REJECTION OF BOOK, WAS NOT JUSTIFIED . HE FURTHER OBSERVED THAT THE APPELLANT DID NOT OWN THE MACHINE FOR POLISHING OF ROUGH DIAMOND AND HENCE GETTING WORK DONE THROUGH SUB CONTRACTORS. I N THE FIRST YEAR, THE APPELLANT SHOWN GROSS PROFIT @ 3.38%. THE LABOUR P AYMENT WAS MADE TO THE SUB CONTRACTOR AFTER DEDUCTING THE TDS AND ALL PAYM ENTS HAD BEEN MADE THROUGH ACCOUNT PAYEE CHEQUE. THE LD. A.O. HAD NOT REVEALED ANY SUPPRESSION OF PROFIT. THE CASE LAW APPLIED BY THE A.O., NAMELY, ACIT VS. P.C. MUNDRA 80 TTJ 945 FOR ENTRY BUSINESS N.P @ 1.15% AND COMPARABLE CASES FOR N.P. CONSIDERED BY THE A.O. ARE NOT SQUAR ELY APPLICABLE. HOWEVER, HE RELIED IN CASE OF ATUL M JHAVERI (HUF) VS ITO (ITA NO. 2128/AHD/2003) , WHEREIN THE CO-ORDINATE BENCH HAD APPROVED THE PROF IT @ 3% IN CASE OF JOB ITA NO. 1791/AHD/09 A.Y. 06-07 PAGE 7 WORKERS, WHEREAS IN APPELLANTS CASE, THE GP HAS BE EN SHOWN 3.38%. QUALITATIVE RECORD IS NOT REQUIRED FOR THE JOB WORK ERS. HE FURTHER RELIED IN CASE OF NARBADA STEEL LTD. VS. ACIT (2007) 108 TTJ (ASR) 74 1, WHEREIN INFORMATION USED AGAINST THE ASSESSEE WITHOUT CONFRONTING. IN VANMALIBHAI BHAGWANBHAI PATEL VS. DCIT IN ITA NO. 2668/AHD/2002, DATED 01.06.2007, FOR GP AND BY CONSIDERING THE ABOVE DECISION, THE LD. CIT(A) DELE TED THE ADDITION. 5. NOW THE REVENUE IS BEFORE US. LD. SR. D.R. VEHE MENTLY ARGUED THAT THE APPELLANT HAD SHOWN LABOUR CHARGES AT RS.1,52,19,45 3/- BESIDES OWN EXPENDITURE ON ASSORTMENT LASER, SAWING ETC. AT RS. 66,03,950/- AND THE APPELLANT HAD NOT MADE QUALITATIVE DETAIL OF THE DI AMOND AND N.P. HAS BEEN SHOWN VERY LESS. THE LD. A.O. RIGHTLY REJECTED THE BOOKS OF ACCOUNT ON THE BASIS OF VARIOUS DEFECTS POINTED OUT BY HIM. AT TH E OUTSET, LD. COUNSEL FOR THE APPELLANT FILED A WRITTEN REPLY AND ARGUED THAT THE APPELLANT HAD BEEN ENGAGED IN THE BUSINESS OF JOB WORK ON CUTTING AND POLISHIN G OF THE ROUGH DIAMOND I.E. RECEIVED ROUGH DIAMOND FROM THE PARTIES AND GOT POL ISHED THROUGH SUB- CONTRACTORS. THE APPELLANT, THEREFORE, DOING MORE OR LESS JOB OF THE COMMISSION AGENT. THE APPELLANT HAD SHOWN N.P. AT RS.14,30,242/-. IF THE SALARY TO THE PARTNER OF RS.10,74,327/- IS ADDED IN THE RETURN INCOME THEN THE N.P. IS WORKED OUT @ 1.06%. THE QUALITYWISE DETAIL S WERE NOT MAINTAINED. HE VEHEMENTLY RELIED UPON THE ORDER OF CIT(A) AND S UBMITTED THAT WHATEVER COMPARABLE CASE CONSIDERED BY THE A.O., NO OPPORTUN ITY WAS GIVEN AS PER THE HONBLE APEX COURT DECISION IN CASE OF KISHANCHAND CHELARAM VS. CIT 125 ITR 713 (SC). LD. COUNSEL STRONGLY URGED THAT THE LD. A.O. REJECT ED THE BOOK ITA NO. 1791/AHD/09 A.Y. 06-07 PAGE 8 RESULTS U/S.145(3) OF THE ACT WITHOUT THERE BEING A NY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT. ENTIRE RECEIPTS AS WELL AS ENTIR E SUB CONTRACT ARE SUBJECT TO TDS AND PAYMENTS ARE BEING MADE THROUGH ACCOUNT PAY EE CHEQUES. THEREFORE, ESTIMATE OF PROFIT IN ABSENCE OF ANY SPE CIFIC DEFECTS IS UNJUSTIFIED. HE FURTHER RELIED IN CASE OF M/S. GAMI EXPORTS (ITA NO. 3146/AHD/2007), WHEREIN IT WAS HELD BY THE CO-ORDINATE BENCH THAT T HE MAINTENANCE OF QUANTITATIVE STOCK IS IMPRACTICABLE IN THE DIAMOND BUSINESS. THE BOOKS OF ACCOUNTS ARE AUDITED. THUS, BOOK RESULTS CANNOT BE REJECTED U/S.145(3) OF THE IT ACT. HE FURTHER RELIED IN CASE OF JIVRAJBHAI D. PATEL IN ITA NO. 137/RJT/2001& DHIRAJBHAI D. PATEL IN ITA NO. 138/RJ T/2001, WHEREIN 1% N.P. HAD BEEN ACCEPTED BY THE RAJKOT BENCH. THUS, HE RE QUESTED TO UPHOLD THE ORDER OF THE CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE LD. A.O. CALCULATED THE N.P. @ .16% WH ICH WAS ACTUALLY 60%. THE APPELLANT HAS RECEIVED JOB CHARGES ON POLISHING THE DIAMOND THROUGH SUB CONTRACTOR. THE N.P., AFTER ADDING THE SALARY TO T HE PARTNER IS MORE THAN 1%. LD. A.O. HAD NOT POINTED OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT, EXCEPT NOT MAINTAINING QUALITATIVE STOCK AND INCREA SING OUTSTANDING LABOUR CHARGES LIABILITY. THE TOTAL TURNOVER OF THE ASSES SEE IS MORE THAN 23.45 CRORE OF LABOUR CHARGES RECEIPTS WHICH DID NOT INCLUDE CO ST OF THE DIAMOND WHICH SHOWS THAT THE APPELLANT HAD PAID LABOUR CHARGES MO NTHLY MORE THAN RS.1 CRORE. THUS, THE OUTSTANDING LABOUR CHARGES ARE RE SULTED OF THE BUSINESS ACTIVITY. TDS ON PAYMENT OF LABOUR CHARGES HAS BEE N DEDUCTED BY THE ITA NO. 1791/AHD/09 A.Y. 06-07 PAGE 9 APPELLANT AND PAYMENTS MADE THROUGH ACCOUNT PAYEE C HEQUE. THUS, WE HAVE CONSIDERED VIEW THAT WE DO NOT FIND ANY REASON TO INTERVENE IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE REVENUES APPEAL I S DISMISSED. 7. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . THIS ORDER PRONOUNCED IN OPEN COURT ON 22.02.2013 SD/- SD/- ( MUKUL KR. SHRAWAT ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ;