Rameshchand Jewellers, Hyderabad V. DCIT., Circler-8(1), Hyderabad, Hyderabad

ITA 1791/HYD/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3070 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 15-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 27-11-2014
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: AJAY GANDHI
• Section: 143(3); 142(1); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH ES A , HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 1791 /H YD /20 14 ASSESSMENT YEAR : 20 1 0 - 11 RA MESHCHAND JEWELLERS, HYDERABAD [PAN: A AFFR8578R ] VS DEPUTY COMMISSIONER OF INCOME TAX , CIRCLE - 8(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI AJAY GANDHI, AR FOR REVENUE : SHRI M. SITARAM, DR DATE OF HEARING : 15 - 0 2 - 201 6 DAT E OF PRONOUNCEMENT : 19 - 0 2 - 201 6 O R D E R PER S.S. VISWANETHRA RAVI , J .M. : THIS IS AN APPEAL BY THE ASSESSEE FILED AGAINST THE ORDER DATED 04 - 09 - 2014 IN ITA NO. 0217/DC/ - 8(1)/CIT(A) - III/2013 - 14 PASSED BY THE COMMISSIONER OF INCOME TAX (APPE ALS) - III , HYDERABAD FOR AY. 2010 - 11 FRAMED U/S. 143(3) OF THE INCOME TAX ACT [ACT] . 2. WHILE CHALLENGING THE IMPUGNED ORDER ABOVE, THE ASSESSEE RAISED THE FOLLOWING GROUNDS: I.T.A. NO. 1791 / HYD / 20 14 RAMESHCHAND JEWELLERS : - 2 - : 1. THE ORDER OF THE CIT(APPEALS) IS CONTRARY TO THE FACTS AND IS IN GROSS VI OLATION OF THE PROVISIONS OF LAW. HENCE, THE ORDER IS BAD IN LAW. 2. THE CIT(APPEALS) HAS ERRED IN OVERLOOKING THE FACTS, INFORMATION AND SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER. 3. THE CIT(APPEALS) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF 20% O F CONVERSION CHARGES AMOUNTING TO RS. 14,63,996/ - . 4. THE CIT(APPEALS) HAS ERRED IN UPHOLDING THE ASSESSMENT OF TOTAL INCOME AT RS. 35,42,306. 5. THE CIT(APPEALS) HAS ERRED IN UPHOLDING LEVY OF INTEREST U/S. 234B OF THE INCOME TAX ACT, 1961. 6. ANY OTH ER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 3. IT IS CLEAR FROM THE GROUNDS OF APPEAL THAT THE GROUNDS 1 TO 4 ARE IDENTICAL IN CHALLENGING THE ORDER OF CIT(A) IN CONFIRMING THE AOS ORDER OF DISALLOWANCE @ 20% OF CLAIM UNDER MAKING CHARGES TO AN EXTENT OF RS. 14,63,996/ - THE ONLY ISSUE STANDS FOR OUR CONSIDERATION IS WHETHER THE DISALLOWANCE @ 20% AGAINST THE CLAIM OF RS. 73,19,982/ - MADE BY THE ASSESSEE IS JUSTIFIED OR NOT IN THE CIRCUMSTANCES OF THE CASE. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF WHOLESALE AND RETAIL TRADING IN GOLD, SILVER ORNAMENTS JEWELLERY AND JOB WORK IN GOLD ITEMS. BESIDES THE ABOVE , THE ASSESSEE ALSO DOES JOB WORK OF OTHER JEWELERS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR AY. 2010 - 11 ON 26 - 09 - 2010 DECLARING THE TOTAL INCOME OF RS. 20,78,310/ - . IT IS ALSO CLEAR FROM THE RECORD THAT IN RESPONSE TO THE NOTICE U/S. 143(2) AND 142(1) OF THE ACT, THE ASSESSEE SUBMITTED THE DETAILS OF MAKING CHARGES OF CLAIMS OF JEWEL LERY AND LIST OF KARIGARS. I.T.A. NO. 1791 / HYD / 20 14 RAMESHCHAND JEWELLERS : - 3 - : 5. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT CONVERSION CHARGES PAID TO THE KARIGARS ARE NOT AT AN UNIFORM RATE AND ASSESSEE PAID HUGE CONVERSION CHARGES ON PLAIN WORK AS COMPARED TO THE PAYMENT ON JOB WORK. IT IS AL SO NOTED THAT THE EXACT QUA NTI TY WAS NOT DISCLOSED IN RESPECT OF JOB WORK, PLAIN WORK AND OWN WORK. AO DISALLOWED RS. 14,63,996/ - @20% AS AGAINST THE CLAIM OF ASSESSEE OF RS. 73,19,982/ - AND ADDED THE DISALLOWED AMOUNT TO THE RETURNED INCOME. 6. AGGRIEVE D BY THE AOS ORDER, THE ASSESSEE PREFERRED THE FIRST APPEAL BEFORE THE CIT(A). T HE CIT(A) WAS OF THE VIEW THAT THE CONTENTIONS RAISED IN THE GROUNDS WERE NEITHER SATISFACTORY NOR SELF - EXPLANATORY AND CONFIRMED THE ADDITION MADE BY THE AO. 7. BEFORE US , THE AR SUBMITTED THAT ALL THE DETAILS RELATING TO CONVERSION CHARGES OF JOB WORK, TDS DETAILS AND NAMES AND ADDRESSES OF GOLDSMITHS WERE PRODUCED BEFORE THE AO BUT, THE AO DID NOT UNDERSTAND THE BUSINESS TRANSACTIONS , I N SPITE OF DETAILED EXPLANATION OFF ERED BY THE ASSESSEE VIDE HIS LET T ER DT. 25 - 03 - 2013 . THE AR ALSO DREW OUR ATTENTION TO THE PAGE 43 AND 44 OF PAPER BOOK TO SHOW THAT CONVERSION CHARGES OF ITS OWN WORK AND JOB WORK RESPECTIVELY. 8. IN REPLY TO THE ARS SUBMISSIONS, THE DR CONTENDED THAT AO MADE ENQUIRIES ON TWO COUNTS IN WASTAGE AND CONVERSION CHARGES AND AO ACCEPTED WASTAGE. THE DETAILS SUBMITTED BY THE ASSESSEE IS NOT CORRECT FOR THE REASON THAT PAGES 1 TO 18 RE FLECT ABOUT WASTAGE AND ONLY PAGE 19 SHOWS CONVERSION CHARGES . FURTHER, HE ALSO SUBMITTED THAT THE WASTAGE WAS HIGH ON STUDDED JEWELLERY AS I.T.A. NO. 1791 / HYD / 20 14 RAMESHCHAND JEWELLERS : - 4 - : CLAIMED BY THE ASSESSEE IS NOT CORRECT AND PRAYED TO REMIT THE FILE TO AO FOR FURTHER VERIFICATION. 9. HEARD RIVAL SUBMISSIONS AND CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT THE AO ENQUIRED UPON ONLY ON WASTAGE EVEN THOUGH ROUTINELY ENQUIRED ABOUT CONVERSION CHARGES AS WELL. IN FACT, AO ARRIVED AT THE WASTAGE OF GOLD JEWELLERY AT 56% BY CONSIDERING THE RECEIPTS FROM JOB WORK OVER THE MAKING CHARGES, WHICH IN OUR VIEW IS NOT A CORREC T METHOD. ASSESSEE EXPLAINED VIDE ANNEXURE - A TO THE LETTER DT. 25 - 03 - 2013 THAT WASTAGE IN OWN PRODUCTION IS AT 7% AND WASTAGE IN JOB WORK ON AN AVERAGE IS AT 4.66%. WHILE EXPLAINING THE SAME, THE ASSESSEE ALSO EXPLAINED THE METHODOLOGY OF WASTAGE TO SUBM IT THAT THE WASTAGE IS ON KARIGAR BUT HIGHER CONVERSION CHARGES WERE PAID , WHEREAS THE WASTAGE IS ON THE ASSESSEES ACCOUNT WHEN CONVERSION CHARGES ARE LESS. ASSESSEE PLACED VARIOUS DETAILS OF WASTAGE, JOB WORK UNDERTAKEN , QUANTITY INVOLVED IN ORDER TO EX PLAIN THAT T HE WASTAGE CLAIMED BY ASSESSEE IS REASONABLE. ASSESSEE ALSO PLACED ON RECORD THE DETAILS O F CON VERSION CHARGES PAID BY KARIGAR, THE QUANTITY UNDERTAKEN THE AMOUNTS OF CONVERSION CHARGES A N D THE TDS DEDUCTED AS PART OF THE EXPLANATION , FOR EXPL AINING THE WASTAGE CLAIMED. WE ALSO FIND THAT AO ACCEPTED THE BOOK RESULTS AS WELL AS THE WASTAGE CLAIMED BY ASSESSEE BUT WITHOUT UNDERSTANDING THE NATURE OF ASSESSEES ACTIVITY, HE WENT ON TO EXAMINE THE CONVERSION CHARGES AND CATEGORIZED THE CONVERSION CHARGES INTO JOB WORK AND OWN WORK AND PLAIN WORK. HE WAS OF THE OPINION THAT ASSESSEE IS PAYING HIGHER CONVERSION RATES ON PLAIN WORKS AS COMPARED TO RATES OF OTHER TWO WORKS. AO ALSO NOTICED THAT ASSESSEE HAS NOT BIFURCATED THE QUANTITY AND THEREFORE, DISALLOWED ROUNDS O M E LY 20% OF THE CONVERSION CHARGES. I.T.A. NO. 1791 / HYD / 20 14 RAMESHCHAND JEWELLERS : - 5 - : 9.1. BEFORE THE LD. CIT(A), ASSESSEE SOUGHT TO EXPLAIN THE NATURE OF CONVERSION CHARGES BUT IT SEEMS ASSESSEE WAS NOT ALLOWED TO PLACE ANY SUBMISSIONS BY THE CIT(A). AS SEEN FROM THE ORDER OF THE CIT (A) ALSO, THERE IS NO SUBMISSIONS FROM ASSESSEE PLACED ON RECORD AND NO DISCUSSION ABOUT ANY OF THE CONTENTIONS RAISED BY ASSESSEE. CIT(A) BEING A JUDICIAL AUTHORITY SHOULD HAVE GIVEN DUE OPPORTUNITY TO ASSESSEE AND ASSESSEES SUBMISSIONS SHOULD BE CONSID ERED IN THE ORDER. WE DO NOT FIND ANY EXPLANATION OF ASSESSEE OR CONSIDERATION BY THE CIT(A) IN THE BRIEF ORDER AFFIRMING THE AOS ACTION IN PARA 6 OF THE ORDER. BE THAT AS IT MAY, WE CANNOT APPROVE THE ORDER OF THE CIT(A) AND ALSO THE AO ON THE SIMPLE R EASON THAT ASSESSEE HAS DIFFERENT RATES OF CONVERSION CHARGES DEPENDING ON THE RESPONSIBILITY FOR THE WASTAGE. AS EXPLAINED, IF THE WASTAGE ON KARIGAR S ACCOUNT, THE CONVERSION CHARGES ARE MORE. AO ALSO IN A WAY ACCEPTS THAT HIGHER CONVERSION RATES ARE P AID ON PLAIN WORKS, WHICH ASSESSEES AR EXPLAIN ED THAT THESE ARE BECAUSE OF WASTAGE BEING ON ACCOUNT OF KARIGAR , NOT ON THE ACCOUNT OF ASSESSEE. WE HAVE ALSO PERUSED THE DETAILED SUBMISSIONS PLACED ON RECORD IN THE PAPER BOOK NOT ONLY OF THE WASTAGES IN VA RIOUS TYPES OF WORKS BUT ALSO INDIVIDUAL LEDGER ACCOUNTS PLACED ON RECORD OF THE KARIGARS. IT IS ALSO A FAC T THAT TDS WAS MADE ON THE AMOUNTS PAID AS PER LAW AND ASSESSEES BOOKS OF ACCOUNTS WERE ACCEPTED AS SUCH. IN VIEW OF THIS, WE DO NOT FIND ANY REAS ON TO DISALLOW THE 20% OF THE CONVERSION CHARGES CLAIMED. NOT ONLY THAT, ASSESSEES P&L A/C INDICATE THAT IT HAS ALSO RECEIVED CONVERSION CHARGES/MAKING CHARGES FROM THE CLIENTS AND THE INCOME SHOWN THEREIN IS MUCH MORE THAN THE CONVERSION CHARGES PAID . F OR EXAMPLE ON JOB WORK ACCOUNT, THE MAKING CHARGES RECEIVED ARE TO AN EXTENT OF 2.44 CRORES, WHEREAS THE CONVERSION CHARGES PAID ARE ONLY 61.67 LAKHS. THIS INDICATES THAT I.T.A. NO. 1791 / HYD / 20 14 RAMESHCHAND JEWELLERS : - 6 - : AO HAS WRONGLY UNDERSTOOD THE FACTS OF THE CASE AND THE DISALLOWANCE PER SE IS ON C ERTAIN PRESUMPTIONS , NOT BASED ON ANY FACTS. IN VIEW OF THIS, WE SEE NO REASON TO AFFIRM THE ORDER OF THE AO AND CIT(A). WE DIRECT THE AO TO DELETE THE DISALLOWANCE SO MADE. ASSESSEES GROUNDS ARE ALLOWED. 10. IN THE RESULT, APPEAL IS ALLOWED. ORDER P RONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2016 SD/ - SD/ - (B. RAMAKOTAIAH) (S.S. VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 19 TH FEBRUARY, 2016 TNMM COPY TO : 1. RAMESHCHAND JEWELLERS, 21 - 2 - 165, GULZAR HOUSE, CHARMINAR, HYDERABAD. C/O. GANDHI & GANDHI CHARTERED ACCOUNTANTS, 1002, PAIGAH PLAZA, BASHEERBAGH, HYDERABAD. 2 . DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 8(1), C BLOCK, 8 TH FLOOR, INCOME TAX TOWERS, AC GUARDS, MASAB TANK, HYDERABAD. 3 . CIT ( APPEAL S ) - III , HYDERABAD. 4. THE CIT - II , HYDERABAD. 5 . D.R. ITAT, HYDERABAD. 6 . GUARD FILE.