M/s. Ganga Fashions Pvt.Ltd., Surat V. The Dy.CIT.,Circle-1, Surat

ITA 1864/AHD/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9674 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 09-12-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 26-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT JAVERI
• Assessee Lawyers: M K PATEL
• Keywords: Rejection of books of accounts

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD . . , , BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.1864/AHD/2011 ( / ASSESSMENT YEAR :2008-09) GANGA FASHIONS PVT. LTD. 287, GIDC, PANDESARA, SURAT. / VS. THE DCIT, CIRCLE-1 SURAT. ./ ./ PAN/GIR NO. : AAACG 8709 K ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI M.K. PATEL, A.R. / RESPONDENT BY : SHRI JAYANT JAVERI, SR. D.R. / DATE OF HEARING 09/12/2016 / DATE OF PRONOUNCEMENT 23/12/2016 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-I, SURAT, DATED 16/05/2011 FOR THE ASSESSMENT YEAR (AY) 2008-09 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: (I) THAT ON FACTS, AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,94,910/- MADE U/S.40(A)(IA) OF THE ACT. (II) THAT ON FACTS AND IN LAW THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE DISALLOWANCE OF LABOUR CHARGES OF RS.1,87,39,810/- (III) THAT ON FACTS AND IN LAW THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ACTION OF AO IN REJECTION OF BOOKS OF ACCOUNTS U/S.145 OF THE ACT. ITA NO. 1864/AHD/2011 GANGA FASHIONS PVT.LTD. VS. DCIT ASST.YEAR 2008-09 - 2 - 2. THE FACTS OF THE CASE ARE ON VERIFICATION OF THE CASE RECORDS, IT WAS NOTICED THAT THE ASSESSEE HAS DEDUCTED THE TAX AT SOURCE FROM THE PAYMENTS OF RS.1,50,611/- MADE TO RAVI ASHISH ROADLINES, RS.6,940/- MADE TO PHILBRICKS SERVICE AND RS.37,350/- MADE TO NAYAN ENGINEERS ON 31/03/2008 BUT NOT PAID INTO THE GOVERNMENT ACCOUNT TILL THE DATE OF FILING THE RETURN OF INCOME. THE ASSESSEE WAS, THEREFORE, ASKED TO EXPLAIN AS TO WHY THE SAID AMOUNT OF RS.1,94,901/- [RS.1,50,611 + RS.6,940 + RS.37,350] SHOULD NOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT AND ADDED TO THE TOTAL INCOME. HOWEVER, NO EXPLANATION HAS BEEN FURNISHED BY THE ASSESSEE IN THIS REGARD MEANS THEREBY THAT THE ASSESSEE HAS NOTHING TO SAY IN THE MATTER AND THEREBY ACCEPTED THE DEFAULT OF DEDUCTING THE TAX AT SOURCE BUT NOT PAID INTO GOVERNMENT ACCOUNT. AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF THE I.T. ACT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE AMOUNTS ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII- B BUT SUCH TAX HAS NOT BEEN DEDUCTED AT SOURCE AND PAID INTO GOVERNMENT ACCOUNT. HERE IN THE INSTANT CASE, AS STATED ABOVE, THE ASSESSEE HAS DEDUCTED THE TAX AT SOURCE FROM THE PAYMENTS OF RS.1,94,901/- [RS.1,50,611 + RS.6,940 + RS.37,350] BUT NOT PAID INTO GOVERNMENT ACCOUNT TILL THE DATE OF FILING THE RETURN OF INCOME. THEREFORE, THE SAID AMOUNT OF RS.1,94,901/- IS DISALLOWED U/S 40(A)(IA) OF THE I.T. ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. ON VERIFICATION OF THE CASE RECORDS, IT WAS NOTICED THAT THE ASSESSEE HAS SHOWN LABOUR WAGES PAYMENT OF RS.2,8364912/- DURING THE YEAR AS AGAINST THE LABOUR WAGES PAYMENT OF RS.1,54,20,775/-SHOWN IN THE A.Y. ITA NO. 1864/AHD/2011 GANGA FASHIONS PVT.LTD. VS. DCIT ASST.YEAR 2008-09 - 3 - 2007-08 AND RS.46,80,612/- IN THE A.Y. 2006-07. HERE IT IS PERTINENT TO NOTE THAT THE TURNOVER FOR THE ABOVE YEARS ARE RS.11,45,71,508/- FOR A.Y. 2008-09, RS.7,38,01,741/- FOR A.Y. 2007-08 AND RS.8,88,79,255/- FOR A.Y.2006-07. THUS THERE IS AN ABNORMAL INCREASE IN THE LABOUR WAGES PAYMENT SHOWN DURING THE YEAR AS COMPARED TO A.Y.2006-07 AND A.Y.2007-08. IT WAS ALSO NOTICED THAT THIS ABNORMAL INCREASE IS DESPITE THE FACT THAT THE NATURE OF BUSINESS ACTIVITY CARRIED OUT BY THE ASSESSEE COMPANY REMAIN THE SAME AND THE ALSO PRODUCTION HAS NOT BEEN INCREASED IN PROPORTION TO THE INCREASE IN THE LABOUR WAGES. THE ASSESSEE WAS, THEREFORE, VIDE LETTER DATED 29.11.2010 ASKED TO JUSTIFY THE DISPROPORTIONATE INCREASE IN THE LABOUR WAGES AS COMPARED TO THE A.Y. 2007-08 AND A.Y. 2006-07. IN RESPONSE TO THE SAME, THE ASSESSEE VIDE ITS LETTER DATED 24.12.2010 FURNISHED ITS WRITTEN SUBMISSION. THE MAIN CONTENTIONS OF THE ASSESSEE ARE SUMMARIZED AS UNDER: DURING THE YEAR UNDER ASSESSMENT, ASSESSEE COMPANY PAID LABOUR WAGES OF RS.2,83,64,912/- (AY 08-09) AND IN THE IMMEDIATELY PRECEDING YEAR, THE WAGES PAYMENT WAS RS.1,54,20,775/- (A.Y. 07-08). THUS THE INCREASE IN SALARY AND WAGES OR LABOUR CHARGES IN COMPARISON TO EARLIER YEAR IS RS.1,29,44,137/- SIR, AS YOU ARE AWARE THAT IN THIS PARTICULAR CASE, NEW MACHINERIES WERE INSTALLED AND THERE WAS TOTAL REVAMP IN THE UNIT IN A.Y. 2007-08. AS THE MACHINES WERE GETTING OLD AND REQUIRED PRODUCTION FROM THEM WERE NOT COMING IN SPITE OF ALL EFFORTS, THE COMPANY REPLACED OLD MACHINERIES WITH NEW MACHINERIES COSTING APPROX 63 LACS. SOME OF THE OLD MACHINERIES WERE REPAIRED AND SERVICED. THE TRIAL RUNS WERE ALSO DONE. AS A MAJOR RESTRUCTURING ON LABOUR FRONT, MANY NEW PEOPLE WERE HIRED. THESE INCLUDED TECHNICAL AND NOT TECHNICAL STAFF. THE OLD PEOPLE WERE GRADUALLY PHASED OUT BECAUSE THROWING OLD STAFFS IN ONE GO WOULD HAVE CAUSED LABOUR PROBLEM. THE OLD STAFF CONTINUED WORKING TILL NOV06 END AND THE NEW TEAM HEADED BY NEW DYEING & PRINTING MASTER, SUPERVISORS, ASSISTANT TO THESE MASTERS ETC TOOK OVER IN DEC 06 AND WERE PAID SALARY FOR 3-4 MONTHS ONLY. NOW AS THE NEW TEAM WAS HIRED ON A HIGHER ON A HIGHER PAY SALE, IT IS NATURAL THAT THE WAGE EXPENDITURE WOULD BE HIGHER IN COMPARISON TO EARLIER YEAR. A COMPARATIVE CHART OF SALARY PAID TO TECHNICAL STAFF FOR 3 MONTHS (A.Y. 07-08) AND 12 MONTHS (A.Y. 08-09) ALONG WITH THEIR COPY OF ITA NO. 1864/AHD/2011 GANGA FASHIONS PVT.LTD. VS. DCIT ASST.YEAR 2008-09 - 4 - ACCOUNT IS ATTACHED. THIS CLEARLY GIVES AN INSIGHT INTO HOW LABOUR WAGES HAVE INCEASED. ASSESSEE HAS ALREADY SUBMITTED TO YOU THE PHOTOCOPY OF THE WAGES REGISTER FOR THE ENTIRE YEAR WITH WAGE DETAILS. THE ASSESSEE HAS ALSO SUBMITTED THE COPY OF THE ATTENDANCE REGISTER MAINTAINED BY TIME KEEPER AT THE GATE. THE DETAILS OF ESI AND PF DEDUCTION AND PAYMENT ALONGWITH TDS DEDUCTED ON SALARY ARE ALREADY SUBMITTED. AFTER INCREASE OF SUCH STAFF, BOTH TECHNICAL AND NON TECHNICAL, THE DIFFERENCE IS CLEARLY VISIBLE. THIS IS EXPLAINED BY FOLLOWING COMPARATIVE CHART: A.Y. 2006-07 2007-08 2008-09 2009-10 DISPATCH OF PROCESSED METERS 8629944.90 7533448.33 8565005.15 8931977.60 PER METER REALISATION INCOME 10.29 9.79 13.38 17.35 PROCESSING CHARGES ETC. 88844769 73774787 114571508 154936059 INCREASE DECREASE IN INVENTORIES. 482962 113966 1342812 -508592 TOTAL INCOME. 8,93,27,731 7,38,88,753 11,59,14,320 15,44,27,467 THE ABOVE CHART PERFECTLY COMPLEMENTS THE DECISION OF LABOUR AND THEIR WAGE RESHUFFLING. IN A.Y. 07-08, THE DISPATCH OF PROCESSED METERS WAS LESS WHEREAS IN THE YEAR UNDER CONSIDERATION, IT HAS INCREASED. THE RATE OF PER METER REALIZATION HAS ALSO INCREASED SUBSTANTIALLY TO RS.13.38 FROM RS.9.79 AND THEREFORE INCOME HAS ALSO INCREASED AND HAS ALSO BECOME BETTER IN NEXT YEAR AND THEREFORE JUSTIFIES INCREASE IN LABOUR WAGES. THE INCREASE IN JOB CHARGES RECEIVED IS ALSO EXPLAINED FROM THE FOLLOWING COMPARATIVE TABLE GIVING DETAILS OF JOB CHARGES BY COMPANY IN A.Y.2007-08 AND A.Y. 2008-09, AS UNDER: S.NO. QUALITY BILL NO/DATE RATE IN A.Y. 2007- 08 BILL NO/DATE RATE IN A.Y. 2008-09 INCREASE IN JOB CHARGE 1. DYED AMERICAN CREPE 1127 5.8.06 RS. 3.50 PER METER 869 9.8.07 RS.4.00 PER METER .50 PER METER 2. PTD FRENCH 701 21.6.06 RS. 11 PER METER 382 4.6.07 RS.14.50 PER METER 3.50 PER METER ITA NO. 1864/AHD/2011 GANGA FASHIONS PVT.LTD. VS. DCIT ASST.YEAR 2008-09 - 5 - CRAPE 3. GEORGETTE 4 1.4.06 RS. 9 PER METER 690 20.7.07 RS.13.50 PER METER 4.50 PER METER 4. CHIFFON 1328 1.9.06 RS. 8.50 PER METER 1177 3.9.07 RS.13.50 PER METER 5.50 PER METER THUS THE INCREASE IN JOB CHARGES RATES ALSO SUPPORTS THE DECISION OF THE COMPANY OF EMPLOYING BETTER AND TECHNICALLY GOOD EXPERIENCED STAFF TO MANAGE THE AFFAIRS AND HIGHER LABOUR WAGES IN COMPARISON TO A.Y. 07-08 STANDS JUSTIFIED. LAST BUT NOT THE LEAST, WE ALSO ATTACH A MONTH WISE CHART OF OUR EMPLOYEES WHERE THE COMPANY HAS DEDUCTED EITHER OF TDS, PROFESSIONAL TAX, BONUS OF PF, DEPOSITED THE DUE AMOUNT IN TREASURY AND HAS FILED STATUTORY RETURNS WITH THE RESPECTIVE AUTHORITIES. MONTH NO OF EMPLOYEES WHOSE PF DEDUCTED NO OF EMPLOYEES WHOSE ESI DEDUCTED NO OF EMPLOYEES WHOSE TDS DEDUCTED NO OF EMPLOYEES WHOSE PROFESSIONAL TAX DEDUCTED APRIL 07 74 67 8 221 MAY 07 74 67 7 226 JUNE 07 69 62 7 235 JULY 07 70 63 7 262 AUG 07 70 63 7 262 SEP 07 72 65 7 262 OCT 07 76 69 6 287 NOV 07 90 83 6 202 DEC 07 90 83 6 231 JAN 08 91 84 6 231 FEB 08 91 84 6 222 MARCH 08 90 83 6 230 NOTE: ESI IS DEDUCTED FOR SALARY PAYMENTS UPTO RS.10000/- AND PF IS DEDUCTED ON SALARY UPTO RS.6500/-. PROFESSIONAL TAX IS NOT DEDUCTED WHERE SALARY IS UPTO 2999/-. THE DETAILS OF EMPLOYEES ARE ALSO QUARTERLY SUBMITTED TO EMPLOYMENT EXCHANGE. THERE ARE ALSO CASES WHERE ESI, PF AND PROF TAX IS DEDUCTED, THERE ARE OTHER INSTANCES WHERE ONLY ESI AND PF IS DEDUCTED. IN SOME CASES ONLY ESI IS DEDUCTED AND IN SOME CASES ONLY PROFESSIONAL TAX IS DEDUCTED. IN SOME CASES, TDS AND PROF TAX ARE DEDUCTED. AS SUBMITTED IN ABOVE PARAGRAPHS, TO ACHIEVE GOOD RESULTS IN TERMS OF BETTER QUALITY AND PRODUCTION AND SUBSTANTIALLY BETTER REALIZATION OF JOB RECEIPTS FROM OLD ITA NO. 1864/AHD/2011 GANGA FASHIONS PVT.LTD. VS. DCIT ASST.YEAR 2008-09 - 6 - MACHINES REPAIRED AND NEW MACHINES INSTALLED, THE COMPANY HAD HIRED TECHNICAL PERSONS & OTHER HIGHLY PAID LABOURS SO THAT PRODUCTION COULD BE INCREASED. THIS RESULTED IN INCREASE IN NUMBER OF EMPLOYEES WHICH FURTHER RESULTED IN HIGHER WAGES. THE NEW STAFF LIKE PRINTING TECHNICIANS, SUPERVISORS, DESIGNERS ETC WAS RECRUITED ON A VERY HIGH PAY SCALE THAT SALARY PAYMENTS WERE DONE THROUGH ACCOUNT PAYEE CHEQUES AND TDS WAS ALSO DEDUCTED ON THE SAME. THE LABOURS WERE PAID AND THEIR DETAILS WERE ALSO SUBMITTED TO VARIOUS AUTHORITIES. THE ESI AND PF WAS DEDUCTED AND DEPOSITED IN TREASURY AND THEIR DETAILS WERE SUBMITTED TO THE RESPECTIVE DEPARTMENTS. THE ATTENDANCE REGISTER WERE MAINTAINED REGULARLY. ASSESSEE HAS ALSO PURCHASED A NEW STENTER MACHINE DURING THE YEAR, COPY OF LEDGER AND BILL IS ALREADY SUBMITTED WITH EARLIER SUBMISSION. THIS ALSO MADE TO HIRE EXTRA LABOUR. THUS EXPENDITURE INCURRED BY ASSESSEE AS A PRUDENT BUSINESS PRACTICE TO GET BETTER RESULTS BY HIRING EMPLOYEES TO RUN THE MACHINERIES TO ITS OPTIMUM CAPACITY DURING THE COURSE OF BUSINESS FOR OBTAINING A NEW ADVANTAGE OF ENDURING NATURE IS ADMISSIBLE EXPENDITURE WHICH RESULTED IN INCREASE IN LABOUR WAGES. THE INCREASE IN LABOUR CHARGES HAS RESULTED INCREASE IN SALE REALIZATION, WHICH IS MUCH HIGHER AS COMPARED TO INCREASE IN LABOUR CHARGES. 4. BUT LD.A.O. WAS NOT SATISFIED A REPLY FILED BY THE ASSESSEE, THEREFORE, IN MADE ADDITION OF RS.1,87,39,810/- 5. LD.A.O. ON VERIFICATION OF THE DOCUMENTS FOUND THAT NO DAY-TO-DAY STOCK REGISTER HAS BEEN MAINTAINED AND AS PER PART-B OF ANNEXURE TO 3CD REPORT THE GROSS PROFIT FOR THE A.Y.07-08 IS SHOWN AT RS.29,349/- WHEREAS AS PER THE ASSESSEES SUBMISSION IT IS RS.23,64,630/- AND BOOKS OF ACCOUNTS WERE REJECTED FOR A.Y.2007-08 U/S.145(3) AS SAME WEE FOUND DEFECTIVE, THEREFORE, BOOKS WERE REJECTED IN 145(3). 6. THEREAFTER, ASSESSEE/APPELLANT PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD.CIT(A) BUT TO NO AVAIL, WE HAVE HEARD RIVAL SUBMISSION AND GONE THROUGH THE IMPUGNED ORDER AND SEEN THE RELEVANT RECORD, SO FAR ITA NO. 1864/AHD/2011 GANGA FASHIONS PVT.LTD. VS. DCIT ASST.YEAR 2008-09 - 7 - TDS IS CONCERNED THAT LD. A.R. HAS STATED THAT APPELLANT PAID TDS BEFORE THE FILING OF THE RETURN AND SAME IS COVERED BY OUR OWN BENCH IN THE ITA NO.404/AHD/2013 WITH FOLLOWING OBSERVATION. WE HAVE CONSIDERED SUBMISSIONS OF THE PARTIES AND ALSO MATERIAL AVAILABLE ON RECORD. WE DO NOT FIND ANY ILLEGALITY IN THE ORDER OF THE LD.CIT(A), INASMUCH AS THE LD.CIT(A) WHILE PASSING THE IMPUGNED ORDER HAS TAKEN INTO CONSIDERATION ORDER OF THE ITAT, AHMEDABAD BENCH IN THE CASE OF RAMESCHANDRA BRAHMBHATT (SUPRA), WHEREIN IN AN IDENTICAL SITUATION, THE TRIBUNAL ALLOWED SIMILAR CLAIM OF THE ASSESSEE TOWARDS CARTING EXPENSES. THE RELEVANT PART OF THE TRIBUNAL READS AS UNDER: NOW THE APPELLANT IS BEFORE US. THE LD. COUNSEL FOR THE APPELLANT CONTENDED THAT THE ASSESSEE HAD PAID TDS ON 13.05.2005. HE RELIED ON ASSESSEES OWN CASE IN SPECIAL CIVIL APPLICATION NO.11902 OF 2008 OF HONBLE GUJARAT HIGH COURT FOR A.Y. 05-06 WHEREIN THE HONBLE GUJARAT HIGH COURT GRANTED STAY FOR NOT TO OPERATE, EXECUTE AND IMPLEMENT OF THE IMPUGNED ORDER DATED 27.12.2007. SLP WAS FILED TO CHALLENGE THE VALIDITY OF AMENDMENT MADE U/S. 40(A)(IA) BY THE FINANCE ACT, 2008 W.E.F. 01.04.2005. HE FURTHER RELIED ON THE CO-ORDINATE B BENCH, AHMADABAD, DECISION IN ITA NO. 3465/AHD/2008 FOR A.Y. 2005-06 IN CASE OF SHREEDHAN CONSTRUCTION CO. VS. ITO., WHEREIN THE TDS OF RS.62,087/- U/S. 194(C) WAS DEDUCTED BY THE ASSESSEE AND PAID ON 25.05.2005 FOR A.Y. 05-06, WHICH WAS TO BE PAID IN GOVERNMENT ACCOUNT BY THE 7TH DAY OF THE FOLLOWING MONTH. THE CO-ORDINATE B BENCH, AHMADABAD, RELIED UPON IN CASE OF CIT VS. VIRGIN CREATIONS (APPEAL NO.302 OF 2007 [GA NO.3200/2011] ORDER DATED 23/11/2011) WHEREIN CALCUTTA HIGH COURT ALLOWED THE APPEAL ON THE BASIS OF THAT APPELLANT HAD PAID THE TDS IN GOVERNMENT ACCOUNT ON OR BEFORE THE DATE OF FILING THE RETURN OF INCOME FOR THE YEAR A.Y. 05-06. THE CO-ORDINATE B BENCH, ALSO RELIED UPON THE DECISION OF ITAT C BENCH, AHMADABAD, IN CASE OF M/S. ALPHA PROJECTS SOCIETY P. LTD. VS. DCIT BEARING ITA NO. 2869/AHD/2011 (A.Y. 2005-06) VIDE ORDER DATED 23/03/2012, WHEREIN THE SIMILAR ISSUE WAS BEFORE THEM AND ALLOWED THE APPEAL BY CONSIDERING THE HONBLE CALCUTTA HIGH COURT DECISION IN CASE OF CIT VS. ITA NO. 1864/AHD/2011 GANGA FASHIONS PVT.LTD. VS. DCIT ASST.YEAR 2008-09 - 8 - VIRGIN CREATIONS (SUPRA). FROM THE SIDE OF REVENUE, LD. SR. D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND REQUESTED TO CONFIRM THE ADDITION. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERING THE CASE LAWS CITED BY THE APPELLANT. BOTH THE PARTIES ARE AGREED THAT THE FACTS ARE IDENTICAL WITH THE CASE LAWS CITED BY THE APPELLANT AND SQUARELY APPLICABLE IN CASE OF APPELLANT. TDS HAD BEEN DEDUCTED BY THE APPELLANT WHICH WAS PAID ON 13.05.2005 WHICH IS BEFORE THE DUE DATE OF FILING THE RETURN FOR A.Y. 05-06. ACCORDINGLY, THE ASSESSEES APPEAL IS ALLOWED. 7. IN THE LIGHT OF THE ABOVE, PROVISION OF SECTION 40(A)(IA) DOES NOT ATTRACT IN THE CASE OF THE ASSESSEE. THE LD.CIT(A) HAS RIGHTLY DELETED THE IMPUGNED DISALLOWANCE. HIS ORDER IS ACCORDINGLY UPHELD, AND THE APPEAL OF THE REVENUE IS DISMISSED. 8. THEREFORE, IN VIEW OF THE FOREGOING OBSERVATION WE ALLOWED THE GROUND IN FAVOUR OF ASSESSEE. 9. SO FAR, LABOUR CHARGES ARE CONCERNED LD.AR STATED THAT THERE WAS A FALL IN PRODUCTION LEVEL AS WELL AS INCREASE IN COST OF PRODUCTION AND THEREFORE, IT WAS DECIDED TO RE-EQUIP THE UNIT WITH NEW MACHINERIES AND MODERN TECHNOLOGIES AND THE COMPANY HAD PURCHASED NEW MACHINERIES WORTH RS.63 LACS IN A.Y. 2007-08. MOREOVER, DUE TO COMPETITION IN THE MARKET, TO MAKE THE COMPANY ECONOMICALLY VIABLE, THERE WAS NO ALTERNATIVE BUT TO INCREASE THE LEVEL OF PRODUCTION VIS A VIS GOOD QUALITY PRODUCTS AND THEREFORE, AFTER TECHNICAL ADVICE, IT WAS DECIDED TO EMPLOY MORE EXPERIENCED AND EFFICIENT WORKERS WITH HIGHER WAGES SCALE TO RUN THE MACHINERIES WITH MODERN TECHNOLOGY. AS A RESULT OF THIS, THE NUMBER ITA NO. 1864/AHD/2011 GANGA FASHIONS PVT.LTD. VS. DCIT ASST.YEAR 2008-09 - 9 - OF WORKERS AS WELL AS THEIR WAGES LEVEL HAD GONE UP AS A PART OF RESTRUCTURING THE PRODUCTION PLAN AND SCHEDULE AND IMPLEMENTATION OF THE SAME. SINCE THE MACHINERIES WERE BECOMING OBSOLETE AND NOT RUNNING TO FULL EFFICIENCY DUE TO FREQUENT BREAK DOWN, THE COMPANY HAD DECIDED TO HIRE ADDITIONAL PERSONNEL WITH BETTER KNOWLEDGE OF RUNNING THE MACHINES PROPERLY TO GET BETTER RESULTS. APART FROM PURCHASING NEW MACHINERIES, THE COMPANY HAD ALSO GOT REPAIRED OLD MACHINERIES. THE APPELLANT COMPANY WAS A RUNNING UNIT AND THEREFORE, IT HAD AN INHERENT LIMITATION THAT IT COULD NOT THROW OUT THE EXISTING LABOUR FORCE WHICH WOULD HAVE CREATED LABOUR UNION PROBLEM AMIDST THE CURRENT PROBLEMS OF LOW PRODUCTIVITY ALREADY BEING FACED BY THE COMPANY. THEREFORE, AFTER THE REPAIRS AND INSTALLATIONS OF NEW MACHINERIES, THE COMPANY DECIDED TO EMPLOY NEW EXPERIENCED LABOURS AND OLD LABOUR FORCE WAS PHASED OUT IN A SYSTEMATIC MANNER OVER A PERIOD OF TIME DURING A.Y. 2007-08 AND A.Y. 2008-09. AS A RESULT OF SUCH DRASTIC CHANGES IN PRODUCTION PLANNING AND MANAGEMENT, THE COMPANY HAD TO INCUR MORE LABOUR CHARGES. THEREFORE, ON THE RELYING UPON OUR OWN ORDER GROUND NO.2 ALLOWED IN FAVOUR OF THE ASSESSEE. SO FAR, GROUND NO.3 IS CONCERNED REGARDING REJECTION OF BOOKS OF ACCOUNTS U/S.145(3), LD.AR STATED THAT COMPANY IS MAINTAINING PROPER BOOKS OF ACCOUNT AND GROSS PROFIT 2006-07, 2007-08, 2008-09, 2009- 10, WE CAN SEE THAT GP IN THE YEAR OF 2006-07 IT IS 16.92% AND ON ACCOUNT OF RENOVATION/RESTRUCTURING OF PLANT PRODUCTION WAS LESS, THEREFORE, IT WAS 3.33% IN THE YEAR 2008-09 GROSS PROFIT WAS 12.61% AND IN THE YEAR 2009-10 IT WAS 12.01%. WE CAN SEE THAT GP DURING THE YEAR IS MUCH BETTER THAN EARLIER, MOREOVER A.Y. 2006-07 COULD NOT BE TAKEN AS BENCH MARK STANDARD FOR GP OF ALL SUBSEQUENT YEAR AND ASSESSEE ALREADY EXPLAINED THE INCREASE IN LABOUR CHARGES AND ASSESSEE COMPLETED RESTRUCTURING PROCESS ON ACCOUNT OF THE SIMILAR MATTER WITH REGARD TO LABOUR CHARGES WAS ALSO AROSE IN THE A.Y. 2007- ITA NO. 1864/AHD/2011 GANGA FASHIONS PVT.LTD. VS. DCIT ASST.YEAR 2008-09 - 10 - 08 ITA NO.987/AHD/2011 OF THE ASSESSEE AND RELIEF WAS GRANTED TO THE APPELLANT BY THE CIT(A) AND THEREAFTER, CONFIRMED BY THE COORDINATING BENCH OF ITAT HOLDING THAT WE ALSO FIND THAT DURING THE YEAR UNDER CONSIDERATION DUE TO THE AUTOMATION OF MACHINERIES HIGHLY SKILLED LABOURS WERE EMPLOYED AS COMPARED TO THE PRECEDING YEARS. IN OUR CONSIDERED OPINION, THE INCREASE IN THE LABOUR PAYMENTS WAS DUE TO THE EMPLOYMENT OF HIGHLY SKILLED LABOURS. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD.CIT(A). APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSED. 10. NO WHERE DEPARTMENT, THE AO COULD PROVE THAT PAYMENT WERE PAID TO THE LABOUR WERE BOGUS AND ON THE CONTRARY ASSESSEE HAS SUBMITTED EACH AND EVERY DOCUMENT, VOUCHER, BILL, PERTAINING TO LABOUR CHARGES. 11. IN THE RESULT THIS GROUND OF APPEAL IS ALSO DECIDED IN THE FAVOUR OF THE APPELLANT. 12. THEREFORE, AS PER THE ABOVE OBSERVATION APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. THIS ORDER PRONOUNCED IN OPEN COURT ON 23/12/2016 SD/- SD/- . . ( ) ( ) ( N.K. BILLAIYA ) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 23/12 /2016 TRUE COPY