The ITO, Ward-7(1), Surat V. Shri Bhadreshbhai M. Patel, Surat

ITA 1926/AHD/2008

• Counselvise Citation: 192620514 RSA 2008
• Duration Of Justice: 3 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 23-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR K SHYAM PRASAD
• Keywords: Gross profit estimation; Rejection of books of accounts

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD , . ! !,'# ' $ BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A. NO.1926/AHD/2008 ( ! & ! & ! & ! & / / / / ASSESSMENT YEAR : 2005-06) THE INCOME TAX OFFICER WARD-7(1) SURAT ! ! ! ! / VS. SHRI BHADRESHBHAI M.PATEL RAJARAM COMPOUND OPP.RESHAM BHAVAN LAL DARWAJA, SURAT ' '# ./() ./ PAN/GIR NO. : AGOPP 058 E ( '* / // / APPELLANT ) .. ( +,'*/ RESPONDENT ) '* - '/ APPELLANT BY : DR.K.SHYAM PRASAD, SR.D.R. +,'* . - ' / RESPONDENT BY : -NONE- (WRITTEN SUBMISSION) !/ . 0#/ // / DATE OF HEARING : 13/10/2011 1 & . 0# / DATE OF PRONOUNCEMENT : 21.10.2011 '2/ O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE W HICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-IV, SURAT DA TED 05/03/2008. GROUND RAISED BY THE REVENUE IS REPRODUCED BELOW: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A), WITHOUT APPRECIATING THE FACTS, HAS ERRED IN DELETING AN ADDITION OF RS.10,90,000/- BY RESORTING G.P. RATIO OF 1.93% AS DECLARED BY THE ASSESSEE AS AGAINST 6% ADO PTED BY THE ITA NO. 1926/AHD/2008 ITO VS. SH.BHADRESHBHAI M.PATEL ASST.YEAR - 2005-06 - 2 - A.O. ON ACCOUNT OF LOW G.P. VIDE ASSESSMENT ORDER U/S.1 43(3) OF THE I.T. ACT, 1961 DATED 28/12/2007. 2. AT THE OUTSET, IT IS WORTH TO MENTION THAT A NOT ICE OF HEARING WAS SERVED BY THE REVENUE DEPARTMENT AND NECESSARY CORR ESPONDENCE IN THIS REGARD IS PLACED ON RECORD. THERE WAS NO COMPLIANCE FROM THE SIDE OF THE RESPONDENT . WE HAVE, THEREFORE, DECIDED TO PROCE ED EX-PARTE QUA THE RESPONDENT-ASSESSEE, AFTER HEARING LD.DR. IT HAS ALSO BEEN FOUND THAT THE RESPONDENTASSESSEE HAS FILED WRITTEN SUBMISSIONS DATED 07/10/2011 WITH A REQUEST TO CONSIDER THE SAID SUBMISSIONS WHI LE HEARING THE APPEAL FIXED FOR 11.10.2011. WE HEREIN-BELOW PROCEED ACCOR DINGLY. 3. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T.ACT, 1961 DATED 28/12 /2007 WERE THAT THE ASSESSEE IN HIS INDIVIDUAL CAPACITY IS ENGAGED IN E ARNING LABOUR WORK OF DIAMOND PROCESSING. IT WAS NOTED BY THE ASSESSING OFFICER THAT TURNOVER OF RS.267 LACS WAS DISCLOSED, OVER WHICH SHOWING A GROSS PROFIT @ 1.93% AND NP @ .51%. AN INCOME OF RS.1,36 ,440/- WAS DISCLOSED AS PER THE RETURN. THE ALLEGATION OF THE ASSESSING OFFICER WAS THAT THE ASSESSEE HAS NOT MAINTAINED PIECE-WISE LABOUR-CHARGES RECORD. IT WAS ALSO ALLEGED THAT THE EXPENSES WERE NOT VE RIFIABLE. THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE GROSS PROFIT AT 6% BY REFERRING TWO COMPARABLE CASES OF HIS JURISDICTION. FINALLY, ASSESSMENT WAS FINALIZED AT RS.12,26,440/- BY ADOPTING GROSS PROFIT RATE AT 6% AS AGAINST THE GRO SS PROFIT PERCENTAGE OF ITA NO. 1926/AHD/2008 ITO VS. SH.BHADRESHBHAI M.PATEL ASST.YEAR - 2005-06 - 3 - 1.93% DECLARED BY THE ASSESSEE. THE MATTER WAS CAR RIED BEFORE THE FIRST APPELLATE AUTHORITY, WHO HAS HELD AS UNDER:- I HAVE GONE THROUGH THE DETAILS AND FIND THAT THE AO HAS SUMMARILY REJECTED THE BOOKS OF ACCOUNTS BY SIMPLY THAT THE REPLY OF THE APPELLANT WAS NOT FOUND TENABLE. HE HAS FU RTHER STATED THAT DETAILS OF PIECE WISE AND QUANTITY WISE PRODUCTION WAS NOT AVAILABLE AND THEREFORE LABOUR EXPENSES PAID FOR EA CH PIECE OF DIAMOND WAS NOT ASCERTAINABLE. HE HAS ALSO RELIED ON SOME OTHER CASES WHERE THE G.P. IS MORE THAN 6% AND ESTIMATED THE G.P. AS IN THE CASE OF BHADIADRA DIAMONDS. I HAVE PERUSED THE SAID DECISION. IN THAT CASE, A SEARCH & SEIZURE WAS CON DUCTED ON THE PREMISES OF THE APPELLANT AND CERTAIN UNACCOUNTED J OB WORK RECEIPTS WERE FOUND. THE AO ESTIMATED THE GP AT 1 0% OF THE UNACCOUNTED JOB WORK WHICH WAS REDUCED TO 6% AS ADM ITTED BY THE APPELLANT HIMSELF. IN THE INSTANT CASE, THE BO OKS OF ACCOUNTS HAVE BEEN REJECTED WITHOUT POINTING OUT ANY SERIOUS DEFECTS AND SIMPLY RELYING ON THE FACT THAT IN SOME OTHER CASES THE G P RATIO WAS HIGHER. THIS CANNOT FORM A GROUND FOR INVOKING THE PROVISIONS OF SECTION 145(3) OF THE IT ACT. IT IS ALSO SEEN THAT THE APPELLANT IS ONLY A JOB WORKER AND DID NOT HAVE ANY WORKERS OF H IS OWN AND WAS GETTING THE JOB WORK DONE THROUGH SUB-CONTRACTO RS. THEREFORE, HE WOULD NOT BE EXPECTED TO MAINTAIN QUA LITY WISE DETAILS OF THE DIAMONDS SINCE HE WAS NOT THE OWNER OF SUCH DIAMONDS. THE ASSESSING OFFICERS RELIANCE ON G P RATIO SHOWN BY OTHER CONCERNS IS ALSO MISPLACED SINCE EVERY JOB WO RKER COULD NOT BE EXPECTED TO EARN THE SAME AMOUNT OF PROFITS. RE JECTION OF BOOKS OF ACCOUNTS SHOULD NOT BE DONE IN A ROUTINE MANNER UNLESS SPECIFIC DETAILS ARE POINTED OUT BY THE AO. I THEREFORE, HO LD THAT THERE WAS NO JUSTIFICATION IN INVOKING THE PROVISIONS OF SECT ION 145(3) OF THE ACT IN THIS CASE AND ESTIMATING THE PROFIT AT 6%. THE ADDITION IS NOT SUSTAINABLE AND IS DIRECTED TO BE DELETED. 4. FROM THE SIDE OF THE REVENUE, LD. DR DR.K.SHYAM PRASAD HAS SUPPORTED THE ORDER OF THE ASSESSING OFFICER PRIMAR ILY ON THE GROUND THAT THE REQUISITE DETAILS IN RESPECT OF LABOUR CHARGES ON THE BASIS OF EACH ITA NO. 1926/AHD/2008 ITO VS. SH.BHADRESHBHAI M.PATEL ASST.YEAR - 2005-06 - 4 - PIECE OF DIAMOND WERE NOT FURNISHED BEFORE THE ASSE SSING OFFICER, THEREFORE, THE ASSESSING OFFICER HAD COLLECTED THE INFORMATION OF SIMILAR TYPE OF CASES AND A REASONABLE RATE OF PROFIT AT 6% WAS APPLIED. HE HAS CONCLUDED THAT SINCE THE QUANTITY-WISE AND PIECE-WI SE DETAILS OF DIAMOND WERE NOT FURNISHED, THEREFORE, THE PROVISIONS OF SE CTION 145(3) OF THE I.T.ACT WERE RIGHTLY INVOKED. ON THE OTHER HAND, F ROM THE SIDE OF THE RESPONDENT-ASSESSEE, THROUGH WRITTEN SUBMISSIONS IT WAS CONTESTED THAT THE QUANTITATIVE DETAILS OF THE ROUGH DIAMOND PROCESSED OF EACH CONTRACTOR WAS VERY MUCH BEFORE THE ASSESSING OFFIC ER. THE ASSESSEE HAS RECEIVED THE JOB CHARGES THROUGH CHEQUE AND THE COMPLETE DETAILS OF THE CHEQUES RECEIVED HAVE ALSO BEEN FURNISHED. IT HAS ALSO BEEN CONTESTED THAT THE ASSESSEE HAD UNDERTAKEN THE JOB- WORK OF DIAMOND ONLY AND THOSE DIAMONDS DID NOT BELONG TO THE ASSESSEE. IN SUPPORT OF THE SAID CONTENTION, THE RESPONDENT-ASSESSEE HAS ALSO C ITED FEW DECISIONS OF THE TRIBUNAL WITH THE REMARKS AS FOLLOWS:- SR.NO. NAME OF CASE CITATION GIST 1. KALPESH N. SHAH ITA NO.1589/AHD/2009 ESTIMATED ADDITION OF GROSS PROFIT RATE AT 6% CANNOT BE MADE IN CASE OF JOB WORKER MERELY BECAUSE OF LOW GROSS PROFIT. 2. PRADEEP S.AJMERA ITA NO.4028/AHD/2008 ESTIMATED ADDITION OF GROSS PROFIT RATE AT 6% CANNOT BE MADE IN CASE OF JOB WORKER MERELY BECAUSE OF LOW GP. 3. ANANDLAL F. KOTHARI ITA NO.3315/AHD/2008 THE HONBLE TRIBUNAL HAS HELD THAT G.P. OF 2% ON JOB WORK OF DIAMOND DONE BY THE ITA NO. 1926/AHD/2008 ITO VS. SH.BHADRESHBHAI M.PATEL ASST.YEAR - 2005-06 - 5 - ASSESSEE WAS JUSTIFIED 4. DILIP A.KOTHARI- HUF ITA NO.3692/AHD/2008 THE HONBLE TRIBUNAL HAS HELD THAT G.P. OF 2% ON JOB WORK OF DIAMOND DONE BY THE ASSESSEE WAS JUSTIFIED 5. ASWIN A.KOTHARI ITA NO.2982/AHD/2008 THE HONBLE TRIBUNAL HAS HELD THAT G.P. OF 2% ON JOB WORK OF DIAMOND DONE BY THE ASSESSEE WAS JUSTIFIED. 5. BEFORE US, FROM THE SIDE OF THE RESPONDENT-ASSE SSEE, A COMPARATIVE CHART OF RATE OF GP DISCLOSED IN THE PAST YEARS HA S BEEN FURNISHED. FROM THE SAID CHART, IT IS EVIDENT THAT THE TURNOVER OF THE ASSESSEE IS IN THE RANGE OF RS.2.24 CRORES TO 2.68 CRORES OVER WHICH DISCLOS ING THE RATE OF GROSS PROFIT FROM 1.97 % TO 2.03% AND NP RATE RANGING FRO M 0.78% TO 0.79%. THE COMPILATION IS ALSO CONTAINED THE DETAILS OF TH E ROUGH DIAMONDS RECEIVED FROM THE PARTIES. FROM THESE DETAILS, IT IS EVIDENT THAT THE QUANTITY OF THE DIAMOND POLISHED IS VERIFIABLE ALON G WITH THE AMOUNTS OF THE JOB CHARGES RECEIVED. LIKEWISE THE PROCESSING CHARGES RECEIVED AND THE PROCESSING CHARGES PAID ARE ALSO STATED TO BE VERIFIABLE AS PER THE CHARTS PLACED ON RECORD. ON THE BASIS OF THOSE DET AILS, THE ASSESSEE HAS ALSO FURNISHED A MONTH-WISE DETAIL OF ROUGH DIAMOND S ISSUED WITH THE DESCRIPTION OF CARATS AND THE PRODUCTION OF THE PRO CESSED DIAMONDS IN TERMS OF THE CARATS AND FINALLY THE PIECES OF THE M ONTHLY DIAMONDS PRODUCED. THE TOTALITY OF THESE CORROBORATIVE EV IDENCES AND THE DETAILS FURNISHED, THUS LEAD TO A CONCLUSION THAT THE VIEW TAKEN BY THE LD.CIT(A) WAS AN ACCEPTABLE VIEW. MOREOVER, SEVERAL DECISION S OF THE TRIBUNAL ALSO SUPPORT THE VIEW EXPRESSED BY THE LD.CIT(A) IN THIS LINE OF BUSINESS. ITA NO. 1926/AHD/2008 ITO VS. SH.BHADRESHBHAI M.PATEL ASST.YEAR - 2005-06 - 6 - ONCE A VIEW ON THE BASIS OF THE ANALYSIS OF THE FA CTS OF THIS CASE HAS BEEN TAKEN BY THE LEARNED CIT(APPEALS), WE FIND NO FALLA CY IN THE SAID APPROACH OF LEARNED CIT(APPEALS), THEREFORE, AFFIR M THE SAME. WITH THE RESULT, WE FIND NO FORCE IN THIS GROUND OF THE REVE NUE HENCE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED. SD/- SD/- (A. MOHAN ALANKAMONY) (MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL ME MBER AHMEDABAD; DATED 21 / 10 /2011 30..!, .!../ T.C. NAIR, SR. PS '2 . +4 5'4& '2 . +4 5'4& '2 . +4 5'4& '2 . +4 5'4&/ COPY OF THE ORDER FORWARDED TO : 1. '* / THE APPELLANT 2. +,'* / THE RESPONDENT. 3. 6 / CONCERNED CIT 4. 6() / THE CIT(A)-IV, SURAT 5. 49: +! , , / DR, ITAT, AHMEDABAD 6. :;