M/s. Shree Mukt Jewellers, Baroda V. The Income tax Officer, Ward-2(2), Baroda

ITA 2207/AHD/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85824 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 02-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 30-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV SRDR
• Assessee Lawyers: M K PATEL

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ./ ITA NO.2207/AHD/2010 / ASSTT. YEAR: 2007-08 M/S.SHREE MUKT JEWELLERS GENDI GATE ROAD NR. STATE BANK OF SAURASHTRA VADODARA. PAN : AAFFS 8286 B VS ACIT, CIR.5 VADODARA. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE(S) BY : SHRI M.K. PATEL, AR REVENUE BY : SHRI B.L. YADAV, SR-DR / DATE OF HEARING : 02/03/2015 / DATE OF PRONOUNCEMENT: 13/03/2015 $%/ O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER: THIS AN APPEAL FILED BY THE ASSESSEE AGAINST ORDER OF THE CIT(A)-V, BARODA DATED 29.4.2010 FOR ASSTT.YEAR 2007-08. 2. THE FIRST ISSUE INVOLVED IN THIS APPEAL IS THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS.2,8 2,689/- OUT OF LABOUR EXPENSES. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S DEBITED AN AMOUNT OF RS.39,94,519/- AS LABOUR CHARGES IN PROFI T & LOSS ACCOUNT. IN ORDER TO VERIFY THE LABOUR CHARGES, THREE LABOURERS WERE PRESENTED BEFORE THE AO AND THEIR STATEMENTS WERE RECORDED. THEY CLAIMED BEFORE THE AO THAT THEY HAVE NOT SIGNED VOUCHERS WH ILE RECEIVING PAYMENTS. ON THE OTHER HAND, THE ASSESSEE SUBMITT ED THE CONFIRMATIONS FROM THE LABOURERS, AFTER RECORDING O F STATEMENT THAT THEY ITA NO.2207/AHD/2010 2 HAVE RECEIVED THE PAYMENTS AS PER THE AMOUNT DEBITE D AND THAT THE ENTIRE EXPENDITURE WERE INCURRED FOR BUSINESS PURPO SES. THE AO DID NOT ACCEPT THE CONFIRMATION ON THE GROUND THAT IT WAS A FTER THOUGHT AND THE VOUCHERS DID NOT CONTAIN SIGNATURES AND LABOUR EXPE NSES WERE INFLATED. HE, THEREFORE, MADE DISALLOWANCE OF 20% OF THE LABO UR CHARGES AMOUNTING TO RS.7,98,904/- AND ADDED TO THE INCOME OF THE ASSESSEE. 4. BEFORE THE CIT(A), THE ASSESSEE ARGUED THAT THE LABOUR PAYMENTS WERE MADE FOR MANUFACTURING OF GOLD ORNAMENTS AND T HAT THE STATEMENTS WERE GENERAL IN NATURE AND THE LABOURERS HAVE CONFIRMED RECEIVING THE PAYMENTS AND THAT TDS WAS DEDUCTED ON SUCH PAYMENTS AND PAN NUMBERS WERE ALSO QUOTED IN THE CERTIFICATE S AND THAT THERE WAS NO BASIS FOR AD HOC DISALLOWANCE. 5. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS, OB SERVED THAT OUT OF TOTAL EXPENSES FOR LABOUR EXPENSES OF RS.39,94,5 19/-, RS.11,67,624/- WERE CREDITED IN THE ACCOUNTS AND PARTLY PAID THROU GH CHEQUES AND THE BALANCE OF RS.28,26,895/- WAS MADE IN CASH TO VARIO US WORKERS. THE AO RECORDED STATEMENT OF THREE WORKERS WHO CLAIMED TO HAVE RECEIVED THE PAYMENTS WITHOUT SIGNING ON VOUCHERS AND SUBSEQ UENTLY FILED CONFIRMATIONS OF HAVING RECEIVED THE COMPLETE AMOUN T. THE AO INFERRED FROM THESE FACTS THAT THE EXPENSES WERE IN FLATED. 6. A PERUSAL OF THE STATEMENT OF SHRI AJITHBHAI REV EALED THAT HE CLAIMED TO HAVE ANNUAL INCOME OF RS.1.5 LAKHS WHERE AS HE RECEIVED LABOUR CHARGES OF RS.2,27,262/- FROM THE ASSESSEE. SHRI HARISHBHAI STATED THAT HE HAD RECEIVED AN AMOUNT OF RS.3,00,00 0/- WHEREAS THE BOOKS OF THE ASSESSEE SHOWED PAYMENT OF RS.5,49,791 /-. THEREFORE, THE CIT(A) OBSERVED THAT HE WAS IN PARTIAL AGREEMEN T WITH THE AO THAT SUBSEQUENT CONFIRMATIONS WERE IN THE NATURE OF SELF -SERVING DOCUMENTS AND THAT PAYMENT THROUGH SELF-GENERATED VOUCHERS WI THOUT IDENTIFYING THE RECIPIENTS, COULD MAKE THE MANIPULATIONS EASIER . HE FURTHER OBSERVED THAT IT IS ALSO A FACT THAT IN THE TRADE O F JEWELLERY MANUFACTURE, ITA NO.2207/AHD/2010 3 PAYMENTS WERE MADE IN CASH TO THE SKILLED WORKERS A ND THIS WAS THE PREVALENT PRACTICE OF THE TRADE. KEEPING IN VIEW T HESE FACTS, HE RESTRICTED THE DISALLOWANCE TO 10% OF THE CASH PAYM ENTS I.E. RS.2,82,689/- AND PARTLY ALLOWED THE CLAIM OF THE A SSESSEE. 7. BEFORE US, THE AR OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) WHEREAS THE DR SUPPORTED THE ORDER OF THE CIT(A). 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON REC ORD. WE FIND NO SPECIFIC ERROR IN THE ORDER OF THE CIT(A) COULD BE POINTED OUT BY THE AR OF THE ASSESSEE. THE AR OF THE ASSESSEE COULD NOT EXPLAIN THE DISCREPANCY POINTED OUT BY THE CIT(A) IN THE CONFIR MATION AND STATEMENT OF SHRI AJITBHAI AND SHRI HARISHBHAI. NO MATERIAL WAS BROUGHT BEFORE US BY THE AR TO SHOW HOW MUCH LABOUR CHARGE EXPENSES WAS ACCEPTED IN THE CASE OF THE ASSESSEE IN EARLIER YEARS. IN THE CIRCUMSTANCES, WE DO NOT FIND ANY GOOD REASON TO IN TERFERE WITH THE ORDER OF THE CIT(A), WHICH IS CONFIRMED AND THE GRO UND OF APPEAL OF THE ASSESSEE IS DISMISSED. 9. THE SECOND ISSUE INVOLVED IN THE APPEAL OF THE A SSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.5 ,81,631/- ON ACCOUNT OF THE DIFFERENCE IN THE VALUE OF CLOSING STOCK. 10. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERV ED THAT THE ASSESSEE HAS AVAILED CASH CREDIT FACILITY FROM BARODA CITY C O-OPERATIVE BANK LTD. TO WHOM STOCK-IN-TRADE WAS OFFERED AS COLLATERAL SE CURITY. THE BANK REPORTED THAT THE VALUATION OF STOCK AS PER STATEME NT OF STOCK GIVEN BY THE ASSESSEE WAS OF RS.1,87,77,070.90/- AS ON 31.3. 2007, WHEREAS PER THE PROFIT & LOSS ACCOUNT SUBMITTED BY THE ASSESSEE THE CLOSING STOCK WAS SHOWN AT RS.1,81,95,439/-. THE ASSESSEE EXPLAI NED BEFORE THE AO THAT DUE TO RUSH OF WORK, SOMETIMES PENDING BILLS W ERE PREPARED LATER ITA NO.2207/AHD/2010 4 ON AND ARE RECORDED SUBSEQUENTLY IN THE BOOKS AND A S A RESULT, THERE WAS DIFFERENCE IN QUANTITY OF GOLD AS PER BOOKS AND THE ACTUAL QUANTITY, AND THE STATEMENT SUBMITTED TO THE BANK EVERY MONTH EXPLAINS THE PROCEDURAL REQUIREMENTS AND THUS THERE COULD BE DIF FERENCE IN THE STOCK AVAILABLE AND THAT REPORTED TO THE BANK. THE AO WA S OF THE VIEW THAT THE METHOD OF VALUATION OF STOCK SHOULD NOT BE DIFF ERENT FOR DIFFERENT PURPOSES AND TO ARRIVE AT TRUE AND FAIR RESULT OF T HE BUSINESS THE ASSESSEE SHOULD MAKE VALUATION OF STOCK IN TRUE AND FAIR MANNER, AND THEREFORE, DISALLOWED RS.5,81,631/- ON ACCOUNT OF D IFFERENCE IN CLOSING STOCK AND ADDED TO THE INCOME OF THE ASSESSEE. 11. BEFORE THE CIT(A), THE ASSESSEE POINTED OUT THA T NO DEFECTS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAS BEEN POINTED BY THE AO, AND THAT A CONSISTENT ACCOUNTING METHOD IS FOLLOWED FOR VALU ATION OF INVENTORY. THE ASSESSEE HAS RELIED UPON THE DECISION OF HONBL E MADRAS HIGH COURT IN THE CASE OF CIT VS. N.SWAMY, 241 ITR 363 (MAD) W HEREIN IT WAS HELD THAT MERE FACT THAT THE ASSESSEE HAD MADE A STATEME NT TO THE THIRD PARTY THAT BY ITSELF CANNOT BE TREATED AS HAVING RE SULTED IN IRREBUTTABLE PRESUMPTION AGAINST THE ASSESSEE AND THE BURDEN OF SHOWING THAT THE ASSESSEE HAD UNDISCLOSED INCOME WAS ON THE REVENUE. 12. IN APPEAL, THE CIT(A) AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE OBSERVED THAT THE AO HAD ENQUIRED FROM THE BANK ABOUT THE STOCK STATEMENT AND THE EXAMINATION OF THE STOCK DE TAILS INDICATED THAT THERE WERE DIFFERENCES IN QUANTITY AS WELL AS RATES IN REGARD TO ONLY IN 22 CARAT GOLD AS UNDER: DESCRIPTION QTY AS PER BOOKS (GMS) QTY AS PER BANK (GMS) RATE PER GRAM AS PER BOOKS RATE PER GRAM AS PER BANK 22CT GOLD 22060.672 23035.672 773.19 765.71 13. THERE WAS NO DIFFERENT IN QUANTITY AND RATES IN RESPECT OF DIAMOND, 18 CARAT GOLD, SILVER AND FINE SILVER ITEM S. THEREFORE, IT WAS ITA NO.2207/AHD/2010 5 DIFFICULT TO BELIEVE THAT THE STATEMENT TO BANK WAS FURNISHED FOR MEETING PROCEDURAL REQUIREMENTS MORE SO WHEN ALL THE ITEMS EXCEPT FOR ONE TALLY IN QUANTITY AS WELL AS IN RATES. THE ASSESSEE HAS NOT SUBSTANTIATED HOW THE DIFFERENCE IN STOCK WAS ON ACCOUNT OF CERTAIN B ILLS WHICH REMAINED TO BE ENTERED IN BOOKS OF ACCOUNT FOR INCOME-TAX PURPO SES, AND THEREFORE, THE CIT(A) CONFIRMED THE ORDER OF THE AO. 14. THE AR BEFORE US SUBMITTED THAT THE STOCK STATE MENT WAS FILED IMMEDIATELY AFTER THE END OF THE MONTH TO THE BANK. AT THE TIME OF FURNISHING OF THE STOCK STATEMENT AN ARTHEMATICAL C ALCULATION MISTAKE OCCURRED, BECAUSE OF WHICH, INADVERTENTLY MISTAKEN STOCK OF 22 CARAT GOLD WAS REPORTED TO THE BANK. LATER ON WHEN THE ACCOUNTS WERE COMPLETED THE CORRECT STOCK WAS REPORTED IN THE RET URN OF INCOME AND AUDITED ACCOUNTS. THAT, NO MISTAKE IN THE STOCK R EGULARLY MAINTAINED BY THE ASSESSEE COULD BE POINTED OUT BY AO. SIMPLY BECAUSE A BONA FIDE MISTAKE TOOK PLACE IN THE STATEMENT GIVEN BY THE A SSESSEE TO THE BANK, NO ADVANTAGE THEREOF CAN BE TAKEN BY THE REVE NUE. 15. IT IS NOT A CASE WHERE THE STOCK WAS UNDER THE LOCK AND KEY OF THE BANK OR THE BANK OFFICIAL VERIFIED THE PHYSICAL STO CK AS ON 31.3.2007. HE RELIED ON THE DECISION OF THE HONBLE MADRAS HIG H COURT IN THE CASE OF CIT VS. N.SWAMY (SUPRA) WHEREIN IT WAS HELD THAT WHERE THE ASSESSEE MADE A DECLARATION OF STOCK TO THE BANK FO R GETTING OVERDRAFT WHICH WAS AT A HIGHER FIGURE THAN THAT IN THE BOOKS OF THE ASSESSEE FOR GETTING OVERDRAFT, BURDEN WAS ON THE REVENUE TO SHO W THAT DIFFERENCE BETWEEN THE VALUE AS RECORDED IN THE BOOKS AND THAT FOUND IN THE DECLARATION TO THE BANK WAS THE UNDISCLOSED INCOME OF THE ASSESSEE. THE REVENUE CANNOT RELY MERELY ON THE DECLARATION M ADE TO THE BANK AT A HIGHER FIGURE FOR MAKING ADDITION TO THE INCOME O F THE ASSESSEE. 16. ON THE OTHER HAND, DR SUPPORTED THE ORDERS OF T HE LOWER AUTHORITIES. ITA NO.2207/AHD/2010 6 17. WE FIND THAT THE ASSESSEE MAINTAINED DAY-TO-DAY STOCK REGISTER AND AFTER EXAMINATION OF THE SAME NO MISTAKE COULD BE POINTED OUT BY THE REVENUE IN THE SAME. THE AUDITOR OF THE ASSESS EE HAS ALSO NOT MADE ANY ADVERSE OBSERVATION IN RESPECT OF STOCK DI SCLOSED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. IN OUR CONSIDER ED VIEW, THE BOOK RESULT REFLECTED BY REGULARLY MAINTAINED BOOKS OF A CCOUNTS CANNOT BE REJECTED BY THE REVENUE WITHOUT POINTING OUT ANY SP ECIFIC ERROR IN THE ENTRIES IN THE BOOKS OF ACCOUNTS, MERELY ON THE BAS IS OF A STATEMENT MADE BY THE ASSESSEE TO A THIRD PARTY. A SUSPICION HOWSOEVER GRAVE CANNOT TAKE PLACE OF PROOF AND A STATEMENT TO A THI RD PARTY MAY GIVE RISE TO SUSPICION WHICH CALLS FOR A CAREFUL SCRUTIN Y OF THE BOOKS OF ACCOUNTS. 18. POSSIBILITY OF MISTAKE IN THE STOCK STATEMENT F URNISHED TO THE BANK CANNOT BE RULED OUT. NO MATERIAL WAS BROUGHT BEFOR E US BY THE REVENUE TO SHOW THAT THE STATEMENT FURNISHED BY THE ASSESSEE HIMSELF TO THE BANK WAS SACROSANCT AND THE STATEMENT FURNIS HED BY THE VERY SAME ASSESSEE IN THE RETURN OF INCOME WAS INCORRECT . IN THE ABOVE CIRCUMSTANCES, IN VIEW OF THE DECISION OF HONBLE M ADRAS HIGH COURT IN THE CASE OF CIT VS. N. SWAMY (SUPRA), IN OUR CONSID ERED VIEW, THE ADDITION OF RS.5,81,631/- MADE BY THE REVENUE IS NO T SUSTAINABLE. WE, THEREFORE, DELETE THE ADDITION OF RS.5,81,631/- , A ND ACCORDINGLY ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY THE 13 TH MARCH, 2015 AT AHMEDABAD. SD/- SD/- ( SHAILENDRA KUMAR YADAV ) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 13/3/2015