The ACIT, Circle-8, Surat V. M/s. Three Star Gems, Surat

ITA 2587/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6004 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 24-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 14-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H P MEENA
• Assessee Lawyers: A K PAREKH
• Section: 143(3); 133(6)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD, CAMP AT SURAT. BEFORE: SHRI T.K. SHARMA, JUDICIAL MEMBER , AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER. ITA NO.2587/AHD/2008 (ASSESSMENT YEAR 2005-2006) ASSTT. COMMISSIONER OF INCOME-TAX CIRCLE-8, ROOM NO.414, AAYAKAR BHAVAN, MAJURA GATE, SURAT. VERSUS M/S. THREE STAR GEMS, 77/78, PATEL FALIA, OPP. HARIOM BUNGALOW, KATARGAM ROAD, SURAT. (APPELLANT) (RESPONDENT) PAN: AADFT 5628 G FOR THE APPELLANT: SHRI. H.P. MEENA, SR. DR FOR THE RESPONDENT SHRI. A.K. PAREKH ORDER PER SHRI. D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF IN COME TAX(APPEALS) DATED 02-05-2008 RAISING THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A), WITHOUT APPRECIATING FACTS OF THE C ASE, HAS ERRED IN DELETING AN ADDITION OF RS.81,46,982/- OUT OF RS.86 ,52,852/- BEING LOW NET PROFIT, AS MADE BY THE A.O. VIDE ORDER U/S. 143(3) OF THE ACT DT.26.12.2007. 2. IT IS, THEREFORE, PRAYED THAT THE APPEAL ORDER P ASSED BY THE LD. CIT(A) BE SET ASIDE AND THAT THE ASSESSMENT ORD ER PASSED BY THE A.O. U/S. 143(3) OF THE I.T. ACT DATED 26.12.20 07 BE RESTORED. 2. THE ONLY ISSUE INVOLVED IN THE APPEAL IS THAT T HE LD. CIT(A)HAS REDUCED THE ADDITION MADE ON THE BASIS OF N.P. RATE OF 5% APPLIED BY THE ASSESSING OFFICER. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A 2 ITA NO.2587/AHD/2008 (ASSESSMENT YEAR 2005-2006) PARTNERSHIP FIRM CARRYING ON THE BUSINESS IN THE DI AMOND JOB WORK. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER NOTICED THAT NET PROFIT SHOWN BY THE ASSESSEE IS LOWER THAN SOME OTHER CASES WHICH ARE ASSESSED BY HIM. THE ASSESSING OFFICER CALLED FOR INFORMATION UNDER SECTION 133(6) RANDOMLY FROM 7 LABOUR CONTRACTORS C LAIMED TO BE ENGAGED BY THE ASSESSEE. OUT OF THEM, LETTERS FROM 6 LABOUR CONTRACTORS WERE RETURNED BACK BY THE POSTAL AUTHORITIES. THE ASSESSING OFFICER DEPUTED INSPECTOR FOR VERIFICATION, BUT INSPECTOR C OULD NOT LOCATE THE LABOUR CONTRACTORS AT THE GIVEN ADDRESS. EVEN THOU GH THE ASSESSEE FILED CERTAIN DETAILS DURING ASSESSMENT PROCEEDINGS, BUT DETAILS LIKE CONTRACT AGREEMENT, BANK STATEMENTS OF JOB WORKERS, DETAILS OF STAGE WISE PROCESSING OF DIAMONDS WAS NOT FURNISHED. IN ABSEN CE OF DETAILS OF IDENTITY OF THE CONTRACTOR OR OF JOB WORKERS, OR IN ABSENCE OF STAGE WISE DETAILS OF WORK, DETAILS OF INSPECTION BY LABOUR DE PARTMENT, BASED ON WAGE PAYMENTS TO WORKERS, RECONCILIATION OF LABOUR CHARGES PAID WITH SERVICES RENDERED BY CONTRACTORS, DETAILS OF COMPLE TE POSTAL ADDRESSES OF WORKERS, ABSENCE OF LABOUR REGISTER, ATTENDANCE REG ISTER, RAISING BILLS PERIODICALLY ETC. ASSESSING OFFICER HELD THAT LABO UR PAYMENTS ARE NOT VERIFIABLE. HE ACCORDINGLY REJECTED THE BOOKS OF A CCOUNTS AND APPLIED A NET PROFIT RATE OF 5% WHICH RESULTED IN AN ADDITION OF RS.86,52,852/-. 3. THE LD. CIT(A) CONFIRMED THE FINDING OF THE AO T HAT BOOKS OF ACCOUNTS CANNOT BE RELIED UPON IN ABSENCE OF VARIOU S DETAILS, BUT HE PROCEEDED TO APPLY A GP RATE OF 2% AND ACCORDINGLY SUSTAINED AN ADDITION OF RS.5,05,870/- ONLY. THE LD. CIT(A) HAS OBSERVED AS UNDER: I AM THEREFORE, IN AGREEMENT WITH THE ASSESSING OF FICER THAT IN THE ABSENCE OF DAY TO DAY STOCK REGISTER AND DEF ECTIVE VOUCHERS TRUE PROFIT CANNOT BE DETERMINED. THE BOOKS OF ACC OUNTS WERE RIGHTLY REJECTED BY THE ASSESSING OFFICER. HOWEVER , I AM UNABLE TO 3 ITA NO.2587/AHD/2008 (ASSESSMENT YEAR 2005-2006) AGREE WITH ESTIMATION OF NET PROFIT AT A HUGE AMOUN T OF 5% OF JOB RECEIPTS MADE BY THE ASSESSING OFFICER. WHILE THE BOOKS OF ACCOUNTS ARE REJECTED, THE GROSS PROFIT IS ESTIMATE D BASED ON THE RECORDS OF PRECEDING YEARS OF ASSESSEE ITSELF OR ON THE BASIS OF IDENTICAL CASES OF IDENTICAL BUSINESS. IN CASE OF APPELLANT THE GROSS PROFIT CANNOT BE COMPARED WITH PRECEDING YEAR S AS THIS BEING THE FIRST YEAR OF OPERATION. THE APPELLANT W AS CARRYING OUT ACTIVITY OF DIAMOND CUTTING AND POLISHING ON COMMIS SION BASIS FOR M/S. BHAVANI GEMS IN WHOSE CASES THE HONBLE ITAT R AJKOT BENCH FINALLY DETERMINED THE NET PROFIT OF 1% TO 1.5%. I N ALL THESE CASES THE GROSS PROFIT WAS 2%. IN CASE OF VANAMALIBHAI B HAGWANBHAI DECIDED BY ITAT AHMEDABAD BENCH AND RELIED ON BY AP PELLANT, THE GROSS PROFIT WAS 2% WHICH WAS THE MARGINAL DIFFEREN CE OF COMMISSION BETWEEN RECEIPT OF JOB LABOUR A PAYMENT TO SUB- CONTRACTORS. THE ITAT IN THAT CASE DELETED THE FUR THER ADDITION OF DISALLOWANCE OF LABOUR PAYMENT ON THE GROUND THAT T HE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC LABOUR CHA RGE PAYMENT WHICH IS NOT GENUINE. THUS, IN ALL THE IDENTICAL C ASES OF COMMISSION RECEIPTS OF DIAMOND JOB WORK THE GROSS P ROFIT HAS BEEN ACCEPTED AT 2% BY ITAT AHMEDABAD AND RAJKOT BE NCH. I THEREFORE, FIND THE GROSS PROFIT RATE OF 2% AS THE MOST REASONABLE IN THE CASE OF APPELLANT CONSIDERING VARIOUS FACTS. THE APPELLANT HAS SHOWN THE GROSS PROFIT OF 1.74% ON THE LABOR RE CEIPTS OF RS.19,45,65,313/-. ACCORDINGLY, ADDITION OF RS.5,0 5,870/- AT 0.26% OF RS.19,45,65,313/- IS CONFIRMED AND THE BALANCED ADDITION OF 81,46,982/- IS DELETED. 4. AGAINST THIS, LEARNED DR SUBMITTED THAT ONCE AO HAS APPLIED NET PROFIT RATE. LD. CIT(A) OUGHT TO HAVE CONSIDERED T O APPLY ONLY NET PROFIT 4 ITA NO.2587/AHD/2008 (ASSESSMENT YEAR 2005-2006) RATE AND SHOULD NOT HAVE SWITCHED OVER TO GP RATE. THE ASSESSEE IS SOLELY DOING JOB WORK AND THEREFORE THE ONUS IS ON THE ASS ESSEE TO VERIFY TO PAYMENTS AND WHETHER SERVICES TO THAT EXTENT HAS BE EN RENDERED BY THE PERSONS TO WHOM PAYMENTS ARE MADE. FURTHER IN SEVE RAL CASES TRIBUNAL IS UPHOLDING THE NET PROFIT RATE OF MORE THAN 3%. IT WOULD BE THEREFORE, IMPROPER AND INCORRECT FOR LD. CIT(A) TO DELETE THE ADDITION BY APPLYING GP RATE OF 2%. 5. THE LD. AR ON THE OTHER HAND RELIED ON THE ORDER S OF LD. CIT(A) AND ORDER OF THE TRIBUNAL. HE SUBMITTED THAT ALL THE 7 PERSONS TO WHOM SUMMONS WAS ISSUED HAVE CONFIRMED TO HAVE BEEN RECE IVED THE PAYMENT. THERE ARE ACKNOWLEDGEMENTS OF IT RETURNS ETC OF CER TAIN JOB WORKERS AS ANNEXED IN THE PAPER BOOK. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW, THE LD. CIT(A) OUGHT TO HAVE COMPARED EQUALS WITH EQUALS. ONCE THE AO HAS CONSI DERED NET PROFIT RATE, THEN LD. CIT(A) SHOULD HAVE CONSIDERED ONLY A PPLICATION OF NET PROFIT RATE. IN ABSENCE OF DETAILS AS EXPLAINED BY THE AO IN HIS ORDER, BOOKS OF ACCOUNTS ARE RIGHTLY REJECTED. SINCE IT IS A CASE OF PAYMENT FOR JOB WORK, IT WOULD BE PROPER TO APPLY NET PROFIT RATE. GP RA TE WOULD BE APPLICABLE ONLY IN CASES WHERE CERTAIN TRADING IN GOODS OR MAN UFACTURING ACTIVATES ARE CARRIED OUT, BUT WHETHER PAYMENTS ARE RECEIVED FOR SERVICES RENDERED AND PAYMENTS ARE ALSO MADE FOR SERVICES RENDERED TH EN IT WOULD BE PROPER THAT ONLY NET PROFIT RATE IS CONSIDERED. WE ARE OF THE VIEW THAT IN SUCH CIRCUMSTANCES, TRIBUNAL HAS TAKEN A VIEW THAT A NET PROFIT RATE OF 3% WOULD BE PROPER. 5 ITA NO.2587/AHD/2008 (ASSESSMENT YEAR 2005-2006) 7. WE HAVE EXAMINED THE DECISION OF THE TRIBUNAL. THEY ARE BASED ON THEIR PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE REFUND BY LD. AR. IN FOLLOWING 3 CASES NET PROFIT RATE OF MORE THAN 5% I S APPLIED. SR. NO. NAME OF THE PARTIES (ASSESSEE) A.Y. JOB WORK RECEIPT N.P. N.P.% 1 M/S. GHEVARIA EXPORTS 2005-06 113760258 7724646 6.79% 2 M/S. SHAYONA EXPORTS 2005-06 50869657 2997112 5.89% 3 M/S. VIRAT GEMS 2005-06 97762113 7555488 7.33% 8. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUM STANCES OF THE CASE, WE DIRECT THE AO TO APPLY THE NET PROFIT OF 3% ON T OTAL JOB WORK RECEIPTS. THE AO WILL ACCORDINGLY CALCULATE THE ADDITION TO B E MADE. ADDITION TO THIS EXTENT IS RESTORED. 9. APPEAL FILED BY THE REVENUE IS ACCORDINGLY PARTL Y ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 11 TH JUNE, 2010. SD/- SD/- (T.K. SHARMA) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD; DATED: 11/06/2010 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.