The ITO, Ward-6(3), Surat V. Shri Naginbhai Devabhai Patel, Surat

ITA 2974/AHD/2009

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6408 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 24-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 06-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Rejection of books of accounts; Reasonable cause

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. N. PAHUJA, AM) ITA NO.2974/AHD/2009 A. Y.: 2006-07 THE INCOME TAX OFFICER, WARD 6 (3), ROOM NO.616, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS SHRI NAGINBHAI DEVABHAI PATEL, NR. JAY ENGINEERING, KAMLA PARK, GANDHI ROAD, BARDOLI, SURAT PA NO. ACVPP 4182 F (APPELLANT) (RESPONDENT) APPELLANT BY SHRI B. L. YADAV, SR. DR RESPONDENT BY NONE O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-IV , SURAT DATED 24-07-2009 FOR ASSESSMENT YEAR 2006-07 ON THE FOLLO WING GROUND: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN RESTRICTING THE DISALLOWANCE OF LABOUR EXPENSES AT 10% AMOUNTING TO RS.5,40,000/- AGAINST 25% AMOUNTING TO RS.13,07,372/- MADE BY THE AO OF TOTAL LABOUR EXPENSES CLAIMED BY THE ASSESSEE AMOUNTING TO RS.52,29,488/-. 2. WE HAVE HEARD THE LEARNED DR AND PERUSED THE FIN DINGS OF THE AUTHORITIES BELOW. NONE PRESENT ON BEHALF OF THE AS SESSEE DESPITE SERVICE OF THE NOTICE TO THE ASSESSEE. ITA NO.2974/AHD/2009 THE ITO, WARD- 6(3), SURAT VS SHRI NAGINBHAI DEVABH AI PATEL 2 3. BRIEF FACTS OF THE CASE ARE THAT THIS IS A CASE WHERE THE ASSESSEE IS DERIVING INCOME FROM JOB CHARGES. THE A SSESSEE GETS ROUGH DIAMONDS FROM PRINCIPAL AND GETS THEM MANUFAC TURED BY PAYING MANUFACTURING JOB CHARGES TO LABOUR. THE GRO SS RECEIPTS ARE AROUND RS.54,06,055/- AND AGAINST THE SAME LABOUR P AYMENT CLAIMED IS RS.52,29,488/-. WHEN ASKED TO PROVE THE SAME BY GIVING NAMES, ADDRESSES, VOUCHERS AND BILLS, THE ASSESSEE FILED L ABOUR PAYMENT REGISTER. THE AO OBSERVED THAT NAMES OF WORKERS CHA NGED EVERY MONTH WHICH WAS UNUSUAL. THE JOB REQUIRED BOTH THE CONFIDENTIALITY AND SKILL ON THE PART OF THE LABOURERS WHO ARE IN S HORT SUPPLY. THE ASSESSEE COULD NOT EVEN GIVE COMPLETE NAMES AND ADD RESSES. IT WAS ALSO NOTED BY THE AO THAT MONTHLY LABOUR PAYMENT TO A SINGLE LABOUR IS RS.19,000/- WHILE THE ASSESSEE HAS EARNED A PALT RY PROFIT OF RS.1,27,000/- FOR THE WHOLE YEAR. IN THE LIGHT OF T HIS TOTAL UNVERIFIABILITY, THE AO REJECTED THE BOOKS OF ACCOUNTS AND APPLIED R ATIO OF VIJAY PROTEINS, REJECTING THE ASSESSEES ARGUMENTS THAT V IJAY PROTEINS WAS A LIMITED COMPANY HAVING TURNOVER OF CRORES OF RUPE ES AND WAS IN TOTALLY DIFFERENT NATURE OF BUSINESS. THE AOS VIEW WAS THAT TURNOVER AND NATURE OF BUSINESS BOTH ARE OF LITTLE RELEVANCE AND THE COMMON FACT WAS UNVERIFIABILITY OF EXPENSES. THE BOOKS OF ACCOUNTS WERE NOTHING MORE THAN COMPUTER PRINT OUTS WITHOUT ANY S UPPORTING AND PRIMARY EVIDENCES. RELYING UPON THE ANALYSIS AND JU DICIAL CITATIONS IN PARA 3.3 TO 3.8 OF THE ASSESSMENT ORDER, THE AO DIS ALLOWED 25% OF THE TOTAL LABOUR CHARGES PAID WHICH MEANT, IN TERMS OF QUANTUM RS. 13,07,372/-. DURING THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) A WRITTEN SUBMISSION WAS FILED WITH THE FOLL OWING ARGUMENTS: ITA NO.2974/AHD/2009 THE ITO, WARD- 6(3), SURAT VS SHRI NAGINBHAI DEVABH AI PATEL 3 1) OUTSTANDING LABOUR PAYMENT AT THE CLOSE OF THE Y EAR WAS RS.1,71,681/- AND EVEN AS PER VIJAY PROTEINS THE AD DITION CAN BE SUSTAINED ONLY UP TO THIS EXTENT. 2) IN THE CASE OF VIJAY PROTEINS LABOUR EXPENDITURE WAS ONE OF MUCH EXPENDITURE. HOWEVER, IN THE ASSESSEES CAS E THE LABOUR CHARGES IS THE ONLY AND CORE EXPENDITURE . 3) THE ASSESSEE HAS CONSTANTLY IMPROVED ITS PROFITA BILITY FROM A NET PROFIT OF 1.95% IN EARLIER TO 2.33% IN T HE CURRENT YEAR. LASTLY, THE AO DID NOT CHOOSE TO VERIFY THE DOUBTFU L EXPENDITURE AND RESORTED TO SWEEPY DISALLOWANCE. 4. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND MATERIALS ON RECORD RESTRICTED THE DIS ALLOWANCE TO THE EXTENT OF 10% AND DELETED THE BALANCE ADDITION. HIS FINDINGS IN THE IMPUGNED ORDER ARE REPRODUCED AS UNDER: I HAVE CONSIDERED THE ISSUE AND APPLIED MY MIND CAREFULLY. ADMITTEDLY THE ONLY ACTIVITY LEADING TO GENERATION OF PROFIT IS UNDERTAKING JOB WORK FOR THE MANUFACTU RING OF DIAMONDS. THE APPELLANT HAS RECEIVED RS.54,06,055/- AND THERE SEEMS TO BE NO DISPUTE ABOUT IT. THE CLAIMED LABOUR EXPENSES IS 52,29,488/. THE APPELLANT HAS EARNED A G. P. RATE OF 3.26%. SO, IT IS PRESUMED THAT THE GROSS PR OFIT IN TERMS OF QUANTUM WOULD BE AROUND RS.1,76,237/- SINC E THE APPELLANT HAS DISCLOSED A NET PROFIT OF RS.1,27 ,000/- AS PER THE A.O. (PAGE 3 OF THE ASSESSMENT ORDER) TH E OTHER EXPENSES ARE LESS THAN RS.50,000/-. SO THE RE LEVANT FACT TO BE CONSIDERED IS THAT THE APPELLANTS CLAIM OF EXPENDITURE BASICALLY PERTAINS TO LABOUR CHARGES PA ID. THE ITA NO.2974/AHD/2009 THE ITO, WARD- 6(3), SURAT VS SHRI NAGINBHAI DEVABH AI PATEL 4 A. O. HAS SERIOUSLY CHALLENGED THE VERIFIABILITY OF THE SAME ESPECIALLY WHEN THE NAMES AND COMPLETE ADDRESSES ARE NOT AVAILABLE. NO VOUCHERS ARE PRODUC ED DESPITE THE FACT THAT SOMETIMES RS.19,000/- HAS BEE N PAID TO CERTAIN WORKERS. ONLY COMPUTER PRINTOUTS WE RE PRODUCED BEFORE THE A. O. SO THERE SEEMS TO BE A REASONABLE CAUSE FOR REJECTING THE BOOKS OF ACCOUNT S AND DISALLOW CERTAIN PORTION OF LABOUR EXPENSES. BUT ON THE OTHER HAND THE LABOUR CHARGES HAVE BEEN ACTUALLY PAID EXCEPT RS.1,71,681/- WHICH REMAINED OUTSTANDING. SIMILARLY THE WORK HAS BEEN ACTUALLY EXECUTED FOR WHICH THE APPELLANT HAS RECEIVED JOB CHARGES 25% DISALLOWANCE BY THE A. O. EFFECTIVELY M EANS A NET PROFITABILITY OF 26% WHICH IS NOT ONLY UNLIKE LY BUT SEEMS TO BE IMPOSSIBLE. I ALSO AGREE PARTIALLY WITH AR THAT RATIO OF VIJAY PROTEINS WILL NOT BE STRICTLY APPLIC ABLE IN THIS CASE AS THE LABOUR IS THE MAIN EXPENDITURE AND CAN NOT BE TERMED SUNDRY, JUSTIFYING SUCH LARGE SCALE DISALLOW ANCE. THUS SEEING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE IT IS HELD DISALLOWANCE AT THE RATE OF 25%IS RATHER TOO EXCESSIVE. HOWEVER IN THE LIGHT OF THE F ACT THAT THE APPELLANT COULD NOT SUBSTANTIATE ITS CLAIMED EXPENDITURE WITH PROPER OR ANY VIABLE EVIDENCE A PA RTIAL INFLATION REMAINS A CERTAINITY. I THINK DISALLOWANC E AT THE RATE OF 10% WHICH IN TERMS OF QUANTUM WOULD MEAN RS.5,40,000/- WOULD MEET THE ENDS OF JUSTICE, IN TH IS CASE. ACCORDINGLY THE DISALLOWANCE TO THE EXTENT OF 10% I S CONFIRMED AND BALANCE IS DIRECTED TO BE DELETED. IN THE RESULT APPEAL IS PARTLY ALLOWED. 5. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ITA NO.2974/AHD/2009 THE ITO, WARD- 6(3), SURAT VS SHRI NAGINBHAI DEVABH AI PATEL 5 6. ON CONSIDERATION OF THE SUBMISSION OF THE LEARNE D DR, WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. THE LEARNED CIT(A) CONSIDERING THE RELEVANT FACTS NOTED THAT THE ASSES SEE WAS DERIVING INCOME FROM JOB CHARGES. THE ASSESSEE GOT ROUGH DIA MONDS FROM THE PRINCIPAL AND GOT THEM MANUFACTURED BY PAYING MANUF ACTURING JOB CHARGES TO THE LABOURERS. THE ASSESSEE RECEIVED THE GROSS RECEIPT AND PAID THE LABOUR PAYMENTS. THE ASSESSEE FILED RE TURN OF INCOME AT RS.1,15,087/-. THE ASSESSEE ALSO PLEADED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE HAS CONSTANTLY IMPROVED ITS PROFI TABILITY FROM NET PROFIT OF 1.95% IN THE EARLIER YEAR TO 2.33% IN THE CURRENT YEAR. THESE FACTS WOULD SHOW EVEN IF BOOK RESULTS HAVE BEEN REJ ECTED FOR THE PURPOSE OF MAKING THE DISALLOWANCE OUT OF THE EXPEN DITURE, THE AO SHALL HAVE TO MAKE REASONABLE ESTIMATE OF INCOME. T HE EXCESSIVE OR EXORBITANT ADDITION BY DISALLOWING THE EXPENDITURE WOULD NOT BE PERMISSIBLE. THE AO HAS NOT VERIFIED WHICH OF THE E XPENDITURE WERE DOUBTFUL AND MERELY ON ASSUMPTION DISALLOWED 25% OF THE TOTAL UNVERIFIABLE EXPENDITURE. CONSIDERING THE GROSS PRO FIT RATE AND THE NET PROFIT RATE OF THE ASSESSEE AS NOTED IN THE IMPUGNE D ORDER, THE LEARNED CIT(A) HAS CORRECTLY REDUCED THE DISALLOWAN CE OF THE EXPENDITURE FROM 25% TO 10%. CONSIDERING THE TOTALI TY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE JOB RECEIPTS EARNED BY THE ASSESSEE, NET TAXABLE INCOME AND THE PROFIT OF THE ASSESSEE IN ASSESSMENT YEAR UNDER APPEAL AND THE PROCEEDING ASS ESSMENT YEAR DECLARED BY THE ASSESSEE, WE DO NOT FIND ANY JUSTIF ICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). THE LEARNED C IT(A) ON PROPER APPRECIATION OF THE HISTORY OF THE ASSESSEE CORRECT LY AND REASONABLY ESTIMATED THE DISALLOWANCE @10% IN WHICH WE DO NOT FIND ANY ERROR. ITA NO.2974/AHD/2009 THE ITO, WARD- 6(3), SURAT VS SHRI NAGINBHAI DEVABH AI PATEL 6 WE ACCORDINGLY, CONFIRM THE ORDER OF THE LEARNED CI T(A) AND DISMISS THE DEPARTMENTAL APPEAL. 7. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 24-05-2011 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 24-05-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD