Shri Davariya Brothers, Mumbai V. The ACIT., Circle-9, Surat

ITA 304/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76907 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-06-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 01-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: M K PATEL

Judgement Text

, , , , D, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH . .. . . .. . , !' !' !' !', , , , #$ %&'( #$ %&'( #$ %&'( #$ %&'(, , , , )* + ) ' )* + ) ' )* + ) ' )* + ) ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.304 AND 649/AHD/2010 [ASSTT.YEAR : 2005-2006] M/S.DAVARIYA BROTHERS 114, PRASHAD CHAMBERS OPERA HOUSE, MUMBAI. PAN : AACFD 0230 F /VS. THE ACIT, CIR.9 SURAT. ( (( (-. -. -. -. / APPELLANT) ( (( (/0-. /0-. /0-. /0-. / RESPONDENT) 1& 2 3 )/ ASSESSEE BY : SHRI M.K. PATEL + 2 3 )/ REVENUE BY : SHRI B.L. YADAV, CIT-DR 5 2 &(*/ DATE OF HEARING : 19 TH JUNE, 2014 678 2 &(*/ DATE OF PRONOUNCEMENT : 04-07-2014 )9 / O R D E R PER G.C. GUPTA, VICE-PRESIDENT: THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE FOR THE ASSESSMENT YEAR 20 05-2006 ARE DIRECTED AGAINST THE ORDERS OF THE CIT(A). THESE ARE BEING DISPOSED OF WITH THIS CONSOLIDATED ORDER. ITA NO.304/AHD/2010 (ASSESSEES APPEAL) 2. THE ONLY GROUND OF THE APPEAL OF THE ASSESSEE IS AS UNDER: ITA NO.304 AND 649/AHD/2010 -2- THAT ON FACTS AND IN LAW THE LD.CIT(A) HAS GRIEVOU SLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS.45,93,215/- OUT O F LABOUR EXPENSES. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DIAMOND MANUFACTURING AN D IMPORT & EXPORT. DURING THE RELEVANT YEAR, THE ASSESSEE HAS DECLARED INCOME OF RS.2.65 CRORES. HE SUBMITTED THAT THE ASSESSEE HAS SHOWN B ETTER RESULTS BY DECLARING GP OF 12.22% ON TURNOVER OF RS.145.99 CRO RES IN COMPARISON TO EARLIER YEAR SALE AT 9.20% ON TURNOVER OF RS.119.31 CRORES. HE SUBMITTED THAT DURING THE RELEVANT PERIOD, THE ASSESSEE HAS S TARTED A NEW FACTORY AT KAPODRA AND BEING A DISTANT PLACE, HAS TO PAY HIGHE R WAGES TO THE LABOURERS, WHICH RESULTED IN INCREASE OF RS.3.06 CR ORES UNDER THE HEAD LABOUR CHARGES AS COMPARED TO THE EARLIER YEAR, W HICH COMES TO 30.4%. THE ASSESSEE HAS FILED DETAILED EXPLANATION, EXPLAI NING THE REASON FOR INCREASE IN LABOUR CHARGES. HE SUBMITTED THAT NO D EFECT WHATSOEVER COULD BE POINTED OUT BY THE AO WHILE MAKING AN AD HOC DISALLOWANCE AT THE RATE OF 25% OF THE INCREASED AMOUNT OF LABOUR CHARGES OF RS.3.06 CRORES. THE CIT(A) IN APPEAL HAS REDUCED THE DISALLOWANCE TO RS .45.93 LAKHS AS AGAINST RS.76.55 LAKHS DISALLOWED BY THE AO. HE SU BMITTED THAT FULL DETAILS OF LABOUR CHARGES ALONG WITH DETAILS OF TDS AND ESI ETC. WERE FILED BY THE ASSESSEE AND ITS ACCOUNTS WERE AUDITED. 4. THE LEARNED DR HAS OPPOSED THE SUBMISSIONS OF TH E LEARNED COUNSEL OF THE ASSESSEE. HE SUBMITTED THAT THE ASSESSEE CO ULD NOT PLEAD ANY VALID REASON FOR ABNORMAL INCREASE IN LABOUR CHARGES. ON US IS ON THE ASSESSEE TO PROVE THE INCREASE UNDER THE SAID HEAD OF LABOUR E XPENSES AS GENUINE. HE SUBMITTED THAT THE AO WAS MORE THAN REASONABLE I N RESTRICTING ITA NO.304 AND 649/AHD/2010 -3- DISALLOWANCE TO ONLY 25% OF THE TOTAL INFLATION OF RS.3.06 CRORES UNDER THE HEAD LABOUR EXPENSES. HE RELIED ON THE ORDER OF THE AO. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS CAREFULLY A ND PERUSED THE ORDERS OF THE AO AND CIT(A) AND ALSO PERUSED THE DE TAILS OF MANUFACTURING LABOUR ACCOUNT FILED BEFORE US. WE F IND THAT NO DEFECT IN THE ACCOUNT BOOK OF THE ASSESSEE COULD BE POINTED O UT BY THE DEPARTMENT. THE ACCOUNTS OF THE ASSESSEE WERE AUDITED. THE ASS ESSEE HAS FILED FULL DETAILS OF LABOUR EXPENSES ALONG WITH DETAILS OF TD S AND ESI MADE BY THE ASSESSEE. THE ASSESSEE HAS SHOWN BETTER TRADING RE SULTS DURING THE RELEVANT PERIOD ON HIGHER TURNOVER. THE ACTION OF THE AO IN MAKING AD HOC DISALLOWANCE AT 25% OF THE INCREASE IN LABOUR CHARG ES IS NOT SUSTAINABLE. THE AO HAS NOT MADE FURTHER INVESTIGATION ON THE GE NUINENESS OF EXPENDITURE CLAIMED UNDER THE HEAD LABOUR EXPENSES AND MADE AD HOC DISALLOWANCE. THE ASSESSEE HAS EXPLAINED THAT IT H AS STARTED A NEW FACTORY AT KAPODRA WHERE HIGHER LABOUR CHARGES HAD TO BE IN CURRED BY THE ASSESSEE, AND THEREFORE, IT COULD NOT BE SAID THAT THERE WERE NO VALID REASON FOR ABNORMAL INCREASE UNDER THE HEAD LABOUR CHARGES. I N THE FACTS OF THE CASE OF THE ASSESSEE, WE HOLD THAT NO CASE OF DISALLOWAN CE UNDER LABOUR EXPENSES CLAIMED BY THE ASSESSEE COULD BE MADE OUT BY THE DEPARTMENT, AND ACCORDINGLY, THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE, AND THE GROUND OF THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.649/AHD/2010 (REVENUES APPEAL) 6. THE GROUNDS OF THE APPEAL OF THE REVENUE ARE AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.30,62,143/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF LABOUR EXPENSES OUT OF TOTAL ADDITION OF RS.76,55,357/- WITHOUT APPRECI ATING THE FACT THAT ITA NO.304 AND 649/AHD/2010 -4- THE AO HAD BROUGHT OUT THE DISPROPORTIONATE EXTENT OF SUCH LABOUR EXPENSES INCURRED TO EARLIER YEARS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.30,62,143/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF LABOUR EXPENSES OUT OF TOTAL ADDITION OF RS.76,55,357/- WITHOUT APPRECI ATING THE FACT THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE DISPROPORTI ONATE EXTENT OF SUCH LABOUR EXPENSES COMPARED TO EARLIER YEAR. 7. BOTH THE PARTIES BEFORE US SUBMITTED THAT THE IS SUE IN THE GROUNDS OF THE REVENUE IS COVERED WITH THE GROUND OF THE APPEA L IN THE ASSESSEES APPEAL FOR THE RELEVANT ASST.YEAR 2005-06, AND THEI R ARGUMENTS APPLIED TO THE GROUNDS OF THE APPEAL OF THE REVENUE ALSO. WE HAVE CONSIDERED RIVAL SUBMISSIONS CAREFULLY AND HAVE PERUSED THE ORDERS O F THE AO AND THE CIT(A). FOR THE REASONS RECORDED WHILE DISPOSING O F THE ASSESSEES APPEAL FOR THE RELEVANT ASSESSMENT YEAR IN THE FOREGOING P ARAS OF THIS ORDER, WE HOLD THAT THERE IS NO MERIT IN THE GROUNDS OF THE A PPEAL OF THE REVENUE, WHICH ARE ACCORDINGLY, DISMISSED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( %&'( %&'( %&'( %&'( / ANIL CHATURVEDI) )* + )* + )* + )* + /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD