The DCIT, Circle-9, Surat V. Shri Shailesh R.Dhamelia, Surat

ITA 3387/AHD/2010

• Counselvise Citation: 338720514 RSA 2010
• Duration Of Justice: 4 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 18-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 23-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VILAS SHINDE
• Keywords: Depreciation
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: S H RI G. D. AGRAWAL , VICE PRESIDENT AND SHR I S. S. GODARA , JUDICIAL MEMBER THE DCIT, CIRCLE - 9, SURAT (APPELLANT) VS SHAILESH R DHAMELIA, B - 1 JAI GANGESHWAR SOC., HIRABAUG, VARACHHA ROAD, SURAT PAN: AFAPD4811R (RESPONDENT) REVENUE BY : S H RI VILAS SHINDE , SR. D . R. ASSESSEE BY: S H RI TUSHAR P. HEMANI , A.R. DATE OF HEARING : 18 - 08 - 2 015 DATE OF PRONOUNCEMENT : 04 - 09 - 2 015 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS REV ENUE S APPEAL FOR A.Y. 2007 - 08, AR ISES FROM ORDER OF THE CIT(A) - V, SURAT DATED 20 - 09 - 2010 PASSED IN APPEAL NO. CAS - I T A NO . 3387 / A HD/20 10 A SSESSMENT YEAR 200 7 - 08 I.T.A NO. 3387 /AHD/20 10 A.Y. 2007 - 08 PAGE NO DCIT VS. SHAILESH R. DHAMELIA 2 V/232 /09 - 10, IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE REVENUE S FIRST SUBSTANTIVE GROUND CHALLENGES LOWER APPELLATE ORDER DELETING AD DI TION OF R S. 17,30,383/ - UNDER THE H E AD LABOUR CHARGES SHOWN PAYABLE . THE ASSESSEE S AUDIT REPORT HAD SHOWN THIS SUM AS PROVISION ON CURRENT LIABILI TI ES. THE ASSESSING OFFICER WAS OF THE VIEW THAT IT HAD D EBITED WAGES SUMS OF RS. 8,73,734/ - FOR FEBRUARY AND RS. 10,5 6,649/ - IN MARCH MONTH AND PAID ONLY RS. 2 LACS TO WORKERS IN FORMER MONTH. THE ASSESSEE QUOTED DELAY TO NON - RECEIPT OF JOB WORK CHARGES . THE ASSESSIN G OFFICER HELD IN ASSESSMENT ORDER DAT ED 24 - 12 - 2009 THAT ASSESSEE S PAYMENT OF RS. 2 LACS WAS ONLY RS. 918/ - PER LABOURER WHICH WAS VERY MUCH INSUFFICIENT TO MAKE BOTH E NDS MEET. HE INFERRED THAT THE AS S ESSEE MUST HAVE MADE PAYMENTS TO HIS LABOUR ER S OUT OF HIS BOOKS. HE REDUCED THE PAID SUM OF RS . 2 LACS ACCORDING LY FROM GROSS OF THE TWO SUMS OF RS. 8,73, 734/ - + RS. 10,56,649/ - = RS. 19 ,30,383/ - AND ADDED BALANCE AMOUNT OF RS. 17,30,387/ - IN ASSESSEE S HANDS. 3. THE CIT(A) HAS REVERSED ASSESSING OFFICER S ACTION AS FOLLOWS: - 4.2. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AR OF THE APPELLANT SUBMITTED THAT THE MAIN REASON FOR THE DELAY IN PAYMENT OF LABOUR CHARGES WAS THE NON - RECEIPT OF THE JOB - WORK RECEIPT FOR THE MONTH OF FEBRUARY AND MARCH 2007 SINCE, DURING THIS PERIOD ON ACCOUNT OF GLOBAL RECESSION THE DIAMOND INDUSTRY WAS FACING A TOUGH TIME. THE LEARNED AR EXPLAINED THAT THE SAID LABOUR PAYMENT STANDS PAID BY THE APPELLANT IN THE SUBSEQUENT MONTH IN THE NEXT YEAR ON RECEIPT OF THE JOB WORK INCOME. FURTHER, THE AR SUBMITTED THAT AS PER I.T.A NO. 3387 /AHD/20 10 A.Y. 2007 - 08 PAGE NO DCIT VS. SHAILESH R. DHAMELIA 3 THE PREVAILING TRADE PRACTICE IN THE DIAMOND INDUSTRY, LABOUR PAYMENTS NORMALLY REMAIN OUTSTANDING FOR A PERIOD OF 2 - 3 MONTHS AND THE PAYMENTS ARE MADE AS PER THE AVAILABILITY OF FUNDS AS AND WHEN THE AMOUNT IS RECEIVED FROM THE CUSTOMERS. THE AR A LSO CONTENDED THAT THE ENTIRE LABOUR PAYMENT IS SUPPORTED BY PROPER AND DULY SIGNED LABOUR REGISTER AND NO DEFECTS THEREIN HAS BEEN POINTED OUT BY THE AO NOR HAS THE AO DOUBTED THE GENUINENESS OF THE LABOUR EXPENSES. MOREOVER, IN MAKING THE IMPUGNED ADDITI ON THE AO HAS NOT EVEN REJECTED THE BOOKS RESULTS. FURTHERMORE, THE AR ARGUED THAT THE AO HAS ERRONEOUSLY COMPUTED THE AMOUNT OF LABOUR PAYMENT PER LABOURER PER MONTH AT RS. 918/ - BY CONSIDERING ONLY THE PAYMENT OF RS. 2,00,000/ - MADE FOR THE MONTH OF MARC H 2007 AND ALSO SUBMITTED THE CORRECT AMOUNT OF LABOUR PAYMENT FOR THE LAST QUARTER OF THE YEAR WORKS OUT TO RS. 3,159/ - PER LABOURER PER MONTH IN THE FOLLOWING MANNER. MONTH LABOUR PAYMENT (RS.) NO. OF LABOURERS AVERAGE PAYMENT PER WORKER (RS.) FEBR UARY 2007 MARCH 2007 TOTAL NO. OF MONTHS PAYMENT PER LABOURER MONTH (RS. 9,476 / 3 MONTHS) 8,71,410 2,00,000 109 135 7,995 1,481 10,71,410 9,476 3 3,159 IN VIEW OF THE ABOVE, THE AR OF THE APPELLANT CONTENDED THAT THE AO HAS MADE THE IMPUGNED ADDITION ON A WRONG FOOTING AND IN FACT THE AVERAGE LABOUR PAYMENT PER LABOURER P ER MONTH WORKS OUT TO R S. 3,159/ - AS SHOWN IN THE ABOVE TABLE, WHICH UNDER NO CIRCUMSTANCES CAN BE CONSIDERED AS LOW. MOREOVER, IT WAS ALSO SUBMITTED THAT THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO ALLEGE THAT THE APPELLANT HAD EARNED ANY INCOME OUTSIDE THE BOOKS OF ACCOUN TS, SO AS TO MAKE THE LABOUR PAYMENTS OUTSIDE THE BOOKS AND THERE IS ALSO NO EVIDENCE THAT THE APPELLANT HAD MADE ANY I.T.A NO. 3387 /AHD/20 10 A.Y. 2007 - 08 PAGE NO DCIT VS. SHAILESH R. DHAMELIA 4 PAYMENT OUTSIDE HIS BOOKS TO THE LABOURERS. IN VIEW OF THESE ARGUMENTS, THE AR OF THE APPELLANT PLEADED THAT THE ADDITION IN RESPECT OF OU TSTANDING LABOUR PAYMENTS AS MADE BY THE AO NEEDS TO BE DELETED. 4.3. I HAVE CONSIDERED THE FACTS OF THE CASE, THE ORDER OF THE AO AND THE SUBMISSIONS OF THE APPELLANT. I DO NOT AGREE WITH THE AO'S VIEW DUE TO THE FOLLOWING REASONS: (A) IT IS SEEN THAT T HE ENTIRE LABOUR PAYMENT IS SUPPORTED BY PROPER AND DULY SIGNED LABOUR REGISTER AND THE AO HAS NOT POINTED OUT ANY DEFECTS THEREIN. (B) THE AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE APPELLANT HAS EARNED ANY INCOME OUTSIDE THE BOOKS OF ACC OUNTS OR THAT THE APPELLANT HAS MADE ANY PAYMENT OUTSIDE THE BOOKS OF ACCOUNTS IN THE YEAR UNDER CONSIDERATION. (C) THE LABOUR PAYMENTS HAVE BEEN MADE BY THE APPELLANT IN THE SUBSEQUENT MONTH OF THE NEXT FINANCIAL YEAR WHICH THE AO HAS FAILED TO VERIFY. D) NOT A SINGL E DEFECT HAS BEEN FOUND OUT BY THE AO IN THE BOOKS OF ACCOUNT OF THE APPELLANT WHICH WAS PRODUCED BEFORE HIM. (E) T HE AO HAS NOT MADE ANY INQUIRY WHATSOEVER TO SUSTAIN HIS ALLEGATION THAT THE APPELLANT MIGHT HAVE MADE LABOUR PAYMENT OUTSIDE THE BOOKS OF ACCOUNTS. THE ONLY BASIS ON WHICH THE ADDITION HAS BEEN MADE IS AO'S PRESUMPTION THAT THE AMOUNT OF LABOUR PAYMENT PE R LABOURER PER MONTH OF RS. 918/ - IS VERY LOW ON WHICH THE LABOURERS CANNOT SUSTAIN THEIR FAMILY. THE LAW DOES NOT PERMIT FO R ADDITION ON THE BASIS OF SUCH REASONING SUCH ADDITION SHOULD BE AVOIDED. ACCORDINGLY, I AM OF THE OPINION THAT THE AO IS AT ALL NOT JUSTIFIED IN PRESUMING THAT THE APPELLANT MIGHT HAVE MADE LABOUR PAYMENT OUTSIDE THE BOOKS AND THEREFORE, I HEREBY DELET E THE ADDITION OF RS. 17,30,383/ - AS MADE BY THE AO FOR OUTSTANDING LABOUR PAYMENTS AS AT THE YEAR END. IN THE RESULT, GROUND OF APPEAL NO. 1 OF THE APPELLANT IS ALLOWED. I.T.A NO. 3387 /AHD/20 10 A.Y. 2007 - 08 PAGE NO DCIT VS. SHAILESH R. DHAMELIA 5 4. THE REVENUE STRONGLY REITERATES THE ASSESSING OFFICER S INFERENCE DRAWN OF LABOU R PAYMENTS OF RS . 918/ - PER HOUSEHOLD IN FIRST FEBRUARY MONTH. THE ASSESSEE STRONGLY SUPPORTS THE CIT (A) S ORDER UNDER CHALLENGE. ITS P & L FORMING PART OF THE CASE FILE REVEALS DIAMOND CUTT ING LABOUR CHARG ES EXPENSES OF R S. 28,01,793/ - UP TO 31/03/2007 I.E. MUCH MORE THAN RS. 2 LACS STA T ED IN ASSESSMENT ORDER. TH E RE IS NO OTHER MATERIAL QUOTED EITHER IN ASSESSMENT OR DURING ARGUMENTS BE FORE US SO AS TO DISPUTE GENUINENESS OF THIS EXPENDITURE CLAIM OF RS . 17,30,383/ - . T HUS, REVENUE S GROUND NO. 1 FAIL S. 5. REVENUE S 2 ND SUBSTANTIAL GROUND SEEKS TO RESTORE DEPREC I ATION DISALLOWANCE OF RS. 9,24,475/ - . THE VERY AMOUNT IN ASSESSMENT ORDER READS R S. 6, 54,480/ - AND ONE OF THAT CLAIMED OF RS . 9,24,475/ - . THE ASSESSMENT HAPPENS TO BE THE PROMOTER OF M/S. A MRUT IMPEX AND ALSO RUNS IN DEPENDENT BUSINESS . HE H A D SHOWN O NLY DIAMOND CUTTING LASER MACHINE IN CASE OF THE ABOVE STATED CONCER N . THE A SSESSING OFFICER WAS OF THE VIEW THAT D IAMOND OGI AND SARIN MAKER MACHINE HAD NOT BEEN PUT TO USE. HE QUO T E D ASSESSE E S CLARIFICATIO N STATED TO HAVE BEEN USING MACHINE PROVIDED BY M/S. VRAJ DIAMONDS ONLY AND INVOLVED PROPORTIONATE DISALLOWANCE OF R S. 6,59,480/ - 6. THE LOWER APPELLATE ORDER ACCEPTS ASESSEE S CONTENTION S AS UNDER: - I.T.A NO. 3387 /AHD/20 10 A.Y. 2007 - 08 PAGE NO DCIT VS. SHAILESH R. DHAMELIA 6 5.1. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE A.R. OF THE APPELLANT EXPLAINED THAT THE DIAMOND MARKER MACHINES ARE USED TO PLAN THE SHAPE, SIZE AND DESIGN IN WHICH THE ROUGH DIAMOND IS TO BE CUT, SO AS TO GET THE MAXIMUM YIELD OF POLISHED DIAMONDS AND MINIMUM REJECTION OF ROUGH DIAMO NDS. ACCORDINGLY, IT WAS CONTENDED THAT EVEN IN THE ACTIVITY OF DIAMOND CUTTING BY LASER MACHINES ON JOB - WORK BASIS, THE DIAMOND MARKER MACHINES ARE USED TO FIRST PLAN THE SHAPE, SIZE AND DESIGN AND THEREAFTER, CUT IT THROUGH THE LASER MACHINES AND HENCE, IT CANNOT BE ALLEGED THAT THE DIAMOND MARKER MACHINES ARE OF NO USE IN THE DIAMOND CUTTING ACTIVITY CARRIED OUT BY LASER MACHINES. THE AR FURTHER SUBMITTED THAT OVER AND ABOVE THE DIAMOND LASER CUTTING ACTIVITY, HE IS ALSO ENGAGED IN THE BUSINESS OF IMPOR TING OF ROUGH DIAMONDS, MANUFACTURING OF POLISHED DIAMONDS AND SALES THEREOF, IN HIS PROPRIETARY CONCERN M/S. AMRUTLMPEX AND THE SAID ACTIVITY HAS BEEN REPORTED BY THE STATUTORY AUDITOR IN CLAUSE NO. 8(A) OF THE TAX AUDIT REPORT AND HAS ALSO BEEN ACCEPTED BY THE AO HIMSELF IN PARA 4 PAGE 2 OF THE ASSESSMENT ORDER. FURTHER, IT WAS EXPLAINED THAT IN THE CURRENT YEAR, THE APPELLANT HAS IMPORTED ROUGH DIAMON DS AMOUNTING TO RS. 4,16,99,691/ - IN FEBRUARY 2007 FOR MANUFACTURING OF POLISHED DIAMONDS POLISHING AND T HE DIAMOND MARKER MACHINES HAVE BEEN USED IN THE MONTH OF MARCH 2007 FOR PLANNING THE SHAPE, SIZE AND DESIGN OF THE SAID IMPORTED ROUGH DIAMONDS ALSO, OVER AND ABOVE THE USE THEREOF IN THE ACTIVITY OF DIAMOND CUTTING LASER JOB - WORK AND THUS, THE DIAMOND MA RKER MACHINES HAVE EVEN BEEN USED IN BOTH THE ACTIVITIES I.E. LASER CUTTING JOB - WORK AS ALSO THE ACTIVITY OF IMPORT OF ROUGH DIAMONDS AND MANUFACTURING OF POLISHED DIAMONDS. IT WAS ALSO SUBMITTED BY THE APPELLANT THAT IN THE SCRUTINY ASSESSMENT PROC EEDINGS IN HIS CASE FOR THE EARLIER YEAR I.E. A.Y. 2006 - 07, THE THEN LEARNED ADDL. CLT, RANGE - 9, SURAT, VIDE ORDER U /S. 143(3), DATED 18 - 12 - 2008, HAS ALLOWED THE CLAIM OF DEPRECIATION ON THE SAID DIAMOND MARKING MACHINES AND THERE BEING NO CHANGE IN THE NATURE OF BUSINESS IN THE CURRENT YEAR AS COMPARED TO THE EARLIER YEAR, THE DEPRECIATION NEEDS TO BE ALLOWED EVEN FOR THE CURRENT YEAR. THE AR FURTHER SUBMITTED THAT AS PER SECTION. 32 OF THE ACT, DEPRECIATION IS ALLOWABLE ON THE 'BLOCK OF ASSETS' WHICH C OMPRISES OF VARIOUS ITEMS AND NOT ON A PARTICULAR ASSET AND THUS, ONCE AN ASSET BECOMES A PART OF THE 'BLOCK OF ASSET' AND DEPRECIATION IS GRANTED ON THAT BLOCK OF ASSETS, THE SAME CANNOT BE DENIED IN THE SUBSEQUENT YEAR, ON THE GROUND THAT ONE OF THE ASSE T OF THE SAID BLOCK OF ASSET, WAS NOT USED BY THE ASSESSEE IN THE SAID SUBSEQUENT YEAR. IN I.T.A NO. 3387 /AHD/20 10 A.Y. 2007 - 08 PAGE NO DCIT VS. SHAILESH R. DHAMELIA 7 SUPPORT OF THIS ARGUMENT, RELIANCE WAS PLACED ON THE DECISION OF ITAT, MUMBAI, IN THE CASE OF UNITEX PRODUCTS LTD. VS. ITO (2008) 22 SOT 429 (MUMBAI). IN VIEW OF THE SE SUBMISSIONS, THE AR OF THE APPELLANT PLEADED THAT THE DISALLOWANCE OF DEPRECIATION AS MADE BY THE AO NEEDS TO BE DELETED. 5.2. I HAVE CONSIDERED THE FACTS OF THE CASE, THE ORDER OF THE AO AND THE SUBMISSIONS OF THE APPELLANT. IT IS SEEN THAT THE DIAMO ND MARKER MACHINES ARE USED TO PLAN THE SHAPE, SIZE AND DESIGN IN WHICH THE ROUGH DIAMOND IS TO BE CUT SO AS TO GET THE MAXIMUM YIELD OF POLISHED DIAMONDS AND MINIMUM REJECTION OF ROUGH DIAMONDS AND THEREAFTER, THE ROUGH DIAMONDS ARE CUT WITH THE HELP OF D IAMOND LASER MACHINES. THUS, I AGREE WITH THE APPELLANT THAT THE DIAMOND MARKER MACHINES ARE ALSO USED IN THE ACTIVITY OF CUTTING DIAMONDS ON JOB - WORK BASIS AND THE APPELLANT HAS ALSO IMPORTED ROUGH DIAMONDS FOR POLISHING AND HENCE ; THE SAID MACHINES HAVE ALSO BEEN USED IN THAT ACTIVITY. FURTHER, THE DEPRECIATION ON DIAMOND MARKER MACHINES HAS BEEN ALLOWED TO THE APPELLANT VIDE ORDER U/S. 143(3) O F THE ACT FOR THE EARLIER YEAR I.E. A.Y. 2006 - 07 ALSO AND THERE IS NO CHANGE IN THE NATURE OF ACTIVITY IN THE C URRENT YEAR AS COMPARED TO THE EARLIER YEAR. HENCE, THE AO IS NOT JUSTIFIED IN DISALLOWING THE DEPRECIATION ON THESE MACHINES IN THE CURRENT YEAR. ACCORDINGLY, I HEREBY DELETE THE DISALLOWANCE OF DEPRECIATION OF RS. 6,54,480/ - ON THE DIAMOND MARKER MACHINE S. IN THE RESULT, GROUND OF APPEAL NO. 2 OF THE APPELLANT IS ALLOWED. 7. WE HAVE HEARD RIVAL CONTENTIONS. IT HAS COME ON RECORD THAT THE IDENTICAL DEPRECIATION CLAIM QUA THE VERY MACHINE S STANDS ALLOWED IN A SCRUTINY A SSESSMENT FRAMED FOR PRECEDING ASSE SSMENT Y EAR 2006 - 07. RELEVANT A SSESSMENT ORDER DATED 18/12/2008 FORMS PART OF THE CASE FILE. THE HON BLE JURISDICTIONAL HIGH COURT IN TAX APPEAL NO . 84/2000 ACIT VS. S K PATEL FAMILY TRUST DECIDED ON 19 - 06 - 2012 HOLDS THAT ONCE A BL OCK OF ASSETS IS PUT TO SUE, SEGREGATION OF ASSETS FORMING PART THEREOF FOR THE PURPOSE OF GRANTING DEPRECIATION ON THE GROUND THAT T HE SAME HAD NOT BEEN PUT TO USE; IS NOT I.T.A NO. 3387 /AHD/20 10 A.Y. 2007 - 08 PAGE NO DCIT VS. SHAILESH R. DHAMELIA 8 JUSTIFIABLE. THIS LORDSHIPS QUOTE EARLIER DECISION REPORTED AS C IT VS. SONAL HEM INDUSTRIES (2010) 3 22 ITR 542 (GUJ). THE R EVENUE DOES NOT POINT OUT DISTINCTION ON FACTS AND LAW. IT S CORRESPONDING GROUND IS ACCORDINGLY REJECTED . 8. THE REVENUE S THIRD SUBSTANTIVE GROUND SEEKS RESTORATION OF LO W HOUSEHOLD WITHDRAWAL ADDITION OF RS. 67,000/ - OVER AND ABOV E THAT ALLOWED OF RS. 53,000/ - . IT HAS COME ON RECORD THAT ASSESSEE IS A BACHELOR, AND HIS FA THER HAS ALREADY MADE WITHDRAWAL OF RS. 5,83,000/ - SUFFICIENT FOR THE FAMILY. WE REJECT THE REVENUE S THIRD SUBSTANTIVE GROUND ACCORDINGLY. 9. THIS REVENUE S A PPEAL IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 04 - 0 9 - 2015 SD/ - SD/ - ( G.D. AGRAWAL ) ( S. S. GODARA ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD : DATED 04 /0 9 /2015 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , I.T.A NO. 3387 /AHD/20 10 A.Y. 2007 - 08 PAGE NO DCIT VS. SHAILESH R. DHAMELIA 9 / ,