ASST CIT 16(3), MUMBAI V. OSIA GEMS, MUMBAI

ITA 3754/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3717 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 10-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SALMAN KHAN
• Assessee Lawyers: B V JHAVERI
• Keywords: Assessment record
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.3754/M/2013 ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME-TAX-16(3), MATRU MANDIR, 2 ND FLOOR, R.NO.206, TARDEO ROAD, MUMBAI 400 007 VS. M/S. OSIA GEMS, 135, SHREEJI CHAMBERS, TATA ROAD NO.1 & 2, OPERA HOUSE, MUMBAI - 400 004 PAN: AAAFO 4949C (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI B.V. JHAVERI, A.R. REVENUE BY : SHRI M. SALMAN KHAN, D.R. DATE OF HEARING : 07.03.2016 DATE OF PRONOUNCEMENT : 11.03.2016 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER DATED 05.02.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2007-08. 2. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF A PPEAL: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED C.L.T.(A) ERRED IN CONFIRMING THE ADDITION OF RS.17 ,46,662/- BEING DUTY DRAW BACK EXPORT INCENTIVE CLAIMED U/S. 80LB(4). II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED C.L.T.(A) ERRED IN RELYING THE JUDGMENT OF THE SUPR EME COURT IN THE CASE OF LIBERTY INDIA REPORTED IN 317 ITR PG. 218 IGNORING THE JUDG MENT OF THE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS REPORTED IN 342 ITR PG. 49. III) THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D OR DELETE ANY GROUND(S) OF APPEAL EITHER BEFORE OR DURING THE COURSE OF HEARIN G OF THE APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF PURCHASE OF ROUGH DIAMON DS, GETTING THEM CUT AND ITA NO.3754/M/2013 M/S. OSIA GEMS 2 POLISHED ON PAYMENT OF LABOUR CHARGES TO OUTSIDE KA RIGARS AND EXPORTING THE MANUFACTURED POLISHED DIAMONDS. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS ASSESSED UNDER SECTION 143(3) OF THE A CT FOR AN INCOME OF RS.2,28,80,190/- VIDE ORDER DATED 08.12.09. THEREA FTER, THE ASSESSMENT WAS REOPENED UNDER SECTION 147 OF THE ACT ON ACCOUNT OF INFORMATION RECEIVED FROM ITO WARD NO.1, NAVSARI THAT THE LABOUR CHARGES PAID BY THE ASSESSEE TO MR. ATUL NANDALAL DAFTARY AND MR. MUKHESH N DAFTARY WER E BOGUS. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE A O) IN THE REOPENED ASSESSMENT PROCEEDINGS TREATED THE LABOUR CHARGES O F RS.49,19,612/- PAID TO THESE PARTIES AS BOGUS EXPENSES AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 4. THE LD. CIT(A), HOWEVER, CONSIDERING THE SUBMISS IONS OF THE ASSESSEE DELETED THE ADDITIONS SO MADE BY THE AO OBSERVING A S UNDER: 5.2 IN THIS REGARD, I NOTE THAT THE COPIES OF THE JANGADS IN RESPECT OF ROUGH DIAMONDS GIVEN FOR MANUFACTURING DULY MENTIONING TH E REQUISITE DETAILS IN THE FORM OF ROUGH DIAMONDS GIVEN, REJECTION ROUGH RETRUNED, QUANTITY MANUFACTURED, POLISHED RECEIVED FROM MANUFACTURING, RATE OF LABOU R CHARGES PER CARAT OF MANUFACTURED ROUGH AND TOTAL LABOUR CHARGES PAYABLE ETC., WERE PRODUCED BEFORE THE AO. THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHE QUES AND COPIES OF THE BANK STATEMENTS HIGHLIGHTING THE SAID PAYMENTS WERE ALSO PRODUCED BEFORE THE AO. IT IS ALSO A FACT THAT MR. ATUL NANDALAL DAFTARY AN D MR. MUKHESH N DAFTARY ARE NOT RELATED TO THE APPELLANT WITHIN THE MEANING OF SECT ION 40(A)(2) OF THE ACT. IT IS FURTHER NOTED THAT THE APPELLANT DEDUCTED TAX ON TH E PAYMENTS MADE TO THE SAID PARTIES FROM TIME TO TIME AND PAID THE SAME TO THE GOVERNMENT ACCOUNT AND ISSUED FORM 16A. THE APPELLANT ALSO PLACED ON RECORD THE C ERTIFICATE ISSUED BY ITO NAVASARI U/S 197 OF THE ACT, AUTHORIZING THE APPELLANT TO DE DUCT TAX AT LOWER RATE ON PAYMENTS MADE TO MR. MUKHESH N DAFTARY. FURTHER, TH E QUANTITATIVE EFFECT OF THE LABOUR BILLS WAS ALSO REFLECTED IN THE STOCK REGIST ER. THEREFORE, THE EXPENDITURE ON LABOUR CHARGES COUPLED WITH OUTWARD DELIVERY OF ROU GH DIAMONDS AND INWARD DELIVERY OF POLISHED DIAMONDS AND THE CONSEQUENT EX PORTS WILL GO TO SHOW THAT THE LABOUR PAYMENTS ARE MADE IN THE NORMAL COURSE OF TH E APPELLANT'S BUSINESS. FURTHER, THE CIT(A) VALSAD, WHO EXAMINED THE ISSUES IN DETAIL ALSO HELD THAT THE AFORESAID TWO PARTIES HAVE BEEN CARRYING ON LABOUR CONTRACT/JOB WORK BUSINESS REGULARLY. IN VIEW OF THE ABOVE DISCUSSION, THERE A PPEARS TO BE NO GROUND TO CONSIDER THE LABOUR PAYMENTS MADE BY APPELLANT TO M R. ATUL NANDALAL DAFTARY AND MR. MUKESH N DAFTARY AS BOGUS. 5.3 NOW, COMING TO THE ASSESSMENT PROCEEDINGS IN TH E CASES OF MR. ATUL NANDALAL DAFTARY AND MR. MUKHESH N DAFTARY THE ITO NAVSARI, IN HIS ASSESSMENT ORDER, NOTED THAT THE OFFICE INSPECTOR WHO CONDUCTE D THE ENQUIRY AT THE GIVEN ITA NO.3754/M/2013 M/S. OSIA GEMS 3 ADDRESS REPORTED THAT THE SAID ASSESSEES WERE NOT A VAILABLE THEREIN AND THERE APPEARED TO BE NO BUSINESS ACTIVITY CARRIED THERE F ROM AS LEARNT FROM THE NEIGHBORS. SECONDLY. THE ITO NAVASARI REFERRED IN HIS ORDER TO THE ASSESSMENT ORDER OF DCIT NAVASARI IN THE CASE OF ONE MR. ANILKUMAR CHAHWALA, WITHOUT ESTABLISHING ANY CONNECTION BETWEEN THE SAID MR. ATUI NANDALAL DAFTA RY & MR. MUKHESH N DAFTARY AND MR. ANILKUMAR CHAHWALA. THE ITO NAVASARI CONCLU DED THAT ALL LABOUR RECEIPTS/PAYMENTS CLAIMED BY WAY THE AFORESAID TWO PARTIES IN THEIR BOOKS WERE BOGUS TRANSACTIONS AND ENTERED ONLY WITH A VIEW TO ACCOMMODATE DIFFERENT TRADERS IN THIS LINE OF BUSINESS, INCLUDING THE APPELLANT. THEREAFTER, THE ITO IN HIS ASSESSMENT ORDER DISALLOWED THE ENTIRE LABOUR CHARG ES PAID BY THE AFORESAID TWO PARTIES ON A PROTECTIVE BASIS. THE MATTER WAS CARRI ED IN APPEAL BEFORE CIT(A) VALSAD, WHO HAS EXAMINED THE FACTS IN DETAIL IN HIS ORDERS IN APPEAL NOS.CIT(A)VLS/478 AND 479/09-10 DATED 26.9.2011. THE CIT(A) HAS TAKEN NOT E THAT THE AO DID NOT ESTABLISH ANY CONNECTION BETWEEN THE IMPUGNED TWO PARTIES AND MR. ANILKUMAR CHAHWALA AND THEREFORE, ASSESSMENT MADE BY ITO NAVASARI ON P ROTECTIVE BASIS BY SUBSTANTIALLY DRAWING FROM THE ASSESSMENT ORDER OF MR. ANILKUMAR CHAHWALA WAS NOT TENABLE. SECONDLY, THE SAME CIT(A) HAS ALSO GIV EN RELIEF IN THE CASE OF MR. ANILKUMAR CHAHWALA AND HELD THAT THE TRANSACTIONS C ONDUCTED IN THE SAID CASE WERE ALSO SUBSTANTIVE. 5.4 THAT APART, THE CIT(A) VALSAD ALSO NOTED VARIOU S RELEVANT FACTS AND FINALLY HELD AS UNDER: EXTRACT FROM PARA 7.4 OF VALSAD CIT(A)'S ORDER: AFTER PERUSAL OF SUBMISSIONS, REMAND REPORT SUBMITT ED BY THE AO AND THE MATERIALS ON RECORDS THE FOLLOWING FACTS EMERGED: I) THE ASSESSEE HAS CARRIED OUT THE BUSINESS OF TRA DING OF DIAMONDS AND LABOUR CONTRACT JOB. II) THE APPELLANT HAS MAINTAINED BOOKS OF ACCOUNTS WHICH WERE DULY AUDITED BY THE QUALIFIED CHARTERED ACCOUNTANTS. III) MAXIMUM AMOUNTS ARE RECEIVED BY CHEQUES FOR TH E LABOUR CONTRACT JOB DONE. SIMILARLY, MAJOR PORTION OF THE SALE CONSIDERATION OF DIAMONDS ARE RECEIVED IN CHEQUES. IV) THE FACTS REMAIN CLEAR THAT THE APPELLANT HAS B EEN ACTING MORE AS A COMMISSION AGENT FOR BIG DIAMOND TRADERS/MANUFACTURERS PROVIDI NG LABOUR AND SUPPLY OF DIAMOND IN SMALL QUANTITY. V) THE APPELLANT HAS NOT DEDUCTED TAX AT SOURCE FRO M THE PAYMENTS MADE TO THE SUB-CONTRACTORS IN VIOLATION OF PROVISION OF SE C. 194C. VI) THE APPELLANT HAS BEEN FILING R0I SINCE A. Y. 2 003-04 ONWARDS. AS SUBMITTED BY THE LD. AR OF THE APPELLANT THE INCOME OF THE AP PELLANT HAS BEEN IN THE RANGE OF 1.0 TO 1.5% GP. VII) IT IS UNTENABLE TO CONCLUDE THAT THE ASSESSEE HAS NOT ACTUALLY CARRIED OUT ANY LABOUR WORK AND ALL THE TRANSACTIONS WERE FICTITIOU S TRANSACTIONS. VIII) CONSIDERING THE FACT AND CIRCUMSTANCES I AM INCLINE TO HOLD THAT THE THE APPELLANT HAS DONE LABOUR CONTRACT JOB ON COMMISSIO N BASIS AND TRADED DIAMONDS WHICH BEARS FROM THE ASSESSMENT RECORDS AND BOOKS O F ACCOUNTS.' ITA NO.3754/M/2013 M/S. OSIA GEMS 4 5.5 IN THE END, THE CIT(A) VALSAD DELETED THE ADDIT ION MADE BY THE AO IN THE AFORESAID TWO CASES AND DIRECTED THE AO TO CONSIDER THE DEFAULT U/S 40(A)(IA) ONLY FOR ANY DISALLOWANCE OF LABOUR CHARGES CLAIMED. 6. THUS THE FINDINGS GIVEN BY CIT(A) VALSAD COUPLE D WITH THE FACTS ON RECORD DISCUSSED AT PARA 5.2 WILL GO TO SHOW THAT THE TRAN SACTIONS BETWEEN THE APPELLANT AND MR. ATUL NANDALAL DAFTARY & MR. MUKHESH N DAFTA RY WERE GENUINE AND THERE IS NO REASON TO CONSIDER THE SAID TRANSACTIONS AS B OGUS AND ACCOMMODATIVE IN NATURE. IN VIEW OF THE ABOVE DISCUSSION, THE ADDITI ON MADE BY THE AO FOR RS.49,19,612/- IN THIS REGARD IS HEREBY DELETED. 5. THE REVENUE, THUS, HAS COME IN APPEAL BEFORE US AGITATING THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITIONS. AT THE O UTSET, THE LD. A.R. OF THE ASSESSEE HAS BROUGHT OUR ATTENTION TO THE ORDER OF THE TRIBUNAL FOR EARLIER ASSESSMENT YEAR 2006-07 IN ITA NO.8909/MUM/2010 DAT ED 07.02.2014 WHEREIN SIMILAR ADDITIONS HAVE BEEN MADE IN THE CAS E OF THE ASSESSEE ON ACCOUNT OF BOGUS LABOUR CHARGES ON IDENTICAL FACTS. THE TRIBUNAL, AFTER CONSIDERING THE FACT AND CIRCUMSTANCES OF THE CASE, UPHELD THE ORDER OF THE LD. CIT(A) DELETING THE ADDITIONS MADE BY THE AO ON IDE NTICAL FACTS AND CIRCUMSTANCES OBSERVING AS UNDER: 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE CAREFULLY GONE THROUGH THE MATERIAL ON RECORD. (IN THIS INSTANT CASE IT IS AN ADMITTED FACT THAT THE AO DID NOT INVOKED THE PROVI SIONS OF SECTION 145(3) OF THE ACT. HE HAS ALSO ACCEPTED THE OPENING STOCK, CLOSING STOCK, SALES AND GROSS PROFIT SHOWN BY THE ASSESSEE AND IF ALL OTHER CONSTITUENTS OF TRADING ACCOUNT WERE ACCEPTED THEN THERE WAS NO OCC ASION TO DOUBT THE PURCHASES. MOREOVER, THE ADDITION WAS MADE BY THE AO MERELY ON THE BASIS OF STATEMENT OF MR. ANILKUMAR CHAHWALLA WHO I S A PROPRIETOR OF M/S PADMAVATI GEMS FROM WHOM THE ASSESSEE PURCHASED THE GOODS AND M/S PARTH CORPORATION TO WHOM THE ASSESSEE MADE THE LAB OUR PAYRNENTS. THE ASSESSMENT FRAMED IN THE CASE OF SAID PERSON MR. AN ILKUMAR CHAHWALLA WAS A SUBJECT MATTER OF APPEAL BEFORE THE LD. CIT(A), VAK AD , VIDE ORDER DATED 27.12.2008, ACCEPTED THE CONTENTION OF THE SAID ASSESSEE, MR. A NILKUMAR CHAHWALLA. THAT STATEMENT ON 24.12.2008 OBTAINED BY THREATENING THE ASSESSEE OF POLICE ACTION AND UNDER COERCIVE PRESSURE AND THE S AID STATEMENT WAS NOT GIVEN BY FREE WILL. THEREFORE, IT WAS RETRACTED IMM EDIATELY BY WAY OF AN AFFIDAVIT DATED 27.12.2008. IT IS WELL SETTLED PROP OSITION THAT ANY STATEMENT OBTAINED BY COERCIVE MEASURES OR UNDER AN Y PRESSURE CANNOT BE ADMITTED AS AN EVIDENCE BECAUSE IT IS NOT BY FRE E WILL. THEREFORE, THE ADDITION MADE BY THE AO ON THE BASIS OF STATEMENT O F MR. ANILKUMAR CHAHWALLA WHICH WAS RETRACTED LATER ON WAS NOT JUST IFIED. MOREOVER THE CIT(A) VATSAD, WHILE DECIDING THE APPE AL OF MR. ITA NO.3754/M/2013 M/S. OSIA GEMS 5 ANILKURNAR CHAHWALLA CONSIDERED THE TRANSACTIONS BE TWEEN THE ASSESSEE AND MR. ANILKUMAR CHAHWALLA, PROPRIETOR OF M/S PADMAVATI GEMS AND M/S. PARTH CORPORATION AS GENUINE. THEREFO RE, THE AO IS NOT JUSTIFIED IN TAKING A DIVERGENT VIEW. SIMILARLY FOR THE LABOUR CHARGES PAID TO M/S PARTH CORPORATION, THE ASSESSEE FURNISHED BEFORE THE AO, COPY OF CERTIFICATE DATED 15.07.2005 ISSUE BY ITO WARD-1, NAVSARI, ADDRESSED TO ASSESSEE, PERMITTING DEDUCTION OF TDS AT A LOWER RATE U/S 197 OF THE IT ACT ON THE LABOUR CHARGES PAID BY THE ASSESSEE TO M/S PARTH CORPORATION. THEREFORE, THE TRANSACTIONS RELATING TO THE LABOUR CHARGES BETWEEN THE ASSESSEE AND MR. ANIL KUMAR CHAHWALLA, PROPRIETOR OF M/S PARTH CORPORATIO N, CANNOT BE DOUBTED PARTICULARLY WHEN THE QUANTITATIVE EFFECT OF THE LA BOUR BILLS WAS ALSO REFLECTED IN THE STOCK REGISTER. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE CASE AS DISCUSSED HEREIN ABOVE ARE OF THE VIEW THAT LD. CIT (A) WAS FULLY JUSTIFIED IN DELETING THE IMPUGNED ADDITIONS MADE BY AO. ACCORDINGLY WE DO N OT FIND ANY MERIT IN THE APPEAL OF THE DEPARTMENT AND THE SAME IS DISMISSED. 6. THE LD. D.R. HAS FAIRLY AGREED THAT THOUGH THE P ARTIES TO WHOM THE LABOUR CHARGES PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION ARE DIFFERENT, HOWEVER THE FACTS AND CIRCUMSTANCES OF T HE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THAT OF A.Y. 2006-07. 7. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE FINDING OF THE TRIBUNAL ON IDENTICAL FACTS IN EARLIER ASSESSMENT YEAR 2006- 07, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS ACCORD INGLY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.03.2016. SD/- SD/- (RAJESH KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 11.03.2016. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.