BHAGWANJI GADA, MUMBAI V. ITO CEN THANE, MUMBAI

ITA 376/MUM/2011

• Counselvise Citation: 37619914 RSA 2011
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 13-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: USHA S NAIR
• Keywords: Search and seizure
• Section: 132; 2; 143(3)

Judgement Text

ITA NO. 376/MUM/2011 ASSESSMENT YEARS: 2006- 07 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH, MUMBAI [CORAM: PRAMOD KUMAR AM AND ASHA VIJAYARAGHAVAN JM] ITA NO. 376/MUM/2011 ASSESSMENT YEARS: 2006-07 BHAGWANJI K GADA ...APPELLANT (PROP : BHAGWAN TEXTILES) 10/ A-1, PLOT NO. 501, GOPAL NAGAR KALYAN NAGAR, BHIWANDI [PAN : AAWPG6112B] VS. INCOME TAX OFFICER (CENTRAL WARD), THANE RESPON DENT APPEARANCES: A K GHOSH, FOR THE APPELLANT USHA S NAIR, FOR THE RESPONDENT DATE OF HEARING : 01 JUNE, 2011 DATE OF PRONOUNCEMENT : 29 JULY, 2011 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED I NTO QUESTION CORRECTNESS OF ORDER DATED 30 TH SEPTEMBER 2010, IN THE MATTER OF ASSESSMENTS UNDER ITA NO. 376/MUM/2011 ASSESSMENT YEARS: 2006- 07 PAGE 2 OF 7 SECTION 143(3) R.W.S. 153 A OF THE INCOME TAX ACT F OR THE ASSESSMENT YEARS 2006-07, ON THE FOLLOWING GROUND : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ENTIRE ADDIT ION OF RS 34,53,812 MADE BY THE LEARNED ASSESSING OFFICER IN RESPECT OF ALLEGED INFLATED LABOUR CHARGES, WITHOUT APPRECIATI NG THE FACT THAT THE APPELLANT HAS PAID CONSOLIDATED CHARGES TO THE CONTRACTORS TOWARDS GODOWN CHARGES, INWARD TRANSPORT, OCTROI, W ARPINS, SIZING, BEAM SETTER, DROPIN CHARGES, WEAVING, JOBBER, CLIPP ING, FOLDERS, OUTWARD TRANSPORT, ELECTRICITY, MILL STORES SPARES, LUBRICANT AND HAMAL CHARGES, WHICH ARE CLAIMED UNDER THE HEAD LA BOUR CHARGES. 2. LEARNED REPRESENTATIVE SUBMIT THAT WHATEVER IS D ECIDED IN THE CASE OF B K TEXTILE CORPORATION ( AY 2004-05 AND 2005-06), GROUP APPEALS WHICH WERE HEARD ALONGWITH THIS APPEAL, WILL FOLLOW IN THIS CA SE AS WELL. IT IS AGREED THAT THE GRIEVANCE RAISED BEFORE US AS ALSO DEVELOPMENTS LEADING TO THIS APPEAL ARE MATERIALLY THE SAME, AND, THEREFORE, THE OUTCOME IN B K TEXTILES CASE (SUPRA) WILL EQUALLY APPLY HERE AS WELL. VIDE OUR ORDER OF EVEN DATE, WE HAVE DISPOSED OF THE IDENTICAL GRIEVANCE OF THE B K TEXTILES (SUPRA) BY OBSERVING AS FOLLOWS: 4. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF CLOTHE S AND YARN. A SEARCH AND SEIZURE OPERATION UNDER SECTION 132 WAS CARRIED OUT ON THE OFFICE AND RESIDENTIAL PREMISES OF THE ASSESSEE. DURING THE CO URSE OF THIS SEARCH OPERATION, CERTAIN INCRIMINATING DOCUMENTS WERE FOU ND AND STATEMENTS WERE ALSO RECORDED. WHEN SEARCH WAS CONDUCTED AT T HE RESIDENCE OF KANTILAL K GADA AT 10/A, 501/502 GOPAL NAGAR, BHIWA NDI, CHEQUE BOOKS, PAY IN SLIPS AND BOOKS OF ACCOUNTS HELD BY VARIOUS PERSONS HAVE BEEN FOUND AND SEIZED. WHEN KALPESH GADA WAS CONFRONTED WITH THIS SEIZURE, HE ITA NO. 376/MUM/2011 ASSESSMENT YEARS: 2006- 07 PAGE 3 OF 7 STATED THAT THESE ARE THE ACCOUNTS OF THE SO CALLE D JOB WORKERS, OPERATED BY US FOR THE PURPOSE OF INFLATING THE EXPENSES. THESE ACCOUNTS, USED FOR SIPHONING OFF THE AMOUNTS AS WAGES, WERE MAINTAINED IN BRANCHES OF ABHUDAYA COOPERATIVE BANK LIMITED AND SYNDICATE BAN K. KALPESH GADA FURTHER ADMITTED THAT THOUGH HE IS SHOWING INCOME F ROM LABOUR WORK RECEIVED FROM APPU TEXTILE MILLS ADMITTEDLY A GRO UP FAMILY CONCERN, THE ACTUAL WORK IS DONE BY THE SAID FIRM ITSELF AND TH E PAYMENTS ARE SHOW TO HAVE BEEN MADE TO HIM ONLY TO INFLATE THE EXPENSES. IT WAS ALSO ACCEPTED THAT SIMILAR EXERCISE WAS ALSO CONDUCTED BY OTHER G ROUP CONCERNS, AND THAT NO JOB WORK IS OUTSOURCED BY ANY OF THE MANUFA CTURING CONCERNS, AND THAT THE GREY CLOTH SHOWN TO HAVE BEEN MANUFACTURED THROUGH OUTSOURCING IS ACTUALLY MADE WITH THE HELP OF THE INFRASTRUCTU RE OF THE CONCERN CLAIMED TO BE OUTSOURCING THE WORK. THE STATEMENTS OF SOME PERSONS, WHOSE BANK ACCOUNT CHEQUE BOOKS ETC WERE SO FOUND, WERE ALSO R ECORDED AND THEY CONFIRMED THAT THEY ARE SALARIED EMPLOYEES OF THE G ROUP CONCERNS AND THAT THEY DONOT GET ANYTHING OTHER THAN THEIR REGULAR SA LARIES, THAT THEIR PAN CARDS, INCOME TAX RETURNS AND ALL SUCH DOCUMENTS AR E ONLY WITH THE EMPLOYER, THAT ALL THE TRANSACTIONS IN THESE ACCOUN TS ARE BEING DONE BY THE EMPLOYER, THAT THEY HAVE ONLY SIGNED BLANK CHEQUES AND DOCUMENTS, AND THAT THEY ARE NOT EVEN AWARE OF ALL THESE ACTIVITIE S. IN RESPONSE TO THE QUESTION AS TO ON WHAT BASIS THE KARIGARS ARE PAID, IT WAS STATED BY KALPESH GADA THAT THE KARIGARS ARE PAID ON PER MET ER BASIS AND THAT AVERAGE RATE PAID IS RS 1.25 PER METER. ON THESE FACTS, AND HAVING NOTED THAT THE ASSESSEE HAS MADE HUGE PAYMENTS FOR LAABO UR CHARGES, THE ASSESSING OFFICER CONCLUDED THAT WHILE ACTUAL PAYME NT TO KARIGARS IS ONLY RS 1.50 TO RS 2.00 PER METER AT THE MOST, THE ASSES SEE HAS CLAIMED LABOUR CHARGES @ RS 6.50 PER METER IN THE NAME OF FAMILY M EMBERS AND THE EMPLOYEES. WHEN ASSESSEE WAS CONFRONTED WITH THIS AND THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO W HY LABOUR CHARGES SHOULD NOT BE DISALLOWED, IT WAS SUBMITTED BY THE A SSESSEE THAT SHRI KALPESH GADA HAS ADMITTED INFLATION IN JOB WORK UNK NOWINGLY AS HE COULD NOT UNDERSTAND THE QUESTION AND THAT IN THE SAME MATTER, BHAGWANJI K GADA, WHO IS THE MAIN CONDUCTOR AND ORGANIZER OF TH E ENTIRE BUSINESS AND THE FAMILY, HAS STRONGLY REJECTED THE QUESTION OF I NFLATION OF LABOUR CHARGES. IT WAS ALSO SUBMITTED THAT OUT OF 18 LAB OUR CONTRACTORS, ONLY 2-3 PERSONS HAVE STATED ADVERSELY AND SURVEY TEAM HAS H ELD THIS POINT STRONGLY. IT WAS ALSO SUBMITTED THAT ENTIRE EXPEN SES CANNOT BE DISALLOWED. REASONABLE DIFFERENCE WE HAVE DECLARED. AMOUNT OF RS 50,50,000 IS SUBSTANTIAL TO MATCH THE REAL COST OF PRODUCTION. IT WAS FURTHER SUBMITTED THAT THE RATE AT WHICH CONTRACTOR S ARE ACTUALLY PAID IS RS 4 AND RS 4.50 IN THE YEARS 2004-05 TO 2006-07, A ND NOT RS 6 AS OBSERVED BY THE ASSESSING OFFICER, AND, IN CONSIDER ATION OF PAYMENT SO MADE, THE CONTRACTORS HAVE RENDERED PROPER AND SINC ERE SERVICES. THE ASSESSING OFFICER REJECTED THESE SUBMISSIONS, NOTED THAT ,AS EVIDENT FROM THE MATERIAL FOUND DURING SEARCH PROCEEDINGS, THE A SSESSEE WAS ENGAGED IN SYSTEMATIC AND LARGE SCALE INFLATION OF EXPENSES , THAT THE NET PROFIT ITA NO. 376/MUM/2011 ASSESSMENT YEARS: 2006- 07 PAGE 4 OF 7 DISCLOSED BY THE ASSESSEE IN ALL THESE YEARS IN EXC EPTIONALLY LOW BETWEEN 0.5% TO 2%, AND THAT THE ASSESSEE HAS NOT PRODUCED ANY STOCK REGISTER FOR VERIFICATION. THE ASSESSING OFFICER ADOPTED THE LA BOUR CHARGES ALLOWABLE AT RS 1.50 PER METER, AS ADMITTED BY THE ASSESSEE I N THE STATEMENT, PROVIDED FOR A FURTHER RS 1.50 PER METER FOR OTHER INCIDENTAL EXPENSES SUCH AS TRANSPORT, POWER AND ALL RELATED EXPENSES, COMPU TED THE PRODUCTION QUANTITIES ON THE BASIS OF THE TAX AUDIT REPORT FIG URES IN THE ABSENCE OF THE STOCK RECORDS, AND COMPUTED THE ALLOWABLE LABOUR CH ARGES BY MULTIPLYING THE PRODUCTION QUANTITY IN METERS WITH RS 3 PER MET ER. THE BALANCE CLAIM WAS DISALLOWED. AS AGAINST A CLAIM OF RS 1,29,40,6 29 ON ACCOUNT OF LABOUR CHARGES IN THE ASSESSMENT YEAR 2004-05, AN AMOUNT O F RS 30,82,893 WAS DISALLOWED. SIMILARLY, OUT OF RS 67,33,740 CLAIMED AS HAVING BEEN SPENT ON LABOUR CHARGES IN THE ASSESSMENT YEAR 2005-06, AN A MOUNT OF RS 20,57,946 WAS DISALLOWED. AGGRIEVED, ASSESSEE CARR IED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. T HE CIT(A) AFFIRMED THE ACTION OF THE ASSESSING OFFICER BY OBSERVING AS FOL LOWS: THE ARGUMENT OF THE AR IS HEARD AND THE CONTENTS OF THE ASSESSMENT ORDER IS PERUSED. FINDING OF BANK PASS B OOK AND SIGNED BLANK CHEQUES IN RESPECT OF THE LABOURERS AT THE RESIDENCE OF KANTILAL KHETSI GADA GOES TO SUPPORT THE VIEW TH AT THE APPELLANT HAS DELIBERATELY, IN ORDER TO REDUCE THE TAX BURDEN, RESORTED TO INFLATION OF EXPENSES. THIS FACT HAS BE EN CLEARLY ADMITTED BY SHRI KALPESH GADA, ONE OF THE MAIN PERS ONS IN THE GROUP. MOREOVER, THE SO CALLED CONTRACTORS, NAMELY JETHALAL PRAJAPTI, BHAVESH PRAJAPATI, JAISIGH KHILARI, SHIVA JI SHINDE, SIKANDAR A HATAR, VINDO SHAGATIA, DILIP PRAJAPATI, RAJU G CHILVERI AND JAGMOHAN MAYRNA, HAVE ALL STATED TO BE EMPLOYED ON SALARY BASIS, AND BANK ACCOUNTS IN THEIR NAMES A RE MAINTAINED BY THE EMPLOYER. THEY HAVE FURTHER STATE D THAT THEY SIGN ON BLANK CHEQUES AND HAND OVER THE SAME TO THE EMPLOYER. IT IS ALSO ESTABLISHED THAT CHEQUES ARE DEPOSITED I NTO BANK ACCOUNTS OF THE ABOVE MENTIONED LABOURERS AND CASH IS WITHDRAWN BY THE EMPLOYER. THE AO HAS ALSO FOUND TH AT THE ASSESSEE HAS CLAIMED THE LABOUR CHARGES @ RS 6 PER METER, WHEREAS THE ACTUAL PAYMENT HAS RANGED FROM RS 1.5 T O RS 2 PER METER. KEEPING IN MIND THE OTHER EXPENSES, THE AO H AS ALLOWED LABOUR CHARGES @ RS 3 PER METER. THIS, ACCORDING TO ME, IS FAIR ENOUGH AND I, THEREFORE, HOLD THAT THE ORDER OF THE ASSESSING OFFICER DOES NOT SUFFER FROM ANY INFIRMITY. ACCORDI NGLY, I UPHOLD THE ACTION OF THE AO AND DISMISS THIS GROUND. 5. THE ASSESSEE IS NOT SATISFIED BY THE STAND SO TA KEN BY THE CIT(A) AND IS IN APPEAL BEFORE US. ITA NO. 376/MUM/2011 ASSESSMENT YEARS: 2006- 07 PAGE 5 OF 7 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS A LSO THE APPLICABLE LEGAL POSITION. 7. WE HAVE NOTED THAT EVEN THOUGH THE CIT(A) HAS CA TEGORICALLY HELD THAT THE ASSESSEES CLAIM FOR LABOUR CHARGES PAYMEN T IS BOGUS INASMUCH AS THE ASSESSEE WAS INVOLVED IN A SYSTEMATIC INFLATION OF EXPENSES BY USING BOGUS BANK ACCOUNTS IN THE NAME OF CERTAIN PERSONS EVEN AS THESE ACCOUNTS WERE ACTUALLY USED AND OPERATED BY THE ASS ESSEE HIMSELF, THE ASSESSEES LIMITED GRIEVANCE BEFORE US IS ON THE QU ANTUM OF DISALLOWANCE AND THE QUANTITIES OF PRODUCTION, AS ALSO RATE AT W HICH INFLATION OF EXPENSE IS ESTIMATED TO HAVE BEEN DONE, ADOPTED FOR THE COM PUTATION OF DISALLOWANCE. LEARNED COUNSEL HAS SIGHTED COPIES OF STOCK REGISTERS WHICH, IF ADOPTED FOR BASIS OF COMPUTATION, LEAD TO DIFFER ENT PRODUCTION FIGURES THAN THE PRODUCTION FIGURES ADOPTED IN THE TAX AUDI T REPORT. LEARNED COUNSEL HAS ALSO SUBMITTED THAT THE ACTUAL RATE OF PAYMENT OF LABOUR CHARGES IS NOT RS 6.50 PER METER AS ADOPTED BY THE ASSESSING OFFICER BUT MUCH LESS THAN THAT. WHEN, HOWEVER, WE ASKED HIM TO IDENTIFY THE BILLS OR EVIDENCES WHICH SUBSTANTIATE THE FACTUAL CONTENTION S EMBEDDED IN HIS ARGUMENTS TO THIS EFFECT, LEARNED COUNSEL COULD NOT DO THE SAME. IT WAS ALSO POINTED OUT TO THE LEARNED COUNSEL THAT, AS N OTED BY THE ASSESSING OFFICER, STOCK RECORDS WERE NOT PRODUCED BEFORE HIM , AND THIS FACTUAL OBSERVATION OF THE ASSESSING OFFICER HAS NEITHER BE EN CHALLENGED IN APPEAL BEFORE THE CIT(A) NOR CONTROVERTED EVEN IN THE STAT EMENT OF FACTS ON RECORD. THE STATEMENT OF THE LEARNED COUNSEL REGAR DING AVAILABILITY OF STOCK RECORDS BEFORE THE ASSESSING OFFICER IS THUS NOT BORNE OUT OF THE MATERIAL ON RECORD, AND, THEREFORE, WE CANNOT PROCE ED ON THE BASIS THAT THE STOCK STATEMENTS WERE INDEED PRODUCED BEFORE TH E ASSESSING OFFICER. AS THERE WAS NO CONTEMPORANEOUS RECORD OF QUANTITIES, WE NEED NOT BE GUIDED BY THE STOCK REGISTERS WHICH WERE NOT AVAILA BLE AT THAT POINT OF TIME. WE, MUST, THEREFORE UPHOLD THE ACTION OF THE AUTHORITIES IN PRINCIPLE. HAVING SAID THAT, WE MUST, HOWEVER, POINT OUT THAT WHAT IS TO BE DISALLOWED IS THE LABOUR CHARGES PAID IN EXCESS OF RS 3 PER METER AS IS THE STAND TAKEN BY THE ASSESSING OFFICER HIMSELF, AND T HEREFORE, THE RIGHT COMPUTATION OF DISALLOWANCE WILL BE BY ADOPTING THE SAID FIGURE OF LABOUR CHARGES RATE IN THE ACTUAL BILL OF LABOUR CHARGES R ECEIVED BY THE ASSESSEE. TO THAT EXTENT, THE ORDER OF THE CIT(A) REQUIRES TO BE MODIFIED. TO ENABLE THIS COMPUTATION, THE ASSESSEE HAS TO FURNISH DETAI LS OF ALL THE LABOUR BILLS ACCOUNTED FOR IN A PARTICULAR YEAR, AND PRODUCE THE SAME FOR VERIFICATION, AND THE LABOUR CHARGES ALLOWABLE WILL HAVE TO BE CO MPUTED BY ADOPTING RS 3 PER METER IN RESPECT OF THE QUANTITIES FOR WHICH THE BILLS ARE RAISED. IN ITA NO. 376/MUM/2011 ASSESSMENT YEARS: 2006- 07 PAGE 6 OF 7 CASE THE ASSESSEE IS UNABLE TO DO SO OR TO PRODUCE ANY OTHER SOUND BASIS ON WHICH COMPUTATIONS OF PRODUCTION QUANTITIES CAN BE DONE, THE CIT(A) WILL BE AT LIBERTY TO ADOPT THE PRODUCTION FIGURES ON TH E BASIS OF TAX AUDIT REPORT SUBJECT TO CORRECTION OF MISTAKES AS POINT ED OUT BY THE ASSESSEE, AND COMPUTE THE ADMISSIBLE LABOUR CHARGES AT RS 3 P ER METER MULTIPLIED TO THE QUANTITIES SO WORKED OUT. WE MAY ALSO MENTION THAT LEARNED COUNSEL FOR THE ASSESSEE URGED US TO MAKE ADJUSTMENT FOR IN FLATION IN THE SUBSEQUENT YEARS, BUT WE ARE NOT FAVOURABLY INCLINE D TO THIS PRAYER BECAUSE THE STATEMENT ABOUT LABOUR CHARGES RATES WA S MADE BY THE ASSESSEE WAS IN 2007, WHICH MUST BE REFERRING TO TH E LABOUR CHARGES RATES PAYABLE AT THAT POINT OF TIME, WHEREAS THE YEARS BE FORE US PERTAIN TO EARLIER PERIOD. TO SUM UP, WHILE WE CONFIRM THE ACT ION OF THE AUTHORITIES BELOW IN PRINCIPLE, WE REMIT THE MATTER TO THE FILE OF THE CIT(A) FOR THE LIMITED PURPOSES OF MAKING CORRECTIONS OF QUANTITIE S AND RATE DIFFERENCE, IF FOUND ADMISSIBLE, IN THE LIGHT OF OBSERVATIONS M ADE HEREINABOVE. WE DIRECT THE ASSESSEE TO FULLY COOPERATE IN EXPEDITIO US DISPOSAL OF THE REMANDED PROCEEDINGS AND MAKE IT CLEAR THAT IN THE ABSENCE OF ASSESSEES FURNISHING THE REQUIRED DETAILS AND POINTING OUT SP ECIFIC MISTAKES, IF ANY, IN THE COMPUTATIONS IN TAX AUDIT REPORT QUANTITATIV E DETAILS AND COMPUTATIONS IN THE ASSESSMENT ORDER, NO RELIEF WIL L BE ADMISSIBLE. WE ALSO DIRECT THE CIT(A) TO GIVE A DUE AND REASONABLE OPPO RTUNITY OF HEARING TO THE ASSESSEE AND TO DEAL WITH ALL HIS CONTENTIONS B Y WAY OF A SPEAKING ORDER AND IN ACCORDANCE WITH THE LAW. THE MATTER ST ANDS RESTORED TO THE FILE OF THE CIT(A) WITH THE DIRECTIONS AS ABOVE. 8. GROUND NO. 1 IN THE BOTH THE APPEALS IS THUS ALL OWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. 3. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY US IN A GROUP CASE OF THE ASSESSEES GROUP OF CASES. THERE ARE NO DISTINGUISHING FEATURES IN THE FACTS OF THE SAID CA SE VIS--VIS THE FACTS OF THIS CASE BEFORE US. 4. IN THIS VIEW OF THE MATTER, AND FOLLOWING OUR DE CISION IN B K TEXTILES CASE (SUPRA) , WE REMIT THE MATTER TO THE FILE OF THE CIT(A) FOR RECOMPUTING THE DISALLOWANCE, IF NECESSARY, IN THE LIGHT OF OUR OBS ERVATIONS IN THE SAID CASE ITA NO. 376/MUM/2011 ASSESSMENT YEARS: 2006- 07 PAGE 7 OF 7 WHICH HAVE BEEN EXTRACTED ABOVE AND WHICH WILL APPL Y MUTATIS MUTANDI HERE AS WELL. 5. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 29 TH DAY OF JULY, 2011. SD/- SD/- (ASHA VIJAYARAGHAVAN ) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 29 TH DAY OF JULY , 2011 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER , MUMBAI 4. DEPARTMENTAL REPRESENTATIVE, BENCH, MUMBAI 5. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI