Raiyani Brothers, Surat V. The ACIT, Circle-9, Surat

ITA 389/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8981 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-02-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 23-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Assessee Lawyers: BIRJU SHAH
• Keywords: Additional evidence; Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' (BEFORE S/SHRI N S SAINI AND MAHAVIR SINGH) ITA NO.389/AHD/2007 (ASSESSMENT YEAR:- 2003-04) M/S RAIYANI BROTHERS, 8, KOHINOOR SOCIETY, VARACHHA ROAD, SURAT V/S THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-9. SURAT [APPELLANT] [RESPONDENT] APPELLANT BY :- SHRI BIRJU SHAH, CA RESPONDENT BY:- SHRI GOVIND SINGHAL, SR. DR O R D E R PER N S SAINI (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME-TAX (APPEALS) DATED 13-11-2006 FOR ASSESSMENT YEAR 2003 -04. 2 THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE AS UNDER: (I) DISALLOWANCE OUT OF LABOUR CHARGES : (1) THE CIT(A) HAS ERRED IN LAW AND FACTS IN UPHOLDING THE DISALLOWANCE OF RS.4,01,565/- MADE BY THE AO IN RESPECT OF LABOUR C HARGES ON DIFFERENTIAL CARATS OF REJECTION ON VARIOUS LOTS OF ROUGH DIAMON DS PURCHASED DURING THE YEAR. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DEC ISION OF CIT(A) IS REQUIRED TO BE NULLIFIED BY DELETING THE ADDITION. (II) DISALLOWANCE OUT OF FOREIGN TRAVEL EXPENSES : (1) THE CIT(A) HAS ERRED IN LAW AND FACTS IN UPHOLDING THE DISALLOWANCE OF RS.39,417/- MADE BY THE AO IN RESPECT OF FOREIGN TR AVEL EXPENSES. HE HAS FURTHER ERRED IN LAW AND FACTS IN NOT CONSIDERING T HE ADDITIONAL EVIDENCES FURNISHED BEFORE HIM AND ACCEPTED BY HIM IN SUPPORT OF THE SAID EXPENSES. 2 2 (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DEC ISION OF THE CIT(A) IS REQUIRED TO BE NULLIFIED BY DELETING THE ADDITION. 3 AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESS EE DID NOT PRESS GROUND NO.(II) AND THEREFORE THE SAME IS DISMISSED, AS NOT PRESSED. 4 AS REGARDS GROUND NO.(I), THE FACTS OF THE CASE A RE THAT THE ASSESSING OFFICER AFTER GOING THROUGH THE DETAILS O F ROUGH DIAMONDS PROCESSED AND REJECTION PERCENTAGE OF DIAMONDS, ETC . FURNISHED BY THE ASSESSEE, FOUND OUT THAT IT HAD PROCESSED DIAMONDS IN VARIOUS LOTS AND ASKED IT TO SUBMIT A CHART WITH REGARD TO THAT AND THE SAME WAS SUBMITTED. AFTER GOING THROUGH THE INFORMATION AS S UBMITTED IN TABULAR FORM, THE AO FOUND THAT THE PERCENTAGE OF REJECTION OF DIAMOND WAS SHOWN AT 11.5% OF THE ROUGH DIAMONDS PURCHASED @ RS .1,050/- PER CARAT AND THIS KEPT ON VARYING AS THE PURCHASE PRIC E PER CARAT OF DIAMOND WENT AND FINALLY IT WAS CLAIMED AT 44.44% O N THE LOT OF DIAMOND PURCHASED @ RS.3,404/- PER CARAT AND ON THE BASIS OF SUCH FACTS, HE NOTICED THAT THE ROUGH DIAMONDS HAVING LO W PURCHASE PRICE, THE REJECTION RATE WAS LOW AND THE SAME WENT UP AS THE PRICE OF ROUGH DIAMONDS ON PER CARAT BASIS WENT UP. THE ASSESSING OFFICER HAD FURTHER OBSERVED THAT NORMALLY IT WAS AN ACCEPTED PRINCIPLE THAT LESS THE PRICE OF DIAMOND MORE THE REJECTION WOULD BE AND THE MORE THE PRICE OF THE ROUGH DIAMOND, THERE WOULD BE LESS REJECTION, BUT, IN THE CASE OF THE ASSESSEE, THE POSITION WAS REVERSE. ACCORDING TO TH E ASSESSING OFFICER, IN THIS CASE THE ASSESSEE HAD CLAIMED TO HAVE PAID THE LABOUR CHARGES ON THESE SO CALLED REJECTIONS BY PLAYING JUGGLERY O F FIGURES I.E. BY SHOWING MORE REJECTION. HAVING NOTICED THE ABOVE RE FERRED FACTS, THE ASSESSING OFFICER HAD FURTHER WORKED OUT THE VARIAT ION REGARDING REJECTION OF DIAMONDS IN TERMS OF PERCENTAGES BY TA KING THE SAME AS REASONABLE AT 11.54% [BEING THE LOWEST AS CLAIMED B Y THE ASSESSEE 3 3 WHILE SUBMITTING THE DETAILS OF REJECTION OF ROUGH DIAMONDS IN TERMS OF PERCENTAGES] AND ASKED THE ASSESSEE AS TO WHY THE S AME SHOULD NOT BE TAKEN AS ALLOWABLE PERCENTAGE AND WHY THE LABOUR CH ARGES CLAIMED WITH RESPECT TO EXCESS CLAIM OF WASTAGES BE NOT DIS ALLOWED. IN RESPONSE, IT IS FOUND THAT THE ASSESSEE HAD MADE A DETAILED SUBMISSION AND AFTER EXAMINING THE SAME, THE ASSESSING OFFICER DID NOT AGREE WITH THAT BECAUSE, ACCORDING TO HIM, NO SPECIFIC DETAILS OF LOT OF DIAMONDS, IF AT ALL MANUFACTURED BY IT, WERE SUBMITTED FOR VE RIFICATION. THUS, IT IS SEEN THAT AFTER WORKING OUT THE EXCESS LABOUR CHARG ES CLAIMED BY THE ASSESSEE AT RS.4,01,565/-, THE ASSESSING OFFICER HA D DISALLOWED THE SAME AND ADDED IT TO THE TOTAL INCOME FOR BEING TAX ED. 5 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) CONFIRMED THE DISALLOWANCE BY OBSERVING AS UNDER: 5.2 DURING THE APPELLATE PROCEEDINGS, IT HAS BEEN SUBMITTED BY THE A. R. THAT THE BURDEN OF PROOF WAS UPON THE ASSESSING OFFICER TO JUSTIFY THE RATE OF 11.54% TAKEN BY HIM REGARDING REJECTION OUT OF ROUG H DIAMOND LOTS PURCHASED DURING THE YEAR AND FURTHER THE SAME WAS APPLICABLE ON ALL KINDS OF LOTS CONTAINING HIGH QUALITY AND LOW QUALITY OF DIAMONDS , BUT, HOWEVER, THE SAME WAS NOT DISCHARGED BY HIM AND IN THIS WAY, HIS UNIL ATERAL FINDINGS IN THIS REGARD AND TO WORK OUT THE EXCESS LABOUR PAYMENT MA DE BY THE APPELLANT AT RS.4,01,565/- MAY BE DELETED. FURTHER, ACCORDING TO THE A. R., THE ASSESSING OFFICER COULD NOT PROVE BEYOND DOUBT AT ANY POINT O F TIME THAT THE PAYMENT OF LABOUR CHARGES MADE BY IT WERE BOGUS AND THE DISALL OWANCE WAS SIMPLY BASED ON HIS GUESS WORK AND SURMISES AS THERE WAS NO MATE RIAL/EVIDENCE BROUGHT ON RECORD BY HIM. ON THE CONTRARY, AS PER THE A. R., I T HAD ALL THE MATERIAL EVIDENCE TO JUSTIFY ITS CLAIM OF PAYMENT OF GENUINE LABOUR CHARGES SUCH AS BILLS FOR LABOUR CHARGES PAID AND SALE BILLS, ETC. THE A. R. HAS ALSO ARGUED THAT WHILE APPLYING THE SAME RATE OF REJECTION TO ALL LOTS, HE HAD NOT EVEN TAKEN INTO CONSIDERATION VARIOUS VITAL FACTORS SUCH AS QUALITY OF DIAMONDS, TYPES OF DIAMONDS, RATE AT WHICH PURCHASED ALONG WITH SIZE O F DIAMONDS, ETC. WHICH SIGNIFICANTLY AFFECTED THE OUT PUT OF FINISHED PROD UCT. THUS, ON THE BASIS OF THE ABOVE DISCUSSED FACTS, IT HAS BEEN PLEADED BY THE A . R. THAT THE ADDITION AS MADE BY THE ASSESSING OFFICER WITH REGARD TO EXCESS CLAIM OF LABOUR CHARGES MAY BE DELETED. 4 4 5.3 I HAVE PERUSED THE FACTS OF THE CASE AS DISCUSS ED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND ALSO WENT THROUGH THE SUBM ISSION AS MADE BY THE A. R. AFTER ANALYZING THE FACTS OF THE CASE, IT IS FOU ND THAT THE ASSESSING OFFICER HAD GIVEN AMPLE OPPORTUNITIES TO THE APPELLANT TO S UBMIT DETAILS OF VARIOUS LOTS OF DIAMONDS PURCHASED AND GIVEN FOR CUTTING AN D POLISHING TO GET THE FINISHED PIECES OF DIAMONDS IN TERMS OF QUANTITY AN D QUALITY. BUT, HOWEVER, IT IS FOUND THAT THE SAME WERE NOT SUBMITTED AT ALL AN D THE ONLY DETAILS GIVEN BY THE APPELLANT WERE WITH REGARD TO THE ROUGH DIAMOND S ISSUED AND THE QUANTITY OF REJECTION OUT THAT. IT IS FOUND THAT ON THE BASI S OF SUCH DETAILS, THE ASSESSING OFFICER WAS NOT SATISFIED WITH REGARD TO HUGE VARIA TION IN PERCENTAGE OF REJECTION CLAIMED OUT OF DIAMOND LOTS. IT IS ALSO S EEN THAT THE APPELLANT FIRM COULD NOT SUBMIT THE DETAILS AGAINST THE QUERY RAIS ED BY THE ASSESSING OFFICER AS TO WHY THERE WAS HIGHER WASTAGE WITH REGARD TO R OUGH DIAMOND LOTS PURCHASED AT HIGHER RATES IN COMPARISON TO THOSE PU RCHASED AT LOWER RATES. THUS, IT IS FOUND THAT IN THE ABSENCE OF RELEVANT D ETAILS WITH REGARD TO CLAIM OF FINISHED DIAMOND PIECES AND VARIATION IN TERMS OF P ERCENTAGE IN REJECTED LOTS OF DIAMONDS, THE ASSESSING OFFICER COULD NOT VERIFY THE GENUINENESS OF LABOUR PAYMENT, AS ACCORDING TO HIM, NO SATISFACTORY DETAI LS OF LOT OR STONE, IF AT ALL MANUFACTURED BY IT, WERE PRODUCED BY IT. THEREFORE, AFTER ANALYZING THE ABOVE REFERRED FACTS, I AM OF THE VIEW THAT THE DISALLOWA NCE OF LABOUR CHARGES OF RS.4,01,565/- AS WORKED OUT BY THE ASSESSING OFFICE R IS JUSTIFIED IN THE EYES OF LAW AS IT WAS THE RESPONSIBILITY OF THE APPELLANT-F IRM TO SUBMIT ALL THE RELEVANT DETAILS TO PROVE THAT THE LABOUR CHARGES INCURRED B Y IT WERE GENUINE ONES AND HENCE THE SAME IS CONFIRMED. ACCORDINGLY, I DISMISS THIS GROUND OF APPEAL. 6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IN THE INSTANT CASE THE ASSESSEE IS ENGAGED IN THE BUSINES S OF IMPORTING, MANUFACTURING AND EXPORTING OF DIAMONDS. THE LEARNE D ASSESSING OFFICER DISALLOWED RS.4,01,565/- OUT OF THE LABOUR CHARGES CLAIMED TO HAVE BEEN PAID BY THE ASSESSEE FOR PROCESSING DIAMO NDS. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE PERCENTAGE OF R EJECTION CLAIMED BY THE ASSESSEE VARIED FROM LOT TO LOT AND IT RANGED F ROM 11.54% TO 44.44%. THE LEARNED ASSESSING OFFICER ALSO OBSERVED THAT THE PERCENTAGE OF REJECTION WAS HIGHER IN THE LOT OF TH E DIAMOND WHICH HAD HIGHER RATE PER CARAT WHICH ACCORDING TO THE LEARNE D ASSESSING OFFICER SHOULD HAVE BEEN REVERSED. THE LEARNED ASSESSING OF FICER ASSUMED THAT 11.54% OF REJECTION SHOULD HAVE BEEN PROPER IN THE CASE OF THE 5 5 ASSESSEE AND THUS WORKED OUT 1606.26 CARATS AS EXCE SS REJECTION OF DIAMOND CLAIMED BY THE ASSESSEE. THE LEARNED ASSESS ING OFFICER FOUND THAT THE ASSESSEE HAS CLAIMED LABOUR CHARGES AT THE AVERAGE RATE OF RS.250 PER CARAT. THEREFORE, HE CALCULATED THAT THE ASSESSEE HAS CLAIMED EXCESS LABOUR CHARGES OF RS.4,01,565/-. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) CONFIRMED THE ABOVE ACTION OF THE LEARNED ASSESSING OFFICER. THE LEARNED AUTHORIS ED REPRESENTATIVE OF THE ASSESSEE EXPLAINED BEFORE US THAT THE LABOUR CHARGES WERE INCURRED ONLY IN RESPECT OF DIAMONDS WHICH WERE ACC EPTED FOR FURTHER PROCESSING IN RESPECT OF REJECTED DIAMONDS LOW LABO UR CHARGES WAS INCURRED AS THEY WERE NOT FURTHER PROCESSED AND ACC ORDINGLY LOW LABOUR CHARGES WERE CLAIMED BY THE ASSESSEE IN RESP ECT OF REJECTED DIAMONDS. HE THUS CONTENDED THAT EVEN ON THE FINDIN G OF THE LOWER AUTHORITIES NO LABOUR CHARGES COULD HAVE BEEN DISAL LOWED BECAUSE AS PER THE FINDING THE ASSESSEE HAS SHOWN LESS PROCESS ING OF DIAMOND AND THE ASSESSEE SHOULD HAVE SHOWN MORE PROCESSING OF D IAMOND BY 1606.26 CARAT AND THEREFORE SHOULD HAVE INCURRED MO RE LABOUR CHARGES BY RS.4,01,565/-. HE POINTED OUT THAT THE OBSERVATI ONS MADE BY THE LEARNED ASSESSING OFFICER FOR MAKING THE DISALLOWAN CE OF LABOR CHARGES WERE SELF-CONTRADICTORY AND THE LEARNED COMMISSIONE R OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED IN CONFIRMING THE SAME. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND COULD NOT CONTROVERT THE SUBMISSION S OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE. WE FIND THAT IN THE INSTANT CASE IT IS NOT IN DISPUTE THAT THE LABOUR CHARGES C LAIMED BY THE ASSESSEE WERE SUPPORTED WITH THE VOUCHERS. NO LABOU R CHARGES WHICH WERE NOT SUPPORTED BY THE VOUCHERS COULD BE BROUGHT ON RECORD BY THE REVENUE. THE CLAIM OF THE REVENUE IS THAT THE ASSES SEE HAS CLAIMED MORE REJECTION OF DIAMONDS AND THUS AS PER THE REVE NUE THE ASSESSEE HAS SHOWN LESS PROCESSING OF DIAMOND AND CONSEQUENT LY LESS LABOUR 6 6 CHARGES. IN OUR CONSIDERED OPINION, ON THE BASIS OF THE ABOVE OBSERVATIONS ONLY DISALLOWANCE OF ANY PART OF LABOU R CHARGES CLAIMED IN RESPECT OF PROCESSING OF DIAMONDS COULD NOT BE JUST IFIABLY MADE. THUS THE DISALLOWANCE OF LABOUR CHARGES OF RS.4,01,565/- WAS NOT JUSTIFIED ON THE FACTS OF THE CASE AS NO MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT THE LABOUR CHARGES WERE ALSO CLAIMED IN RESPEC T OF REJECTED DIAMONDS. WE THEREFORE DELETE THE DISALLOWANCE OF R S.4,01,565/- MADE ON ACCOUNT OF LABOUR CHARGES. THUS, THIS GROUND OF APPEAL, OF THE ASSESSEE IS ALLOWED. 7 IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE OP EN COURT TODAY ON 12 - 02 - 20 10 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (N S SAINI) ACCOUNTANT MEMBER DATE : 12-02-2010 COPY OF THE ORDER FORWARDED TO : 1. M/S RAIYANI BROTHERS, 8, KOHINOOR SOCIETY, VARAC HHA ROAD, SURAT 2. THE ACIT, CIRCLE-9, SURAT 3. CIT CONCERNED 4. CIT(A)-V, SURAT 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD