ASST CIT 19(3), MUMBAI V. SHREE BALKRISHNA EXPORTS, MUMBAI

ITA 4879/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6576 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 13-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Gross profit estimation; Rejection of books of accounts; Opportunity of being heard; Principle of natural justice
• Section: 143(3); 133(6); 131; 145

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL G BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO. 4879/MUM/2017 FOR (ASSESSMENT YEAR 2012-13) ACIT-19(3), MATRU MANDIR, 2 ND FLOOR, R.NO. 206, TARDEO ROAD, MUMBAI-400007. VS. SHRI BALKRISHNA EXPORTS FC-2060, F TOWER, 2 ND FLOOR, BHARAT DIAMOND BOURSE, BKC BANDRA (E), MUMBAI-4 00051. PAN: AAKFS6519E APPELLANT RESPONDENT APPELLANT BY : SHRI CHAUDHARY ARUN KUMAR SINGH ( SR. DR) RESPONDENT BY : SHRI VIJAY MEHTA (AR) DATE OF HEARING : 07.02.2019 DATE OF PRONOUNCEMEN T : 21.02.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-30, MUMBAI [FOR SHORT THE LD. CIT(A)] DATED 29.03.2017, WHICH IN TURN ARISES FROM THE ASSESSMEN T ORDER PASSED UNDER SECTION 143(3) ON 30.03.2015 FOR ASSESSMENT YEAR 20 12-13. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING AO TO DELETE THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OUT OF LABOUR CHARGES OF RS. 8,27,5 5,553/- EVEN THOUGH THE LABOUR CHARGES CLAIMED WERE VERY HIGH DURING THE A. Y. 2012-13, COMPARED TO OTHER CASES DURING THE ASSESSMENT. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT TH AT THERE WAS DRASTIC FALL IN ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 2 GROSS PROFIT FOR THE A.Y. 2012-13 AND THE ASSESSEE FAILED TO SUBSTANTIATE THE SAME. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT TH AT THE AO HAD REJECTED THE BOOKS OF ACCOUNT U/S. 145(3) AFTER DETAILED ASSESSM ENT AND GIVING THE REASONING FOR THE SAME AND THEN PROCEEDED TO MAKE A N ADDITION OF 100% OF THE BOGUS PURCHASES. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT TH AT FOR THE A.Y. 2012-13 THE LABOUR CHARGES REMAINED UNVERIFIABLE AND ALSO THE S AME WAS DERIVED TO SUPPRESS THE TAXATION PROFIT, EVEN WHEN THE AO HAD REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE-COMPANY I S ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF POLISHED DIAMOND. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 DECLARING INC OME OF RS.4,10,63,640/-. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDING NOTED THAT ASSESSEE HAS DEBITED LABOUR CHARGES OF RS. 17.19 CRORE IN ITS P& L A/C. THE ROUGH DIAMONDS PROCESSED FOR CONVERSION TO POLISHED DIAMO ND WERE 148605.72 CARATS. THE ASSESSING OFFICER CALCULATED WORKED OUT THE AVERAGE COST OF LABOUR OF RS. 1156.87/- PER CARAT. THE ASSESSEE WAS ASKED TO EXPLAIN/SUBSTANTIATE THE REASONS FOR HIGH LABOUR RA TE WHEN SIMILAR COMPARABLE CONCERNS ARE MANUFACTURING THE SIMILAR P RODUCT AT MUCH LOWER RATE. THE ASSESSING OFFICER NOTED THAT ASSESSEE FAI LED TO SUBSTANTIATE THE HIGHER RATE OF LABOUR CHARGES. THE ASSESSING OFFICE R IDENTIFIED 8 PARTIES AS A COMPARABLE AS RECORDED IN PARA-4.1 OF THE ORDER AND NOTED THAT LABOUR ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 3 CHARGES INCURRED BY THOSE COMPARABLE ARE FROM RS. 227.31/- PER CARAT TO RS. 619.0 PER CARAT. THE ASSESSING OFFICER WORKED O UT THE AVERAGE LABOUR CHARGES PAID AT RS. 458.17/- PER CARAT. THE ASSESSI NG OFFICER ALSO CONSIDERED THE GROSS PROFIT (G.P) RATIO OF THE ASSE SSEE FOR PRECEDING TWO YEARS. THE ASSESSING OFFICER AGAIN ASKED THE ASSESS EE TO EXPLAIN DRASTIC FALL IN G.P FOR ASSESSMENT YEAR UNDER CONSIDERATION I.E FOR A.Y. 2012-13 COMPARABLE TO PRECEDING ASSESSMENT YEARS. THE ASSES SING OFFICER FURTHER RECORDED THAT ASSESSEE FAILED TO SUBSTANTIATE THE E XPLANATION FOR FALL OF G.P. 3. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED LABOUR CHARGES @ RS.600/- PER CARAT. THE AVERAGE LABOUR CH ARGES OF ASSESSEE WAS RS. 1156.87/- PER CARAT, THEREFORE, THE ASSESSING O FFICER DISALLOWED RS. 556.88/- PER CARAT AND ADDED BACK A SUM OF RS. 8,27 ,55,553/- (556.88 X 148605.72) TO THE TOTAL INCOME OF ASSESSEE. 4. ON APPEAL BEFORE THE LD. CIT(A), THE ENTIRE DISALLO WANCE WAS DELETED. THE LD. CIT(A) DELETED THE DISALLOWANCE HOLDING THAT TH E DATA QUOTED BY ASSESSING OFFICER ITSELF SHOWS THAT THERE IS NO STA NDARD RATE OF LABOUR CHARGES PER CARAT ADHERED TO BY VARIOUS PARTIES. TH E ASSESSING OFFICER FAILED TO MAKE ANY INDEPENDENCE VERIFICATION FOR GENUINENE SS OF LABOUR CHARGES. THE LABOUR CHARGES WERE PAID THROUGH BANKING CHANNE L. THE LD. CIT(A) ALSO CONCLUDED THAT DURING THE RELEVANT PERIOD FOR ASSES SMENT YEAR UNDER CONSIDERATION THE ASSESSEE SUFFERED EXCHANGE LOSS O F RS. 3.45 CRORE, WHEREAS IN IMMEDIATELY PRECEDING THERE HAS BEEN AN EXCHANGE GAIN OF RS. 3.91 ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 4 CRORE. THEREBY, AGGRIEVED BY THE ORDER OF LD. CIT(A ), THE REVENUE/ASSESSING OFFICER HAS FILED THE PRESENT APPEAL BEFORE US. 5. WE HAVE HEARD THE SUBMISSION OF LD. DR FOR THE REVE NUE AND LD. AR OF THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECO RD. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICER. T HE LD. DR FURTHER SUBMITS THAT THE ASSESSEE HAS SHOWN EXCESS LABOUR C HARGES TO INFLATE THE PROFIT. THE ASSESSEE HAS NOT FURNISHED ANY EXPLANAT ION BEFORE THE ASSESSING OFFICER TO SUBSTANTIATE THE HUGE EXPENSES ON ACCOUN T OF LABOUR CHARGES. THE ASSESSING OFFICER MADE PROPER ENQUIRIES AND BROUGHT SUFFICIENT MATERIAL ON RECORD THAT THE ASSESSEE HAS DEBITED EXCESS EXPENSE S. THE LD. CIT(A) DELETED THE ENTIRE ADDITION, DESPITE THE FACT THAT NO EVIDE NCE WERE FURNISHED BY ASSESSEE TO SUBSTANTIATE HUGE EXPENSES INCURRED ON LABOUR CHARGES. THE LD. DR PRAYED FOR REVERSING THE FINDING OF LD. CIT(A) A ND TO RESTORE THE ORDER OF ASSESSING OFFICER. THE LD. DR SUBMITS THAT THE BOOK S OF ACCOUNT WERE RIGHTLY REJECTED BY THE ASSESSING OFFICER AS THE EX PENSES DEBITED BY ASSESSEE WERE UNREASONABLE. IN SUPPORT OF HIS SUBMISSION, TH E LD. DR RELIED UPON THE DECISION OF MUMBAI TRIBUNAL IN DCIT VS. SAMIR DIAMO NDS EXPORTS (P.) LTD. [1999] 71 ITD 75 (MUM), ITO VS. ASHOK KUMAR (61 TAX MANN.COM 128 (CHANDIGARH- TRIB.) AND DECISION OF P&H HIGH COURT IN NEENA MAHAJAN VS. CIT 202 TAXMAN 398 (P&H). 6. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPO RTED THE ORDER OF LD. CIT(A). THE LD. AR FOR THE ASSESSEE FURTHER SUBMITS THAT REDUCTION IN G.P. ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 5 FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS DUE TO FOREIGN EXCHANGE LOSSES SUFFERED BY ASSESSEE DURING THE RELEVANT PER IOD FOR ASSESSMENT. THE LD. AR FOR THE ASSESSEE FURNISHED THE COMPARATIVE C HART FOR A.Y. 2010-11 TO 2014-14, SHOWING THE G.P., NET PROFIT (N.P.) AND IM PACT OF FOREIGN EXCHANGE FLUCTUATION ON G.P. AND N.P. THE LD. AR FU RTHER SUBMITS THAT THE LABOUR CHARGES DEPEND UPON VARIOUS FACTORS LIKE SIZ E, CLARITY, CUT AND QUALITY OF DIAMOND. THE LD. AR SUBMITS THAT ASSESSMENT FOR A.Y. 2013-14 AND 2014-15 IS PASSED UNDER SECTION 143(3) ON 07.10.201 5 AND 18.12.2016 RESPECTIVELY AND NO SUCH DISALLOWANCE IS MADE BY AS SESSING OFFICER. THE LD. AR FURTHER SUBMITS THAT THE ASSESSING OFFICER W HILE REJECTING BOOKS OF ACCOUNT HAS NOT SPECIFIED ANY DEFECTS IN THE BOOKS OF ACCOUNT. TO SUPPORT HIS CONTENTION, THE LD. AR RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN CIT VS. PARADISE HOLIDAYS (325 ITR 13 (DEL.), DE CISION OF RAJKOT TRIBUNAL IN ITO VS. GIRISH M. MEHTA (105 ITD 585 (R AJKOT). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE AL SO GONE THROUGH THE VARIOUS CASE LAW RELIED BY LD. CIT(A). THE ASSESSIN G OFFICER MADE THE ADDITION ON THE BASIS COST OF LABOUR CHARGES SHOWN BY EIGHT COMPARABLE CONCERN SELECTED BY ASSESSING OFFICER. THE ASSESSIN G OFFICER IDENTIFIED EIGHT PARTIES I.E. MANI EXPORT, AVERAGE LABOUR CHAR GES RS. 619.0/- PER CARAT, S. RASIKLAL & CO. AVERAGE LABOUR CHARGES RS. 227.3/ -1 PER CARAT, KAY VEE GEMS AVERAGE LABOUR CHARGES RS. 513.73/- PER CARAT , B MANEK AVERAGE ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 6 LABOUR CHARGES RS. 499.84/- PER CARAT, PANSURIYA IM PEX AVERAGE LABOUR CHARGES RS. 468.95/- PER CARAT, BHUMIKA GEMS AVERAG E LABOUR CHARGES RS. 592.78/- PER CARAT, RITESH EXPORTS AVERAGE LABOUR CHARGES RS. 553.75 PER CARAT AND R RAJESH EXPORTS AVERAGE LABOUR CHARGES R S. 290/- PER CARAT. WE HAVE NOTED THAT THE AVERAGE LABOUR CHARGES WORKED O UT BY ASSESSING OFFICER ON THE BASIS OF EIGHT COMPARABLE WAS NOT CONFRONTED WITH THE ASSESSEE. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT OF ASSESSEE WITHOUT SPECIFYING ANY DEFECT ON THE BOOKS. THE ASSESSING O FFICER MADE THE DISALLOWANCE BY TAKING ADHOC ESTIMATED LABOUR CHARG ES AT RS. 600/- PER CARAT, THEREBY APPLYING THE FIGURE OF RS. 556.88/- PER CARAT, WHICH ACCORDING TO HIM WAS EXCESS. THE ASSESSING OFFICER HAS NOT CO NSIDERED THE IMPACT OF FOREIGN EXCHANGE FLUCTUATION LOSS SUFFERED BY ASSES SEE DURING THE RELEVANT PERIOD FOR THE A.Y. UNDER CONSIDERATION. 8. BEFORE THE LD. CIT(A), THE ASSESSEE MADE DETAILED S UBMISSION, WHICH THE LD. CIT(A) HAS RECORDED IN PARA-4 OF ITS ORDER. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE PASSED A VERY DETAILED O RDER, RELEVANT PART OF WHICH IS EXTRACTED BELOW. 5. I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE FACTUA L MATRIX OF THE CASE AS AVAILABLE FROM THE RECORD, THE STAND TAKEN BY THE L D. AO, THE SUBMISSION MADE BY THE LD. AR, AND ALSO THE APPLICABLE LEGAL POSITION. 6. THE ONLY ISSUE IN THE APPEAL IS REGARDING THE DISA LLOWANCE OF LABOUR CHARGES OF RS. 8,27,55,553/- WHICH IS DISCUSSED IN GROUND NOS. 1 & 2 OF THE APPEAL. IN GROUND NO.1, IT IS STATED THAT AO ERRED IN ADDING RS. 8,27 ,55,553/-, CONSIDERING EXCESS ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 7 MANUFACTURING LABOUR EXPENSES CLAIMED TAKING ESTIMA TE LABOUR RATE OF RS. 600/-, WITHOUT ISSUING ANY NOTICE OR GIVING PROPER OPPORTU NITY OF BEING HEARD TO THE ASSESSEE, WHICH IS AGAINST LAW AND NATURAL JUSTICE. AO ERRED IN REJECTING THE BOOKS OF ACCOUNT WITHOUT ANY JUSTIFIABLE REASONS, REJECTING THE FALL IN GP WITHOUT GIVING PROPER OPPORTUNITY OF BEING HEARD AND THE WHOLE ADDITION H AS BEEN MADE ON WHIMS AND FANCIES OF THE AO WHICH IS NOT PERMISSIBLE IN THE E YES OF LAW. IN GROUND NO.2 IT IS PRAYED THAT THE ADDITION SHOULD BE DELETED AS THE S AME IS MADE ON MERE FLIMSY GROUND, WITHOUT GIVING OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. 6.1 LD. AO OBSERVED THAT, THE LABOUR CHARGES DEBITE D BY THE APPELLANT IN THE P/L ACCOUNT WERE RS. 17,19,18,756/- WHILE THE FINAL OUT COME OF POLISHED DIAMONDS, AS CONVERTED FROM ROUGH DIAMONDS, WAS 1,48,605.72 CARA TS. THUS, THE AVERAGE LABOUR CHARGES PAID PER CARAT WORKED OUT TO RS.1156.87 PER CARAT. LD. AO ASKED THE APPELLANT TO EXPLAIN THE REASON FOR THIS RELATIVELY HIGH LABOUR CHARGE RATE WHEN SIMILAR OR COMPARABLE CONCERNS WERE MANUFACTURING POLISHED DIAMONDS AT MUCH LOWER RATE OF LABOUR CHARGE. ON HIS PART, THE LD. AO WENT ON T O IDENTIFY 8 PARTIES WHICH ARE CARRYING OUT SIMILAR BUSINESS ACTIVITIES AND PUT TO GETHER THE BELOW GIVEN COMPARATIVE CHART: CONCERN PAN T/O (IN CR.) LABOUR CHARGE S (RS.) CONSUMPT ION (CARATS) AVG LABOUR CHARGES (RS./CARAT) YIELD (%) IN HOUSE/ OUTSID E MANI EXPORTS AAEFM2320 F 169.8 7 20800 4806 336023.68 619.02 32.7 I/S S RASIKLAL & CO AACFS3598R 94.65 79249 380 348640.88 227.31 27.5 O/S KAYVEE GEMS AAAFK6664 N 43.56 61016 627 118770.97 513.73 26.3 O/S B MANEK AAAFB5628 B 41.87 15205 611 30421.11 499.84 35.9 O/S PANSURIYA IMPEX AATFP2670H 338.9 5 86366 389 184168.64 468.95 36.2 I/S ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 8 BHUMIKA GEMS AAAFB1032F 79.5 65637 967 110729.95 592.78 40.8 O/S RITESH EXPORTS AAAFR1990 E 251.0 5 11644 0981 256619.11 453.75 40.5 O/S R RAJESH EXPORTS AAAFR0336 G 175.2 7 70990 927 244796.25 290.00 40.4 O/S SHREE BALKRISHNA EXPORTS AAKFS6619E 122.2 2 17191 8766 148605.72 1156.88 38.7 I/S THE LD. AO OBSERVED THAT IN THESE COMPARABLE CASES LABOUR CHARGES RANGED FROM RS.227.31 PER CARAT TO ~ 61 9 .021 PER CARAT, WHERE BY AN AVERAGE RATE OF RS. 458.17/- PER CARAT COULD BE ARRIVED AT. THE LD. AO NOTED THA T THE RATE OF LABOUR CHARGE OF RS. 1156.88/- PER CARAT, AS VISIBLE FROM THE APPELLANT' S BOOKS, WAS NOT ONLY UNREASONABLY HIGH BUT WAS ALSO UNSUBSTANTIATED. HE FELT THAT SIN CE THE MANUFACTURING HAD BEEN DONE AT SURAT, WHERE THE LABOUR CHARGES ARE QUITE LOW, T HE LABOUR CHARGES, AS SHOWN BY THE APPELLANT, WERE INFLATED AND COULD NOT BE ALLOWED I N FULL. THE ID. AO ALSO WENT INTO BELOW MENTIONED COMPARATI VE DETAILS OF GP RATIO FOR PRECEDING 2 YEARS: A.Y. G.P. N.P. T/O 2010-11 10.93 7.22 84.44 CR 2011-12 9.04 6.66 95.23 CR 2012-13 6.88 3.73 122.22 CR THE ID. AO HAD ASKED THE APPELLANT TO EXPLAIN FOR T HE SOMEWHAT DRASTIC FALL IN GP IN AY 2012-13. THE LD AO FELT THAT THE FALL IN GP RATI O WAS INDICATIVE OF THE UPWARD MANIPULATION OF LABOUR CHARGES, BEING 'A MAJOR COMP ONENT OF THE MANUFACTURING EXPENSES AND THUS ONE OF THE MAJOR DIRECT EXPENSES' . AS SUCH, HE DREW ADVERSE ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 9 INFERENCE THAT THE APPELLANT'S INTENTION IN CLAIMIN G HIGHER LABOUR CHARGES WAS CLEARLY TO SUPPRESS THE TAXABLE PROFIT. IN THIS VIEW OF THINGS, HE CONCLUDED AS BELOW: 'SINCE THE LABOUR CHARGES REMAIN UNVERIFIABLE AND C ANNOT BE ACCEPTED, THE UNDERSIGNED IS LEFT WITH NO OPTION BUT TO REJECT TH E BOOKS OF ACCOUNTS AS PROVIDED IN SECTION 145(3) OF THE IT ACT.' HAVING REJECTED THE BOOKS OF ACCOUNT, THE LD AO REC OMPUTED INCOME BY APPLYING ESTIMATED RATE OF LABOUR CHARGE OF RS. 600/- PER CA RAT, WHEREBY DISALLOWANCE OF RS. 556.88 PER CARAT WAS MADE WHICH WORKED OUT TO RS. 8 ,27,55,553/-, AND ADDED TO THE TOTAL INCOME. 6.2 THE IMPUGNED ADDITION OF RS. 8,27,55,553/- IS B ASED ON A COMPARATIVE CHART OF 8 PARTIES, RELIED UPON BY THE LD. AO WHICH IS REPRODU CED IN THE PARA 4.1 OF THE ORDER, AND TREATED THE LABOUR CHARGES PER CERATE CLAIMED B Y THE APPELLANT IS VERY HIGH. BEFORE ME, THE APPELLANT HAS CONTENDED THAT THIS CO MPARISON IS MEANINGLESS IN AS MUCH AS THE 8 PARTIES, WHOSE CASES HAVE BEEN RELIED UPON FOR COMPARISON PURPOSES, MANUFACTURE AN ENTIRELY DIFFERENT VARIETY OF DIAMON DS AND NOT COMPARABLE TO THE APPELLANT. THE AR HAS EMPHASISED THAT THERE IS MUCH VARIATION IN THE QUALITY OF DIAMONDS AND THE DIAMONDS COME IN MANY DIFFERENT CO LOURS, SHAPES, CUTS ETC. THUS HE HAS CONTENDED THAT NO TWO CASES OF DIAMOND MANUFACT URERS ARE COMPARABLE WITH EACH OTHER. FURTHER, IT HAS BEEN STRESSED THAT THE LD. A O HAS NOT GONE INTO DEPTH REGARDING THE TYPES OF DIAMONDS IN WHICH THE COMPARABLE CONCE RNS ARE DEALING. THE APPELLANT HAS STATED THAT WITHOUT ANY CLEAR FINDING ABOUT THE CASES BEING COMPARABLE THE LD. AO HAS SIMPLY QUOTED THE RATES OF WAGES PAID BY THE OTHER PARTIES. ACCORDING TO THE APPELLANT, THIS-KIND OF COMPARISON, WHICH IS WITHOU T ANY MATERIAL BASIS, IS SIMPLY NOT ACCEPTABLE. ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 10 6.3 THE APPELLANT IS MAINLY DEALING IN FANCY DIAMON DS OF THE COLOURED VARIETY. IT ADMITTEDLY IMPORTS MIXED LOT OF ROUGH DIAMONDS. MOS T OF THE ROUGH DIAMONDS ARE OF SUCH THAT BIG FANCY COLOUR DIAMONDS CAN BE MANUFACT URED FROM THE SAME. THE APPELLANT HAS EXPLAINED THAT WAGES FOR CUTTING AND POLISHING DEPEND UPON THE NATURE OF THE FINAL PRODUCT; THAT THERE IS WIDE VARIATION IN THE WAGES PAID FOR THE POLISHED DIAMONDS E.G. FOR FANCY COLOUR AVERAGE RATE IS AROU ND RS. 1500 PER CARAT WHEREAS FOR NORMAL DIAMONDS IT MAY BE AROUND RS. 600 TO RS. 800 PER CARAT. 6.4 THE APPELLANT HAS VEHEMENTLY CLAIMED THAT THE N ATURE OF THE FINAL PRODUCT BEING DIFFERENT, THE COMPARISON OF LABOUR CHARGE MADE BY THE LD. AO IS TOTALLY IRRELEVANT; AND, THEREFORE, ON THE BASIS OF SUCH A COMPARISON N O PLAUSIBLE CONCLUSION COULD HAVE BEEN DRAWN WITH REGARD TO THE REASONABLENESS OF LAB OUR CHARGE: TO VALIDATE ITS CLAIMS BEFORE ME, THE APPELLANT HAS ALSO MADE AVAILABLE TH E FOLLOWING COMPARATIVE CHART OF RATE OF LABOUR CHARGE PER CARAT, RELATING TO SEVERA L PARTIES, WHOSE PARTICULARS ARE GATHERED FROM THE PUBLIC DOMAIN:- NAME OF THE PARTY PAN NO ROUQH CARATS LABOUR CHARQES TURN OVER RATE PER CARAT SIDDHI DIAMONDS AATFS7035E 12891.12 19435803 457964117 1507.69 SAULI DIO AAAFS0649H 2560.87 2761090 26.32 CRORE 1037.66 SANGHAVI AND SONS AAAFS3192F 38033 34409222 23625 CRORE 904.72 SHREE RAMKRI SHNA EXPORT AAAFS6958D 731226 644263676 2157.99 CRORE 381.07 SHREE JI DIAMONDS AAA TS4970H ENGAGED IN JOB WORK BUSINESS 203871638 1275 TO 1375 MIRUL & COMPANY ABWFS4323B 8823 10165175 399940602 1152.12 VISHANDAS HOLARAM AAAFV5230F 88407230 839042543 8595024299 949.07 ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 11 6.5 AS CAN BE SEEN, THE RATE PER CARAT OF LABOUR CH ARGE VARIES HUGELY. OBVIOUSLY, THIS HAS TO DO WITH THE SIZE, CLARITY, CUT, COLOUR AND Q UALITY OF DIAMONDS, BEING PROCESSED BY THE MANUFACTURER IN QUESTION. THE APPELLANT ALSO POINTED OUT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LD. AO MADE NO EFFORT TO VERIFY OR EXAMINE THE GENUINENESS OF LABOUR CHARGES PAID BY IT. ALL DETAI LS OF PAYMENTS OF LABOUR CHARGE HAD BEEN MADE AVAILABLE TO THE LD. AO AND IT WAS OP EN TO HIM TO HAVE MADE INQUIRIES BY WAY OF ISSUANCE OF NOTICES U/S 131 AND 133(6) OF THE ACT. ON PERUSAL OF THE IMPUGNED ASSESSMENT ORDER AND ALSO FROM THE MATERIA L AVAILABLE ON RECORD IT IS CLEAR THAT THE LD. AO HAD FAILED TO MAKE ANY INDEPENDENT VERIFICATION OF THE GENUINENESS OF LABOUR CHARGES PAID FROM THE PARTIES TO WHOM SUC H CHARGES WERE PAID. WITHOUT MAKING ANY VERIFICATION INTO GENUINENESS OF THE LAB OUR CHARGES, CLAIMED BY THE APPELLANT, THE LD. AO TOOK ONE SIDED CONCLUSION ON THE BASIS OF THIRD PARTY INFORMATION COLLECTED RANDOMLY THAT THE LABOUR CHAR GES ARE NOT GENUINE AND ARE UNREASONABLE. 6.6 THERE IS FORCE IN THE APPELLANT'S CONTENTION TH AT GIVEN THE IMMENSE DIVERSITY AND VARIETY OF SIZE, COLOUR, SHAPE, CUTS ETC. OF DIAMON DS, IT IS DIFFICULT TO FIND TWO CASES THOUGH BE EXACT COMPARABLES. IN ANY CASE, COMPARISO N OF TWO DIAMOND MANUFACTURING CONCERNS CANNOT BE MADE UNLESS OR UNT IL IT IS DEMONSTRATED WITH SOME CERTAINTY THAT THE TWO ARE ENGAGED IN HANDLING OF S AME QUALITY AND SAME TYPE OF DIAMONDS. THE ID. AO DID NOT DO ANY SUCH PRELIMINAR Y EXERCISE TO DEMONSTRATE THAT THE PARTIES, WHOSE FINANCIAL RESULTS HE WAS QUOTING FROM, WERE ENGAGED IN SIMILAR OR COMPARABLE BUSINESS. FURTHER, THE APPELLANT BROUGHT TO MY NOTICE FROM THE DATA COMPILED BY THE LD AO, THAT THERE IS WIDE VARIATION IN THE LABOUR CHARGE PER CARAT, AS DISCLOSED BY THE PARTIES. THE LABOUR CHARGE DECLARE D BY M/S S RASIKLAL & CO. IS RS. 227.31 PER CARAT WITH YIELD OF 27.5 % WHEREAS M/S M ANU EXPORT HAS CLAIMED LABOUR ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 12 CHARGE OF RS. 619.02 PER CARAT WITH YIELD OF 32.7%. HENCE, THE DATA QUOTED BY THE LD. AO ITSELF SHOWS THAT THERE IS NO STANDARD RATE OF L ABOUR CHARGE PER CARAT, ADHERED TO BY THE PARTIES UNDER REFERENCE. OBVIOUSLY, THE RATE DEPENDS UPON VARIOUS FACTORS THAT WOULD VARY FROM CASE TO CASE. 6.7 THE APPELLANT HAS ALSO HIGHLIGHTED THAT IT IS D EALING IN FANCY COLOUR DIAMOND, WHERE THE RATE OF LABOUR CHARGE PER CARAT IS BOUND TO BE HIGHER THAN IN THE CASES OF OTHER COMPANIES, WHO ARE DEALING IN NORMAL DIAMONDS AND HAVE BEEN USED BY THE AO FOR COMPARISON. OBVIOUSLY, THE LD. AO HAS FAILED TO APPRECIATE THESE CRUCIAL ASPECTS OF THE APPELLANT'S CASE AND HAS HURRIEDLY PLACED RE LIANCE PM INSUFFICIENT AND NOT SO RELEVANT MATERIAL TO DRAW THE ADVERSE INFERENCE TO MAKE THE ADDITION. 6.8 A PERUSAL OF THE RECORD BRINGS UP THE FOLLOWIN G PICTURE IN SO FAR AS LABOUR CHARGES ARE CONCERNED: A YR. SALES LABOUR CHARGES % RATIO 2011-12 95.23 CR 13.58 CR 14.26 2012-13 122.22 CR 17.19 CR 14.07 FROM THE ABOVE, IT IS CLEAR THAT IN PERCENTAGE TERM S THE SHARE OF LABOUR CHARGE IN TOTAL EXPENDITURE, WHEN THE ENTIRE TURNOVER IS LOOKED AT, IS ALMOST THE SAME AS IN THE PRECEDING YEAR. THERE BEING NO MAJOR DEPARTURE, THE RE IS NO INDICATION THAT THERE COULD BE ANY ELEMENT OF INFLATION ETC. IN IT. OBVIO USLY, THE CONCLUSION DRAWN BY THE LD. AO DOES NOT HAVE ANY FOUNDATION TO IT. 6.9 THE ID. AO HAS CLEARLY IGNORED THE FACT THAT TH E PAYMENT OF LABOUR CHARGES WAS MADE THROUGH BANKING CHANNEL AND THERE WAS NO MATER IAL TO THAT MONEYS PAID ON ACCOUNT OF LABOUR CHARGES HAD IN ANY MANNER BEEN RE PATRIATED TO THE APPELLANT OUTSIDE BOOKS OF ACCOUNT. IF THE LD.AO WAS SUSPICIOUS OF TH E GENUINENESS OF AMOUNTS DEBITED TO BOCKS OF ACCOUNT TOWARDS LABOUR CHARGE, HE WAS A T LIBERTY TO VERIFY THE PAYMENT ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 13 DIRECTLY WITH THE RECIPIENTS THROUGH ISSUE OF STATU TORY NOTICES. HE, HOWEVER, DID NOT EXERCISE THIS RIGHT AND THEREBY FAILED TO BRING ON RECORD ANY ADVERSE MATERIAL AGAINST THE APPELLANT. YET, HE PROCEEDED ON THE BASIS IRREL EVANT THIRD PARTY DETAILS TO TREAT THE LABOUR CHARGE AS INFLATED / NON-GENUINE. THIS IS NO MORE THAN ASSUMPTION AND SURMISES. SUCH ASSUMPTION DOES NOT STAND THE TEST O F ANY SCRUTINY ON MERITS. 6.10 IT IS A MATTER OF RECORD THAT SCRUTINY ASSESSM ENTS IN THE APPELLANT'S OWN CASE FOR ASSESSMENT YEARS 2013-14 AND 2014-15 STAND COMPLETE D. IN THESE ASSESSMENTS, THE SUCCESSOR ASSESSING OFFICER HAS FOUND THE LABOUR CH ARGES WHICH ARE AT A RATE SIMILAR TO THE PRESENT ASSESSMENT YEAR, ARE IN ORDER. THE LABO UR COST BEING SIMILAR AND COMPARABLE IN THE IMPUGNED ASSESSMENT YEAR, INDICAT ES THAT THE IMPUGNED ADDITION WAS NOT MADE ON PROPER FOOTING. 6.11 LD. AO, CLAIMS THAT LABOUR CHARGES, DEBITED IN THE BOOKS OF ACCOUNT OF THE APPELLANT, ARE NOT GENUINE. THEREFORE, THE ONUS LIE S ON HIM TO ADDUCE CONCRETE EVIDENCE TO SUBSTANTIATE HIS CHARGE. HE HAS NOT DON E ANY SUCH THING BY FINDING ANY REAL FAULT WITH THE APPELLANT'S BOOKS. RELIANCE OF THIRD PARTIES' RESULTS CAN BE SUGGESTIVE BUT NOT CONCLUSIVE. THIRD PARTY RESULTS COULD HAVE SPURRED THE LD AO INTO ACTION MODE AND HE SHOULD HAVE SOMETHING TO FIND SO ME REAL FAULT WITH THE DETAILS OF PAYMENT OF LABOUR CHARGES, AS DECLARED BY THE APPEL LANT. 6.12 . HON. MADRAS HC IN CASE OF CIT VS SAPTHAGIRI TRADERS LTD 305 ITR 438 DEALT WITH A CASE WHERE ONE TRANSACTION OF EXPENDITURE WA S INVOLVED. THE HIGH COURT RULED THAT NO DISALLOWANCE COULD BE MADE IF THE EXPENDITU RE WAS NOT PROVED TO BE SHAM, IF THE PRICE ACTUALLY PAID WAS NO DIFFERENT FROM THAT SHOWN IN THE BOOKS OF ACCOUNTS AND IF THE PAYMENT HAD BEEN MADE BY CHEQUE. IN THE IMPU GNED CASE ALL THESE CONDITIONS HAVE BEEN MET. HENCE, NO DISALLOWANCE CAN BE MADE O N FACTS AND IN LAW. THE CLAIM OF THE APPELLANT IS ALSO SUPPORTED BY SEVERAL JUDIC IAL PRONOUNCEMENTS CITED IN THE WRITTEN SUBMISSIONS. ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 14 ISSUE OF REJECTION OF BOOKS OF ACCOUNT U/S 145(3) 6.13 AS CAN BE SEEN FROM THE IMPUGNED ASSESSMENT OR DER, THE LD. AO HAS ALSO REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROV ISIONS OF SECTION 145 (3) OF THE ACT ON THE GROUND THAT LABOUR CHARGES REMAIN UNVERI FIABLE (HENCE NON-GENUINE), WHICH IS ALLEGEDLY LINKED TO LOW GP. 6.14 ON THE ISSUE OF ALLEGED LOW GP, HE APPELLANT H AS PROVIDED A DETAILED EXPLANATION. IT SHOWS THAT THE DURING THE YEAR UNDE R APPEAL THE APPELLANT SUFFERED AN EXCHANGE LOSS OF RS. 3,45,09,874/-, WHEREAS IN THE IMMEDIATELY PRECEDING YEAR THERE HAD BEEN AN EXCHANGE GAIN OF RS. 3,91,43,752/-. THU S, THE CUMULATIVE EFFECT OF EXCHANGE DIFFERENCE DURING THE YEAR COMES TO A WHOO PING RS. 7,36,53,626/. IF NECESSARY ADJUSTMENT WAS TO BE MADE, THE GP PERCENT AGE FOR THE YEAR UNDER REFERENCE WOULD BE MUCH HIGHER THAN THAT OF THE PRECEDING YEA R. HENCE, THE LD. AO MADE WITHOUT APPRECIATING THE LOSS ON ACCOUNT OF EXCHANG E FLUCTUATION, ARRIVED AT THE TOTALLY ONE-SIDED CONCLUSION THAT THE FALL IN GP WA S DUE TO INFLATED/NON-GENUINE LABOUR CHARGES. OBVIOUSLY, THIS CONCLUSION, SINCE I T IS NOT BORNE FROM FACTS ON RECORD, HAS NO LEGS TO STAND ON AND DESERVES TO BE REJECTED . 6.15 AT THE COST OF REPETITION, IT HAS TO BE STRESS ED THAT THE LD. AO DID NOT FIND OUT ANY MISTAKE OR DEVIATION IN BOOKS OF ACCOUNTS. STIL L, HE ARBITRARILY REJECTED THE BOOKS WITHOUT ANY CONCRETE BASIS, MERELY ON CONJECTURES A ND SURMISES THAT LABOUR CHARGES DEBITED IN BOOKS OF ACCOUNT WERE NON-GENUINE 6.16 THE APPELLANT HAS RELIED UPON THE SEVERAL JUDG MENTS, WHICH ARE AGAINST SIMILAR ARBITRARY REJECTION OF BOOKS OF ACCOUNT AND SOME OF THE CASES ARE DISCUSSED AS UNDER. CIT V/S. JACKSON HOUSE (2011) 198 TAXMAN 385 (DEL.) ASSESSEE'S BOOKS OF ACCOUNTS CANNOT BE REJECTED BY INVOKING PROVISIONS OF SECT. 145(3), WHEN THERE IS NO SPECIFIC DEFECT POINTED OU T. CIT V/S. POONAM RANI (2010) 326 ITR 223 (DEL.) ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 15 AO HAVING NOT PINPOINTED ANY PARTICULAR DEFECT OF D ISCREPANCY IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE, THE FALL IN GP IN ITSELF CANNOT BE GROUND TO REJECT THE BOOKS OF ACCOUNTS BY INVOKING THE SECT. 145(3). CIT V/S. PARADISE HOLIDAYS (2010) 325 ITR 13 (DEL.) WHEN AO HAS NOT POINTED OUT ANY SPECIFIC DEFECT OR DISCREPANCY IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE WHICH ARE MAINT AINED AND AUDITED BY THE INDEPENDENT CA, NO JURISDICTION IS VESTED WITH THE AO TO REJECT THE BOOKS OF ACCOUNTS AND MAKING ADDITION BY INVOKING PROVISIONS OF SECT. 145(3) OF THE ACT. DCIT V/S. NANURAM SUGER (KAHDSARI) MILLS PVT. LTD. (2014) 221 TAXMAN 156 (ALL) PROFIT BEING LOW BY ITSELF CANNOT BE A GROUND FOR R EJECTION OF BOOKS OF ACCOUNTS U/S. 145(3) OF THE I.T. ACT. 6.17 TAKING INTO CONSIDERATION ALL THE FACTS AND AT TENDANT CIRCUMSTANCES BROUGHT OUT AND ALSO TAKING INTO ACCOUNT THE LEGAL POSITION BOR NE FROM THE CASE LAWS CITED, THE ONLY REASONABLE CONCLUSION IS THAT THE IMPUGNED DIS ALLOWANCE OF RS. 8,27,55,553/- OUT OF THE LABOUR CHARGES DEBITED TO THE APPELLANT S BOOKS OF ACCOUNTS HAS BEEN MADE OR, THE BASIS OF MATERIAL NOT SO RELEVANT, WITHOUT PROPERLY CONFRONTING THE APPELLANT AND WITHOUT ANY PROPER JUSTIFICATION OR PROPER INQU IRY. WHEREAS, THE APPELLANT FURNISHED FULL DETAILS, WITH REGARD TO THE EXPENDIT URE CLAIMED TOWARDS 'LABOUR CHARGES' AND ALSO JUSTIFICATION FOR INCURRING SUCH EXPENDITURE. THE EXPENDITURE INCURRED IS IN TUNE WITH THE EXPENDITURE MET IN THE EARLIER YEARS WHICH WAS ALSO VERIFIED IN THE SCRUTINY ASSESSMENTS COMPLETED FOR THOSE YEARS IN VIEW OF THE ABOVE, THE SAID DISALLOWANCE OUT OF LABOUR CHARGES OF RS. 8,27,55,553/- IS HEREBY FOUND TO BE UNSUSTAINABLE AND IS DELETED. GROUND NOS. 1 & 2 OF THE APPEAL STAND DISPOSED OFF ACCORDINGLY. ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 16 7. WE HAVE SEEN THAT THE LD. CIT(A) HAS PASSED THE ORD ER AFTER ELABORATE DISCUSSION OF FACT OF THE CASE CONSIDERING THE FACT S INCLUDING THE EFFECT OF FOREIGN EXCHANGE FLUCTUATION SUFFERED DURING THE RE LEVANT PERIOD AND GAIN IN THE PRECEDING YEAR AND ITS CUMULATIVE EFFECT. THE LD CIT(A) ALSO CONCLUDED THAT NO MISTAKE IN THE BOOKS OF ACCOUNT WAS FIND O UT BY ASSESSING OFFICER. NO CONTRARY FACTS OR LAW IS BROUGHT TO OUR NOTICE. THE FACTS OF THE CASES RELIED BY LD. DR FOR THE REVENUE IS DIFFERENT. IN DCIT VS. SAMIR DIAMONDS EXPORTS (P.) LTD. (SUPRA) IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. IN THE SAID CASE, THE BOOKS OF ACCOUNT WERE INCOMPLETE AND WERE NOT ACCEPTED ON THE BASIS OF ASSESSEES OWN RECORD AND RESULTS D ISCLOSED BY SISTER CONCERNS. IN ITO VS. ASHOK KUMAR (SUPRA), THE ASSES SING OFFICER FOUND SUBSTANTIAL DEFECTS IN MAINTENANCE OF BOOKS OF ACCO UNT. FURTHER IN NEENA MAHAJAN VS. CIT (SUPRA) THE BOOKS OF ACCOUNT WERE R EJECTED ON THE GROUND OF NON-MAINTENANCE OF STOCK REGISTER. HOWEVER, IN T HE PRESENT CASE, THE ASSESSING OFFICER HAS NOT SPECIFIED ANY DEFECT IN T HE BOOKS OF ACCOUNT. IN THE RESULT, WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL RAISED BY REVENUE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/02/2019. SD/- SD/- MANOJ KUMAR AGGARWAL PAWAN SINGH ACCOUNTANT MEMBER JUDIC IAL MEMBER MUMBAI, DATE: 21.02.2019 SK ITA NO. 4879 MUM 2017-SHRI BALKRISHNA EXPORTS 17 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR G BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI