M/s Srinidhi Gold, Mandya V. ITO, Mandya

ITA 494/BANG/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3749 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 15-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S VENKATESAN
• Keywords: Unexplained expenditure; Agreed addition; Tax effect
• Section: 234B; 194C

Judgement Text

ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A NO.494/BANG/2012 (ASSESSMENT YEAR : 2008-09) CO NO.42/BANG/2011 (IN I.T.A NO.631/BANG/2011 (ASSESSMENT YEAR : 2007-08) M/S. SRINIDHI GOLD, NO.1 & 2, MUNICIPAL COMPLEX, V. V. ROAD, MAHAVEER CIRCLE, MANDYA .. APPELL ANT PAN : ABCFS2743M V. INCOME TAX OFFICER, WARD 1, MANDYA ,, RESPONDENT . ASSESSEE BY : SHRI. S. VENKATESAN, CA REVENUE BY : SHRI. N. VIJAY KUMAR, ADDL. CIT HEARD ON : 15.09.2016 PRONOUNCED ON : 11 .11.2016 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THESE ARE THE APPEAL & THE CROSS OBJECTION FILED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2008-09 & 2007-08 RESPECTIVELY. ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 2 ITA NO.494/BANG/2012 A. Y. 2008-09 FILED BY THE A SSESSEE : 02. THE ASSESSEE IS A PARTNERSHIP FIRM DEALING IN G OLD JEWELLERY AND SILVERWARE. IT PURCHASES STANDARD GOLD AND OLD GOLD ORNAMENTS, CONVERT THEM INTO ORNAMENTS AND SELLS THEM. IN THE ASSESSMENT MADE FOR AY 2008-09, THE AO MADE THE FOLLOWING ADDI TIONS: (I) THE ASSESSEE FIRM HAS ARRIVED AT AN OPENING S TOCK AS ON 1.4.2007 AT RS. 1,10,45,800/- ON THE NET WEIGHT OF GOLD AT 25201.830 GMS., WHICH WORKS OUT TO RS.438.29 PER G RAM. FOR THE F.Y.2006-07 RELEVANT TO THE A.Y.2007-08, TH E CLOSING STOCK WAS ARRIVED AT 25428.56 GRAMS BY THE DEPARTMENT BY RECASTING THE TRADING ACCOUNT WHICH IS HAVING DIREC T IMPACT ON THE OPENING STOCK AS ON 1.4.2007. THE SUPPRESSION OF CL OSING STOCK OF 226.73 GRAMS WHICH WAS OMITTED BY THE APPELLANT IN ARRIVING AT THE CLOSING STOCK WAS DULY ACCOUNTED FOR THE YE 31.3.2007 AND THE ASSESSMENT FOR THE A.Y.2007-08 WAS DULY CON CLUDED. ACCORDINGLY, THE AO HAS TAKEN THE OPENING STOCK AS ON 1.4.2007 AT 25428.560 GRAMS AS AGAINST 25201.830 SHOWN BY THE APPELLANT . THE A O NOTICED THAT THE ASSESS EE HAS ARRIVED AT THE VALUE OF OPENING STOCK AS ON 1.4.200 7 AT RS.438.29 PER GRAM AS AGAINST THE VALUE OF RS.849.6 39 PER GRAM DETERMINED BY THE DEPARTMENT ON THE BASIS OF T HE AVERAGE COST METHOD AS ON 31.3.2007. ON THE SAME BA SIS, THE CLOSING STOCK AS ON 3 1.3.2008 WAS WORKED OUT B Y THE ASSESSEE AT RS.1,63,21,900/- ON THE NET WEIGHT OF RS.30242.50 GRAMS AT RS.539.700 PER GRAM. THE AO PROPOSED TO ADOPT ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 3 THE VALUATION OF CLOSING STOCK AT AVERAGE COST METH OD FOR WHICH THE ASSESSEE OBJECTED . THE AO DID NOT ACCEPT ITS CONTENTION ON THE GROUND THAT THE ASSESSEE HAS ALRE ADY ACCEPTED THE AVERAGE COST METHOD OF VALUATION OF CLOSING STOCK AS ON 31.3.2006. ACCORDINGLY, THE AO WORKED O UT THE AVERAGE COST AT RS.999.76 PER GRAM AND VALUED THE C LOSING STOCK AT RS.3,02,35,241/-. AFTER REWORKING THE TRAD ING ACCOUNT, HE WORKED OUT THE ADDITIONAL NET PROFIT AT RS.29,04,567/- AND ADDED TO THE RETURNED INCOME . (II) THE ASSESSEE DEBITED RS.41,81,082/- TOWARDS MAKING CHARGES. ON VERIFICATION OF VOUCHERS PRODUC ED BY THE ASSESSEE, THE AO FOUND THAT THEY WERE SELF VOUCHED . THE ASSESSEE FIRM PREPARED THE RECEIPTS F OR CONVERTING STANDARD GOLD TO ORNAMENT GOLD AT RS.15. 81 LAKHS. HE ALSO FOUND THAT THE SL. NOS. ARE ALSO NO T REFLECTED IN THE VOUCHERS AND THE COMPLETE DETAILS OF THE PERSON IS NOT REFLECTED IN THE VOUCHERS SO PRODUCED . CONSIDERING THE VOLUME OF VOUCHERS PRODUCED HE PROP OSED TO DISALLOW 10% OF THE MAKING CHARGES AT RS.4,18,908/- WHICH WAS ACCEPTED BY THE ASSESSEE AND ACCORDINGLY DISALL OWED RS.4,18,908/- AS UNEXPLAINED EXPENDITURE U/S 69C. 03. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A), MYSURU. THE CIT (A) CONFIRMED THE ADDITIONS. THE AS SESSEE IS ON APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 4 ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 5 04. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT ORDERS. THIS TRIBUNAL, IN ITS ORDER IN MA NO 45(B)/2000 IN ITA NO 464(B)/2009 & MA NO 107(B)/2000 IN ITA NO 464(B)/2009 IN THE ASSSESSEE S CASE FOR A Y 2006- 07 DT 11.3.2005 HAS EXTRACTED THE ITS ORDER IN ITA NO 464(B)/2009 DT 24.9.2009 AS UNDER : ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 6 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED HE MATERIAL ON RECORD. ON OUR CAREFUL PERUSAL OF THE FACTS AND CIRCUMSTANCES, WE ARE INCLINED TO HOLD THAT ONE THE AO HAD COMPUTED T HE MISSING QUANTITY OF GOLD ON THE BASIS OF PURCHASE AND SALE FROM THE IMPOUNDED BOOKS OF ACCOUNTS AND ON THE BASIS OF SUR VEY CONDUCTED IT WAS AN EXERCISE TO BE MADE FOR VALUING THE MISSING STOCK OF 1442.01 GRAMS. THE LEARNED COUNSEL BEFORE US HAS INDICATED THAT THE EXERCISE WAS UNDERTAKEN BY THE A O WHO HAD RECASTED THE TRADING ACCOUNT WHICH FIGURES HAVE BEEN INCORPORATED FOR COMPUTING THE VALUE OF PER GRAM IN THE SAID MISSING JEWELLERY ESTIMATED BY HIM AT 1,442 KGS. TH EREFORE, AFTER HAVING UNDERGONE THE EXERCISE OF COMPUTING THE MISS ING STOCK, THE AO SOUGHT TO FIND THE DIFFERENCE IN CLOSING STO CK VALUE ON THE BASIS OF STOCK AS PER IMPOUNDED BOOKS AND STOCK AS PER THE TRADING ACCOUNT IN RESPECT OF GOLD OR FRAMING THE A DDITION. THE ASSES SEE BEFORE THE FIRST APPELLATE AUTHORITY SUBM ITTED THE SAME BUT WITHOUT RELATING THE SAME O THE FACTS NOTED Y THE A O FOR THE ADDITION OF RS.18,63,7111- IN PLACE OF ADDITION OF RS. 7,66, 665 OR RS. 8,68,061 WHICH WE ARE UNABLE TO CO-RELATE TO THE FI NDING OF THE AO. THE AO ON PAGE 6 OF HIS ORDER HAS CLEARLY ESTABLISH ED THAT THE ASSESSEE HAD SUPPRESSED STOCK AS ON 31-03-2006 TO THE EXTENT OF 1306.735 GRAMS, THEREFORE, WOULD HAVE LEF T NO ROOM FOR LEARNED CIT(A) TO VALUE THE SAME AT RS. 18,68,7 11 WAS NOT CONSIDERED APPROPRIATELY BY THE LEARNED CIT(A). THE ASSESSEE BEING A FIRM OF GOLD JEWELERS ESTABLISHED IN THE IMPUGNED ASSESSMENT YEAR ONLY WAS TO ADOPT A METHOD OF VALUATION OF CLOSING STOCK AT LOWER OF COST OR MARK ET VALUE TO BE CONSISTENTLY FOLLOWED WHICH THE AO HAD AGREED TO AN D ACCEPTED THEREFORE WAS ONLY AN EXERCISE TO VALUE THE CLOSING STOCK OF THE MISSING QUANTITY WHICH REMAINS UNDISPUTED IN SO FAR AS BOTH THE AUTHORITIES ACCEPTED THE SAME. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE REAL GOLD CONTENT QUANTITY WHICH W AS TO BE VALUED IN THE CLOSING STOCK IN THE MISSING QUANTITY OF PHYSICAL STOCK AS ON 3103-2006. RS. 18,68,711 THEREFORE, DOES NOT FIGURE ANYWHERE NEAR THE COMPUTATION, VALUATION, CO- RELAT ION BETWEEN THE QUANTITY OF PURCHASE AND SALE THAT COUL D BE CONSIDERED FOR TAXATION IN THE IMPUGNED YEAR ITSELF AS AGAINST MARKET VALUE OF GOLD AND NOT JEWELLERY. IN THE LIGH T OF THE ABOVE, THE ADDITION IS TO BE CONFIRMED O THE EXTENT OF ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 7 RS. 7,76,665 BEING THE VALUE ADOPTED BY THE AO @ RS .538.599 PER GRAM BEING THE GOLD CONTENT IN. THE JEWELLERY WHICH QUANTITY COMPUTED BY THE AO STANDS AT 1442.01 GRAMS. THE PRO FIT ON SALE OF THIS STOCK IN THE FUTURE WOULD BE INCOME OF THAT YEAR, WHICH PROFIT CANNOT BE TAXED IN THE YEAR ITSELF FOR INCONSISTENT VALUATION. CONSEQUENTIAL LEVY OF INTEREST UNDER SECTION 234A & 234B IS DIRECTED TO BE LEVIED IN ACCORDANCE WITH THE MANDAT ORY PROVISIONS OF THE INCOME TAX ACT, 1961'. AND THEN OBSERVED AS UNDER IN PARA 13 IN THE FACE OF THE ABOVE, WE HAVE TO TAKE A LOOK A T THE FINDINGS OF THE TRIBUNAL IN ITS ORDER DATED 24-09-2009 REPRODUC ED BY US, AT PARA-8 ABOVE. WHAT WE FIND IS THAT THE TRIBUNAL HAD INDEED CONSIDERED THE ARGUMENT OF THE ASSESSEE ON G OLD CONTENT IN THE STOCK AND HELD THAT ONLY REAL GOLD C ONTENT WAS TO BE CONSIDERED. IT ALSO HELD THAT THE VALUATION AT RATE OF 538.599 PER GRAM, AS DONE BY THE ASSESSEE CONSIDERING THE ACTUA L GOLD CONTENT IN 91.6 PURITY GOLD JEWELLERY WAS CORRECT. THE RESULT OF THIS EXERCISE IS THAT VARIATION WAS LIMITED TO D IFFERENCE IN QUANTITY IN THE CLOSING STOCK ALONE AND NOT IN THE PRICING. DIFFERENCE IN QUANTITY IN CLOSING THE TRIBUNAL AS 1 ,442 01 GRAMS IS THE SAME AS MENTIONED BY US AT PARA-5 ABOVE AND VAL UATION HAS BEEN DIRECTED TO BE TAKEN AT RS.538.599. IF WE ARE TO SAY THAT THE RATE OF 538.599 PER GRAM CONSIDERED FOR VA LUING THE CLOSING STOCK WAS INCORRECT OR IF WE ARE TO SAY THA T THE DIFFERENCE IN QUANTITY IN STOCK WAS ONLY 1,306.335 GRAMS AND NOT 1,442.01 GRAMS, THIS, IN OUR OPINION, WOULD BE NOTHING BUT E QUIVALENT TO A REVIEW. TO DRAW A CONCLUSION THAT ACTUAL COST PER G RAM WAS RS.60 1.98 WILL IN FACT BE EQUAL TO RE-WRITING THE ORDER OF THE TRIBUNAL. OUR HANDS ARE TIED AND POWERS VERY LIMITED IN A REC TIFICATORY PROCEEDINGS UNDER SECTION 254(2) OF THE ACT. WE CAN ONLY RECTIFY A GLARING AND APPARENT MISTAKE THAT THROWS UPON ITSELF BY A BARE READING AND NOT THROUGH A RE-ASSIM ILATION OF ENTIRE FACTS. WE ARE CONSTRAINED TO COME TO A CONCL USION THAT NO SUCH MISTAKE IS APPARENT IN THE ORDER OF THE TRI BUNAL. 05. THUS, WE FIND THAT THIS TRIBUNAL HAD INDEED CONSIDERED TH E ARGUMENT OF THE ASSESSEE ON GOLD CONTENT IN THE STO CK AND HELD THAT ONLY REAL GOLD CONTENT WAS TO BE CONSIDERED. IT ALSO HEL D THAT THE VALUATION AT RATE OF 538.599 PER GRAM, AS DONE BY THE ASSESSEE C ONSIDERING THE ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 8 ACTUAL GOLD CONTENT IN 91.6 PURITY GOLD JEWELLERY W AS CORRECT. SINCE THE METHOD OF VALUATION HAS TO BE CONSISTANT , FOLL OWING THAT DECISION WE DIRECT THE AO TO REWORK THE NET PROFIT IN ACCORDANCE WITH THE ABOVE TRIBUNAL DECISION . TO THIS EXTENT, THIS APPEAL GROUND IS ALLOWED. 06. WITH REGARD TO THE DISALLOWANCE OF RS.4,18.908/- ON THE MAKING CHARGES, INTER ALIA, ON THE GROUND THAT THE VOUCHE RS ARE SELF-VOUCHED AND NOT VERIFIABLE ETC THE CIT(A) HELD THAT INTER A LIA THAT APPARENTLY, IT IS AN AGREED ADDITION AND THERE IS NO DISPUTE AB OUT THE OBSERVATIONS MADE BY THE AO. I FIND THAT THE DISALL OWANCE IS REASONABLE AND ACCORDINGLY, THE ADDITION IS CONFIRM ED. THE ASSESSEE HAS NOT LET IN ANY MATERIAL TO DISLODGE THE ABOVE FINDI NGS AND HENCE WE DISMISS THIS GROUND OF APPEAL. 07. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. CROSS OBJECTION 42/BANG/2012 A. Y. 2007-08 FILED BY THE ASSESSEE : 08. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASS ESSEE IS A PARTNERSHIP FIRM DEALING IN GOLD JEWELLERY AND SILV ERWARE. IT PURCHASES STANDARD GOLD AND OLD GOLD ORNAMENTS, CONVERT THEM INTO ORNAMENTS AND SELLS THEM. ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 9 09. DURING THE YEAR, (I) THE ASSESSEE HAD VALUED TH E CLOSING STOCK OF GOLD AT RS.438.29 PER GRAM. THE AO ON HIS PART P ROPOSED TO VALUE THE CLOSING STOCK BY APPLYING AN AVERAGE COST OF PURCHA SE AT RS.837.20 PER GRAM. FOR WORKING OUT THE AVERAGE COST OF PURCHASE OF GOLD, THE AO VALUED THE OPENING STOCK OF 18382.87 GRAMS @ RS.601 .98 PER GRAM, REWORKED THE NET PROFIT AT RS.78,90,381 AND ASSESS ED IT AS AGAINST THE ADMITTED NET LOSS OF RS.7,28,244/-. (II) THE AS SESSEE PAID MAKING CHARGES TO VARIOUS PERSONS AND CLAIMED SUCH EXPENDI TURE. THE AO VERIFIED THE DETAILS FROM THE APPELLANT'S BOOKS AND FOUND TH AT IT PAID TO 25 DIFFERENT PERSONS AT RS.31,10,253/-, OUT OF THIS, RS.75,029/- WAS PAID TO 3 PERSONS AND IN EACH CASE THE PAYMENT WAS LESS THAN RS.50,000/- IN THE FULL YEAR AND HENCE HE ALLOWED SUCH CLAIM AND IN THE BALANCE 22 CASES THE AMOUNT PAID WAS EXCEEDING RS.50,000/- PER PERSO N BUT THE ASSESSEE DID NOT DEDUCT TDS ON SUCH PAYMENTS. SINCE, THE ASS ESSEE FAILED TO DEDUCT TAX AS PER PROVISIONS OF SEC 194C, THE AO DISALLOWE D THE CLAIM AT RS.30,35,224/- U/S 40(A)(IA) OF THE ACT . 10. ON AN APPEAL, THE ASSESSEE PLEADED BEFORE THE C IT(A), MYSURU THAT THIS HON'BLE ITAT IN THE APPELLANT'S CASE IN A Y 2006-07 HAD HELD THAT THE CLOSING STOCK OF GOLD AS ON 3 1.3.2006 BE VALUED @ RS.538.59 PER GRAM. ADOPTING IT, THE CIT(A) ARRIVED THE AVERAGE COST OF GOLD FOR THE PURPOSE OF VALUATION OF THE CLOSING STOCK AND REWOR KED THE NET PROFIT AT RS.87,18,317/- AS AGAINST THE NET PROFIT DETERMINED BY THE AO AT RS.78,90,381. THUS, IT RESULTED IN AN ENHANCEMENT T O THE EXTENT OF ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 10 RS.8,27,936/-. THE CIT(A) HELD THAT THE ENHANCEMENT IS A RESULT OF THE STAND TAKEN BY THE APPELLANT AND HENCE THERE IS NO NEED TO PROVIDE ANY FURTHER OPPORTUNITY TO IT ON THIS ISSUE. TECHNICALL Y, HE ALLOWED THIS ISSUE BY ACCEPTING THE APPELLANT'S ARGUMENT THAT THE OPENING STOCK AS ON 1.4.2006 SHOULD BE VALUED AT THE SAME RATE AS DECID ED BY THE ITAT FOR VALUATION OF THE CLOSING STOCK AS ON 31.3.2006. WIT H REGARD TO THE DISALLOWANCES MADE U/S 40(A)(IA), THE CIT(A) CONFIR MED THE DISALLOWANCE. 11. AGGRIEVED AGAINST THE CIT(A) ORDER, THE REVENUE FILED AN APPEAL BEFORE THIS TRIBUNAL IN ITA NO 631(BNG)/2011 AND TH E ASSESSEE FILED THIS CO. SINCE THE TAX EFFECT INVOLVED IN THE REVENUES APPEAL IS BELOW RS.10 LAKHS, THIS TRIBUNAL DISMISSED THE REVENUES APPEAL IN ITA NO 631(BNG)/2011 DT 06.01.2016. HOWEVER, THE ASSESSEE S CO REMAINED UNDISPOSED WITH THE FOLLOWING GROUNDS : ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 11 12. THE LD. AR RELYING ON THE ORDER OF THE HONBLE HIGH COURT OF KARNATAKA IN ITA NOS.149 AND 144 TO 148 OF 2003, D T.17.02.2004 PLEADED THAT CO HAS TO BE DECIDED ON MERITS . PARA 9 OF THA T ORDER IS EXTRACTED AS UNDER: THE CROSS-OBJECTIONS CAN BE CONTINUED EVEN IF THE APPEALS ARE WITHDRAWN. THE PRINCIPLE BEHIND ORDER 41 RULE 22 O F CPC CLEARLY PROVIDING FOR THE SAME, IS APPLICABLE. IN VIEW OF THE ABOVE, THESE APPEALS ARE ALLOWED AND THE ORDER OF THE TRIBUNAL D ATED 31-10- 2002 IN CROSS- OBJECTIONS 73-78/BANG/2001 (IN ITA N OS.1859 TO 1864/BANG/1992) IS SET ASIDE AND THE MATTERS ARE RE MITTED TO THE TRIBUNAL FOR HEARING AND DISPOSAL OF CROSS- OBJECTI ONS NO.73- 78/BANG/2001 FILED BY THE APPELLANT IN ACCORDANCE W ITH LAW. 13. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH REL EVANT ORDERS. WITH REGARD TO THE VALUATION OF CLOSING STOCK, THE RELEVANT PORTION OF THE CIT(A) ORDER IS EXTRACTED AS UNDER : 5.1 IN THE COURSE OF APPEAL PROCEEDINGS, SRI SUBRAMANIAN, AR ARGUED THAT THE OP ENING STOCK OF GOLD AS ON 1.4.2006 SHOULD BE THE SAME AS THE VALUE OF THE CLOSING STOCK AS ON 31.3.2006. SRI SUBRAMANIAN POINTED OUT THAT THE HON'BLE ITAT IN ITS ORDER IN THE APPELLANT 'S CASE FOR THE A.Y.2006-07 HAD HELD THAT THE CLOSING STOCK OF GOLD AS ON 3 1.3.2006 BE VALUED @ RS.538.59 PER GRAM. 5.2 I HAVE GONE THROUGH THE ORDER OF THE HON'BLE ITAT. I FIND THAT, IN PRINCIPLE, THE ARGUMENT OF THE AR HAS TO B E ACCEPTED. I MAY MENTION HERE THAT AS REGARDS THE QUANTITY OF TH E OPENING OR CLOSING STOCK OF GOLD, THERE IS NO DISPUTE. I DI RECT THE AO TO VALUE THE OPENING STOCK OF GOLD @ RS.538.59 PER GRA M AS DECIDED BY THE HON'BLE TRIBUNAL. THE AVERAGE COST O F GOLD FOR THE PURPOSE OF VALUATION OF THE CLOSING STOCK IS WO RKED OUT AS UNDER: ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 12 5.3 THE APPELLANT'S NET PROFIT IS ACCORDINGLY DETER MINED AT RS.87,18,317/- AS AGAINST THE NET PROFIT DETERMINED BY THE AO AT RS.78,90,381/-. IT RESULTS INTO AN ENHANCEMEN T TO THE EXTENT OF RS.8,27,936/-. THE ENHANCEMENT IS A RESUL T OF THE STAND TAKEN BY THE APPELLANT. THERE IS NO NEED TO P ROVIDE ANY FURTHER OPPORTUNITY TO THE APPELLANT ON THIS ISSUE. THE GROUND NO.2 IS THUS TECHNICALLY ALLOWED BY ACCEPTING THE A PPELLANT'S ARGUMENT THAT THE OPENING STOCK AS ON 1.4.2006 SHOU LD BE VALUED AT THE SAME RATE AS DECIDED BY THE ITAT TO B E APPLIED FOR VALUATION OF THE CLOSING STOCK AS ON 31.3.2006. 14. THUS, THE CIT(A) FOLLOWING THIS TRIBUNAL ORDER IN THE ASSESSEES CASE IN AY 2006-07 AND ADOPTING THE CONSISTENT VALUATION METHOD HAS DECIDED THIS ISSUE WITH WHICH WE DO NOT FIND ANY INFIRMITY AND ACCORDINGLY WE DISMISS THE ASSESSEES APPEAL GROUND NO 2, SUPRA. ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 13 15. WITH REGARD TO THE DISALLOWANCES MADE U/S 40(A) (IA) , THE RELEVANT PORTION OF THE ASSESSMENT ORDER IS EXTRACTED AS UND ER : II. MAKING CHARGES : (I) ON PERUSAL OF THE TRADING ACCOUNT FILED BY THE ASSESSEE, IT IS SEEN THAT AN AMOUNT OF RS.31,10,253 IS DEBITED TO T HE TRADING ACCOUNT UNDER THE HEAD 'MAKING CHARGES'. AS THE EXP ENDITURE INCURRED ON ACCOUNT OF MAKING CHARGES FALLS UNDER T HE PURVIEW OF SECTION 194C OF THE ACT, THE ASSESSEE WAS ASKED TO EXPLAIN VIDE THIS OFFICE LETTER DATED 21.12.2009 WHETHER HE HAS EFFECTED THE TDS ON THE AMOUNT OF RS.31,10,253/-. I T WAS EXPLAINED BY THE ASSESSEE VIDE ITS LETTER DATED 23. 12.2009 FILED IN THIS OFFICE ON 24.12.2009 AS UNDER: 'WE SUBMIT THAT MANUFACTURE OF GOLD ORNAMENTS IS A VERY SKILLED JOB.WE DO NOT HAVE ANY PERSON TO DEVELOP ANY NEWDES IGN. EVERY GOLD SMITH HAS HIS OWN SPECIALIZATION LIKE SO ME ARE GOOD AT MAKING BANGLES, SOME IN MAKING OF NECKLACES ETC. CUSTOMERS ALSO PLACE ORDER FOR MAKING ORNAMENT S TO A PARTICULAR GOLD SMITH AND ITS OUR PRACTICE NOT TO GIVE MORE JOBS TO A SINGLE GOLD SMITH AS WE WOULD BE CAR RYING RISK. WE GIVE GOLD OF A PARTICULAR WEIGHT FOR MANUF ACTURE AN ORNAMENT. WE DO NOT ENTER INTO ANY CONTRACT IN TERM S OF WAGES PAYABLE. THE JOB BEING SKILLED TAKES DIFFEREN T TIME FOR COMPLETION AND BASED ON THE SKILL INVOLVED AND THE TIME TAKEN, THE GOLD SMITH DEMANDS WAGES FOR HIS JOB AND AFTER NEGOTIATION, WE FINALLY PAY HIM. THE WAGES NORMALLY RUNS TO FEW HUNDREDS OR FEW THOUSANDS LESS THAN RS.5,000/-A T ANY TIME. THERE ARE MORE THAN 150 GOLD SMITHS WHO ARE M AKING ORNAMENTS FOR US AND THEY MAKE ORNAMENTS OTHERS ALS O. WHEN THEY DO OUR JOB, WE INSIST (HEM TO MAKE IT IN OUR WORKSHOP AS A MEASURE OF SECURITY FOR OUR GOLD. NON E OF THEM IS PAID MORE THAN RS.20,000/- AT ANY TIME AND THE TOTAL PAYMENT TO A SINGLE GOLD SMITH IN THE ENTIRE FINANCIAL YEAR WOULD BE LESS THAN RS.50,000/-. THE PROVISIOM OF SECTION 194C ARE INAPPLICABLE TO US FOR THE ABOVE R EASONS. SINCE THE PROVISIONS OF SEC.194C ARE INAPPLICABLE WE HAVE NOT MADE ANY DEDUCTION FROM SUCH PAYMENTS. HENCE (HERE IS NO JUSTIFICATION FOR DISALLOWING THE ABOVE EXPENSES '. ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 14 (II) THE ASSESSEE'S CONTENTION IS NOT ACCEPTABLE BE CAUSE AS SEEN FROM THE LEDGER EXTRACT PRODUCED THERE ARE ABOUT 25 PERS ONS WHO DID ORNAMENTS IN THE ASSESSEE'S BUSINESS PREMISES. ASSE SSEE HAS STATED THAT THERE ARE ABOVE 150 WORKS MAN WHO WERE PAID WAGES ANYTHING AROUND FEW THOUSANDS BUT NOT MORE THAN RS. 5,000/- THE REPLY FILED IS FAR FROM TRUTH, WHEN COMPARED WITH T HE LEDGER EXTRACT SUBMITTED BY THE ASSESSEE. AS PER THE LEDGER EXTRAC T, THE LIST OF PERSONS WHO HAVE RECEIVED THE MAKING CHARGES IS LIS TED BELOW IN ORDER TO DISPROVE ASSESSEE'S CONTENTION. AS PER THE PROVISIONS OF SECTION 194C OF THE INCOME TAX ACT, ANY PERSON MAKING PAYMENT OF RS.20,000/- AT A TIME OR R S.50,000/- IN A YEAR, REQUIRES TO DEDUCT TAX AT SOURCE AT THE TIME OF MAKING ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 15 THE PAYMENTS. ACCORDING TO ASSESSEE, THERE IS NO WR ITTEN CONTRACT ENTERED BETWEEN THE ASSESSEE AND THE LABOURERS. HEN CE TDS PROVISIONS IS INAPPLICABLE. THE WORK IS DONE IN HI S BUSINESS PREMISES AND THE PAYMENT IS MADE TO THE PERSONS DEP ENDING UPON THE WORK ENTRUSTED TO THEM. IT WAS ALSO EXPLAINED T HAT THE JOB INVOLVES SKILLED WORKERS, THE WAGES ARE DEMANDED AS PER THE WORK AND AFTER NEGOTIATIONS THEY FINALLY PAY THEM , WHIC H MEANS ULTIMATELY THE ASSESSEE PAYS TO ONE SINGLE PERSON A ND HE IN TURN PAYS IT TO THE OTHER PERSONS WHO FINALLY GIVES THE FINISHING TOUCHES TO THE ORNAMENT ULTIMATELY MAKING IT READY FOR SALE. THE LEDGER EXTRACT FILED IN THIS OFFICE ALSO SHOWS THAT THE AMOUNT IS PAID TO A SINGLE PERSON AS IS LISTED ABOVE AND THE ASSESSEE CANNOT TAKE A PLEA THAT IT IS PAYING TO ALL THE WORKERS DE PENDING UPON THEIR WORK. IT IS ASSESSEES RESPONSIBILITY TO DEDUC T TAXES ON THE AMOUNT WHEREVER IT EXCEEDS RS.20000/- ONE TIME AND RS.50,000/- IN A YEAR AS PER THE PROVISION OF SEC. 194C. HENCE, THE ABOVE PAYMENTS ATTRACTS THE PROVISIONS OF SECTION 1 94C THEREBY THE ASSESSEE SHOULD HAVE DEDUCTED TDS WHEREVER THE AMOU NT HAS EXCEEDED RS.20000/- OR RS.50,000/-. HE CANNOT DISCHARGE THE DUTIES OF THE MAIN LABOURER S BY DISBURSING THE WAGES TO ALL THE PERSONS. THE ASSESS EE IS UTILIZING THE ABOVE TOOL TO CAMOUFLAGE THAT SECTION 194C IS I NAPPLICABLE IN HIS CASE. THEREFORE, ASSESSEE'S CONTENTION IS REJEC TED ON THE GROUND THAT, THOUGH THERE IS NO WRITTEN CONTRACT EN TERED INTO BETWEEN ASSESSEE AND LABOURERS, THERE IS ORAL CONTR ACT EXISTS BETWEEN THE PERSONS AND THE ASSESSEE. THIS IS EVIDE NT FROM THE LIST REPRODUCED AS IN THE EARLIER PARAGRAPHS OF THI S ORDER. A PROPOSAL WAS SENT TO THE ASSESSEE ON 24.12.2009, PROPOSING TO DISALLOW THE AMOUNT OF EXPENDITURE DEBITED TO TRADI NG ACCOUNT AMOUNTING TO RS.31,10,253/- TOWARDS MAKING CHARGES, POSTING THE CASE FOR HEARING ON 29.12.2009. ASSESSEE DID NOT R ESPOND TO THE ABOVE LETTER. IN TURN, HE FILED A REVISED LEDGER AC COUNT SHOWING THE MAKING CHARGES PAID TO THE WORKERS AS ON 31.12.2009 WITHOUT ANY EXPLANATION FOR FILING THE REVISED LEDGER ACCOU NT. ON VERIFICATION OF THE SAME, IT IS SEEN THAT THE ASSES SEE HAS INCORPORATED AS MANY NUMBER OF WORKERS FOR WHOM CAS H PAYMENT IS MADE AS PER THE LEDGER EXTRACT FILED. IN THE LIGHT OF THE ABOVE, THE ASSESSEES CLAIM OF RS.30,35,224 BEING EXPENDITURE ON MAKING CHARGES IS DISALLOWED A ND ADDED BACK TO THE INCOME RETURNED AS PER PROVISIONS OF SECTION 40(A)(IA)OF THE INCOME TAX ACT. ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 16 16. ON THIS ISSUE, THE RELEVANT PORTION OF THE CIT( A) ORDER IS EXTRACTED AS UNDER : 6. THE GROUND NO.3 INCLUDING THE SUB PARAS 3.1 TO 3.4 PERTAINS TO THE DISALLOWANCE OF RS.30,35,224/- U/S 40(A)(IA) OF THE ACT. THE FACTS OF THE CASE ARE THA T THE AMOUNT WAS PAID BY THE APPELLANT TO VARIOUS PERSONS AS MAK ING CHARGES. THE AO VERIFIED THE DETAILS FROM THE APPELLANT'S BO OKS AND FOUND THAT THE AMOUNT WAS PAID TO 25 DIFFERENT PERSONS AN D IN 22 CASES, THE AMOUNT PAID WAS EXCEEDING RS.50,000/- IN INDIVI DUAL CASE. THE DETAILS ARE MENTIONED ON PAGE 8, 9 AND 10 OF THE AS SESSMENT ORDER. THE TOTAL MAKING CHARGES DEBITED IN THE NAME OF 25 PERSONS WERE RS.31,10,253/-. OUT OF THIS, RS.75, 029/- WERE PAID TO 3 PERSONS. IN EACH CASE THE PAYMENT WA S LESS THAN RS.50,000/ IN THE FULL YEAR. HENCE THIS WAS AL LOWED BY THE AO. HOWEVER, IN THE REMAINING CASES, THE AO FOUND THAT IN EACH INDIVIDUAL CASE TOTAL PAYMENTS DURING THE YEAR EXCE EDED RS.50,000/- AND THEREFORE, THE APPELLANT SHOULD HAV E DONE TDS. THE APPELLANT FAILED TO DEDUCT TAX AS PER PROVISION S OF SEE 194C AND THEREFORE THE EXPENDITURE WAS DISALLOWED U/S 40 (A)(IA). 6.1 THE APPELLANT ARGUED THAT HE EMPLOYEES A NUMBER OF WORKERS WHO ARE GOLDSMITHS AND WORK UNDER THE CONTR OL AND SUPERVISION OF THE APPELLANT. THE WORK IS DONE IN T HE APPELLANT'S PREMISES BY THESE GOLDSMITHS. THEY ARE EMPLOYEES OF THE APPELLANT AND THE WAGES PAID TO TH EM ARE DEBITED UNDER THE HEAD 'MAKING CHARGES'. ACCORDING TO THE APPELLANT, THE WAGES ARE ASSESSABLE IN THE HANDS OF THE GOLDSMITHS AS SALARY. THERE IS NO WORKS CONTRACT BETWEEN THE A PPELLANT AND THE GOLDSMITHS AND THEREFORE, PROVISIONS OF SEC 194C ARE NOT APPLICABLE. 6.2 I AM NOT INCLINED TO AGREE WITH THE APPELLANT. AS PER THE FACTS DISCLOSED TO THE AO, THE PERSONS WHO WERE PAI D MAKING CHARGES WERE NOT EMPLOYEES OF THE APPELLANT. THE AP PELLANT HAS NOT FURNISHED ANY DETAILS REGARDING THE BASIS OF TH E MAKING CHARGES PAID TO EACH OF THE 23 PERSONS BUT IT APPEA RS FROM THE AO'S OBSERVATIONS THAT MAKING CHARGES WERE PAID TO EACH PERSON ACCORDING TO THE WORK COMPLETED BY HIM. IT IS ALSO MENTIONED IN THE ASSESSMENT ORDER THAT THE 23 PERSONS WHO WERE P AID MAKING CHARGES WERE ACTUALLY PAID AS LEAD PERSONS FOR THE WORK COMPLETED BY THEIR TEAM. THIS LEAD PERSON IN TURN P AID TO THE OTHER WORKERS. BUT AS FAR AS THE APPELLANT IS CONCE RNED, THE ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 17 PAYMENT IS MADE TO THE LEAD PERSON FOR THE WORK DON E BY HIMSELF OR HIS TEAM. THUS THERE IS AN IMPLIED CONTRACT BETW EEN THE APPELLANT AND SUCH PERSONS WHO HAVE BEEN PAID THE M AKING CHARGES. THE PROVISIONS OF SEC 194C ARE CLEARLY ATT RACTED. EVEN IF WE ASSUME THAT THE 23 PERSONS WHO WERE PAID MAKING CHARGES WERE EMPLOYEES OF THE APPELLANT, THEN ALSO IN MOST OF THE CASES TDS PROVISIONS ARE ATTRACTED BECAUSE PAYMENT TO EAC H INDIVIDUAL PERSON EXCEEDED THE MINIMUM TAXABLE INCO ME. THE APPELLANT SHOULD HAVE DEDUCTED TAX U/S 192. THE DISALLOWANCE IS THEREFORE, CONFIRMED. THE GROUND OF APPEAL IS DISMISSED. 17. WE HAVE CONSIDERED THE ABOVE FINDINGS AND DE CISIONS. THE ASSESSEE HAS NOT LET IN ANY MATERIAL TO DISLODGE THEM. IN VI EW OF THAT FACTS AND CIRCUMSTANCES, WE DISMISS THE ASSESSEES APPEAL GR OUND NO 3, SUPRA. IN THE RESULT, THE CO IS DISMISSED. 18. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED & THE CO IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH DAY OF N OVEMBER, 2016. SD/- SD/- (VIJAY PAL RAO) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA.494 /BANG/2012 & CO.42/BANG/2011 PAGE - 18