The DCIT, Circle-2, Ahmedabad V. M/s. Mehta Natwarlal Chhotalal, Ahmedabad

ITA 519/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0874 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 27-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI S.K. YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 519/AHD/2013 (ASSESSMENT YEAR: 2009-10) THE DCIT, CIRCLE-2, AHMEDABAD V/S M/S. MEHTA NATWARLAL CHHOTALAL, RAJGURU CHAMBERS, MARCHI POLE, RATAN POLE, KALUPUR, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AADFM 4530E APPELLANT BY : SHRI JAMES KURIAN, SR. D.R . RESPONDENT BY : SHRI S.N. SOPARKAR, A.R. ( )/ ORDER DATE OF HEARING : 14 -07-201 6 DATE OF PRONOUNCEMENT : 19 -07-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. WITH THIS APPEAL, THE REVENUE HAS CHALLENGED THE CO RRECTNESS OF THE ORDER OF THE LD. CIT(A)-6, AHMEDABAD DATED 27.12.20 12 PERTAINING TO A.Y. 2009-10. ITA NO. 519/ AHD/2013 . A.Y. 2009-1 0 2 2. THE SUBSTANTIAL GRIEVANCE OF THE REVENUE READS AS U NDER:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS. 15,11,510/- BEING DISALLOWANCE OF PURITY DEFICIT ON OLD GOLD ORNAMENTS WITHOUT APPRECIATING THE FACTS NARRATED IN THE ASSESSMENT O RDER. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS. 11,76,461/- BEING LABOUR CHARGES NOT INCLUDED IN CL OSING STOCK WITHOUT APPRECIATING THE FACTS NARRATED IN THE ASSESSMENT O RDER. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS. 33,68,749/- BEING UNACCOUNTED RECEIPT OF LABOUR WIT HOUT APPRECIATING THE FACTS NARRATED IN THE ASSESSMENT ORDER. 3. ASSESSEE IS IN THE BUSINESS OF TRADING AND PREPARIN G GOLD AND RELATED ITEMS. THE RETURN FOR THE YEAR WAS SELECTED FOR SCR UTINY ASSESSMENT UNDER CASS. ACCORDINGLY, STATUTORY NOTICES WERE I SSUED AND SERVED UPON THE ASSESSEE. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS DECLARED GROSS PROFIT OF 3.14% ON THE TURNOVER OF RS. 50.20 CRORES AS COMPARED TO THE GRO SS PROFIT OF 2.80% ON THE TURNOVER OF RS. 45.46 CRORES IN THE IMMEDIAT ELY PRECEDING YEAR. 5. WHILE SCRUTINIZING THE AUDITED STATEMENT OF ACCOUNT S, THE A.O. FOUND THAT THE ASSESSEE HAS CLAIMED 7292.940 GRAMS AS PUR ITY LOSS IN PURCHASE OF OLD GOLD ORNAMENTS. ASSESSEE WAS ASKED TO JUSTIFY THE SAME. ASSESSEE FILED A DETAILED REPLY EXPLAINING TH E PURITY LOSS IN PURCHASES OF OLD GOLD ORNAMENTS. IT WAS EXPLAINED T HAT IF 1 KG OF OLD GOLD ORNAMENTS ARE PURCHASED, IT IS SENT TO GUJARAT GOLD CENTRE (GOVT. APPROVED REFINERY) FOR MELTING AND REFINING. AFTER REFINING 24 CARAT GOLD BAR ARE RETURNED BY THE REFINERY. IT WAS EXPLA INED THAT IF 1 KG IS OF 80% THEN 800 GRAMS GOLD BAR IS RECEIVED. THE DIF FERENCE OF 200 ITA NO. 519/ AHD/2013 . A.Y. 2009-1 0 3 GRAMS IS CALLED PURITY DEFICIT. DETAILS STATEMENT O F INWARD AND OUTWARD ENTRIES DULY SUPPORTED BY BILLS ISSUED BY GUJARAT G OLD CENTRE WERE SUBMITTED BEFORE THE A.O. ALONG WITH DATE WISE STAT EMENT SHOWING HOW MUCH MATERIAL WAS SENT AND HOW MUCH MATERIAL WA S RECEIVED BACK. 6. THE DETAILED SUBMISSIONS OF THE ASSESSEE DID NOT FI ND ANY FAVOUR WITH THE A.O. WHO WAS OF THE OPINION THAT THE ASSESSEE I S NOT SHOWING ANY DEFICIT IN PURCHASE OF PURE GOLD BUT IS SHOWING DEF ICIT ONLY IN RESPECT OF OLD GOLD ORNAMENTS. THE A.O. FURTHER OPINED THAT AL L BILLS WERE PURCHASE OF GOLD ORNAMENTS WERE NOT PRODUCED. 7. HOWEVER, THE A.O. VERIFIED THE BILLS OF PURCHASE OF OLD GOLD ORNAMENTS FOR THE MONTH OF MARCH 2009 AND FOUND THAT THE ASSE SSEE HAS NOT PAID ANY PERSON, ANY LABOUR CHARGES FOR THE PURCHASE OF OLD GOLD ORNAMENTS. THE A.O. WAS OF THE FIRM BELIEF THAT NO JEWELLER HAS EVER PAID ANY AMOUNT LIKE LABOUR CHARGES FOR THE PURCHAS E OF OLD GOLD ORNAMENTS. ACCORDING TO THE A.O., THE LABOLUR CHARG ES ARE ALWAYS ADDED WHEN A SALE IS MADE. CONSIDERING THE PURCHASE BILLS FOR THE MONTH OF MARCH 2009, THE A.O. COMPUTED THE PERCENTA GE OF ALLOY IN GOLD ORNAMENTS @ 8.26%. ON PURCHASE OF OLD GOLD ORN AMENTS OF 41943.240 GRAMS, THE PERCENTAGE OF ALLOYS (IMPURITY ) COMES TO 17.387% ON THE PURITY DEFICIT CLAIMED BY THE ASSESS EE AT 7292.940 GRAMS. THE A.O. WAS OF THE OPINION THAT 15% OF IMP URITY IS REASONABLE AND ACCORDINGLY DISALLOWED 2.387% AND CO MPUTED THE DISALLOWANCE AT RS. 15,11,510/-. ITA NO. 519/ AHD/2013 . A.Y. 2009-1 0 4 8. PROCEEDING FURTHER THE A.O, NOTICED THAT THE STOCK IS VALUED AT PURCHASE PRICE INCLUDING VAT, THE AMOUNT OF LABOUR IS ADDED TO THE VALUATION OF STOCK ORNAMENTS. 9. TAKING A LEAF OUT OF BILL NO. 558, THE A.O. W AS OF THE OPINION THAT SINCE IN THIS BILL, THE PAYMENT OF LABOUR CHARGES O N PURCHASE OF OLD GOLD ORNAMENTS IS RS. 74 PER GRAMS. THEREFORE, THE VALUE OF CLOSING STOCK SHOULD ALSO INCLUDE LABOUR CHARGES AT RS. 74 PER GRAMS AND ACCORDINGLY ADDED RS. 11,76,461/- TO THE VALUE OF C LOSING STOCK. 10. ON FURTHER PERUSAL OF THE RECORDS, THE A.O. NOTICED THAT THE ASSESSEE HAS DEBITED RS. 5,22,769/- IN THE PROFIT A ND LOSS ACCOUNT ON ACCOUNT OF LABOUR. THE A.O. FOUND THAT IN SOME SALE BILL, THE ASSESSEE IS CHARGING LABOUR AT RS. 10 PER GRAMS AND IN SOME BILL IT IS RS. 30 PER GRAMS. ONCE AGAIN, TAKING A LEAF OUT OF BILL NO. 55 8 WHEREIN THE ASSESSEE HAS PAID RS. 74 PER GRAMS AS LABOUR ON THE PURCHASE OF GOLD ORNAMENTS, THE A.O. WAS OF THE OPINION THAT THE ASS ESSEE MUST BE RECEIVING RS. 74 PER GRAMS AS LABOUR CHARGES AND AC CORDINGLY COMPUTED THE LABOUR CHARGES REALIZED ON TOTAL SALE OF GOLD ORNAMENTS OF 47877.360 GRAMS AT RS. 35,42,924/- AND DEDUCTIN G LABOUR CHARGES SHOWN BY THE ASSESSEE AT RS. 1,74,175/- MADE AN ADD ITION OF RS. 33,68,749/-. 11. AGGRIEVED BY THESE THREE ADDITIONS, THE ASSESSEE CA RRIED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED WHAT HA S BEEN STATED BEFORE THE ASSESSING OFFICER. 12. INSOFAR AS THE CLAIM OF PURITY LOSS IS CONCERNED, T HE ASSESSEE FILED COPY OF BILLS OF PURCHASES AND EXPLAINED THAT THE DIFFERENCE OF ITA NO. 519/ AHD/2013 . A.Y. 2009-1 0 5 WEIGHT RECEIVED IS BECAUSE OF CHANGE FROM INFERIOR QUALITY TO SUPERIOR QUALITY AND THE SAME CANNOT BE TERMED AS DEFICIT. 13. FOR THE ADDITION MADE ON ACCOUNT OF LABOUR CHARGES TO THE VALUE OF CLOSING STOCK KARIGAR WISE LABOUR PAID ALONG WIT H RATE OF LABOUR WERE SUBMITTED TO SUBSTANTIATE THE CLAIM THAT THE LABOUR PAYMENT IS RS. 10 PER GRAMS ONLY. IT WAS EXPLAINED THAT THE BILL WHIC H HAS BEEN MADE THE BASIS OF ADDITION BEARING NO. 558 IS FOR PURCHASE O F NEW ORNAMENTS IN WHICH THE SELLER CHARGES HIS LABOUR FOR MAKING THE ORNAMENTS. THEREFORE, THE LABOUR CHARGE TAKEN BY THE A.O. @ RS . 74 PER GRAMS IS A BIG MISCONCEPTION. IT WAS EXPLAINED THAT THE LABO UR CHARGES PAID ON DIRECT PURCHASES OF NEW ORNAMENTS HAVE NOTHING TO D O WITH LABOUR CHARGES TO THE VALUATION OF THE CLOSING STOCK. REGA RDING THE ADDITION ON ACCOUNT OF LABOUR CHARGES REALIZED, IT WAS EXPLA INED THAT THE A.O. HAS CONSIDERED LABOUR RECEIPTS ONLY TO THE TUNE OF RS. 1,74,175/-. IN FACT LABOUR RECEIPT IS INCLUDED IN SALE BILLS WHICH MEANS THAT THE SALES ARE INCLUSIVE OF PRICE OF MATERIAL + LABOUR CHARGES . IT WAS EXPLAINED THAT DURING THE YEAR UNDER CONSIDERATION, THE TOTAL LABOUR RECEIPTS WERE AT RS. 21,99,923/-. 14. AFTER CONSIDERING THE FACTS AND THE DETAILED SUBMIS SIONS MADE BY THE ASSESSEE, THE LD. CIT(A) WAS CONVINCED WITH THE AUDITED STATEMENT OF ACCOUNTS AND THE QUANTITATIVE DETAILS FURNISHED BY THE ASSESSEE AND DELETED THE IMPUGNED ADDITIONS. 15. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 16. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE STATED THA T AT THE BEHEST OF THE ITA NO. 519/ AHD/2013 . A.Y. 2009-1 0 6 BENCH, A REMAND REPORT WAS CALLED FROM THE A.O. WHI CH IS PLACED AT PAGES 156 TO 167 OF THE PAPER BOOK. IT IS SAY OF TH E LD. COUNSEL THAT IN HIS REMAND REPORT AFTER DUE VERIFICATION, THE A.O. STATED THAT THE AVERAGE SHORTAGE IS AT 16.51% AS AGAINST 17.381% SH OWN BY THE ASSESSEE. THE LD. COUNSEL POINTED OUT THAT IN HIS R EMAND REPORT, THE A.O. HAS ACCEPTED THE CLAIM OF THE ASSESSEE AND THE REFORE, THE REVENUE HAS NO CASE. 17. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE OR DERS OF THE AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE RE MAND REPORT OF THE A.O., WHICH WAS SUBMITTED AT THE BEHEST OF THE BENCH. IT WOULD BE IN THE INTEREST OF JUSTICE TO EXTRACT THE REMAND RE PORT DATED 23.02.2015:- SUB: REMAND REPORT IN ITA NO.519/AHD/2013 IN THE CASE OF M/S. MEHTA NATWARLAL CHHOTALAL FOR A.Y. 2009-10 (PAN: AADFM4530E)- REG KINDLY REFER TO LETTER NO. SR.D.R/ITAT-III/'B' BENC H/MNC/2014-15 DATED 16/07/2014, THE HON'BLE ITAT HAS DIRECTED TO SUBMIT THE REMAND REPORT ON 3 ISSUES. THE ASSESSEE WAS ALSO DIRECTED BY THE HON'B LE ITAT TO CO-OPERATE WITH A.O BY FURNISHING DETAILS WHICH MAY BE CALLED TOR B Y THE A.O. THE VARIOUS DETAILS AND EVIDENCES WERE CALLED FOR ON THE ASSESSEE. AFTE R CONSIDERING THE DETAILS AND EVIDENCE PRODUCED BY THE ASSESSEE THE REMAND REPORT ON THE ISSUES RAISED BY HON'BLE ITAT HAS SUBMITTED AS UNDER:- 1. TO VERIFY FROM THE PURCHASE BILLS OF OLD GOLD O RNAMENTS TO BE PRODUCED BY ASSESSEE FOR THE WHOLE YEAR AND THEREAFTER TO ASCER TAIN THE PERCENTAGE OF ALLOY/METAL INCLUDED IN THE OLD GOLD ORNAMENTS BY C OMPARING THE RATE OF PURE GOLD (STANDARD GOLD) WITH THE PURCHASE RATE OF ALL THE GOLD ORNAMENTS ON THE DATE OF RESPECTIVE PURCHASES. THE ENTIRE WORKING NEEDS T O BE SUBMITTED TO THE TRIBUNAL ITA NO. 519/ AHD/2013 . A.Y. 2009-1 0 7 AS IT SHALL FACILITATE TO DETERMINE THE CORRECTNESS OR OTHERWISE OF THE CLAIM OF ASSESSEE REGARDING THE EXTENT OF IMPURITY IN THE OL D GOLD ORNAMENTS WHICH HAS BEEN CLAIMED TO BE 17.381%. IN THIS CONNECTION, THE ASSESSE HAS FURNISHED DAT E WISE STATEMENT OF PURCHASE OLD GOLD ORNAMENTS SHOWING BILL NO. VAT, PURITY RAT E AS PER PURITY, RATE OF PURE GOLD ON THE DATE OF PURCHASE ETC. AS PER EXHIBIT-A OF THE REPLY. THE COPY OF ALL PURCHASE OF BILL HAS ALSO BEEN FURNISHED BY THE ASS ESSEE. ON THE BASIS OF DETAILS FURNISHED AND THE BILLS WILL PRODUCE THE DETAILED C HART IN THIS REGARD HAVE BEEN PREPARED. THE SAME IS ENCLOSED HEREWITH AS ANNEXURE -A. THE CHART CONTAINS QUANTITY OF PURCHASE, QUANTITY OF ALLOY METAL MIX, PURE GOLD PURITY OF OLD ORNAMENTS ETC. ACCORDINGLY, THE AVERAGE SHORTAGE IS WORTH OF 16.51 % AS AGAINST 17.381% SHOWN BY THE ASSESSEE. THE SAME MAY KINDLY BE CONSIDERED WHILE DECIDING THE ISSUE. THE ADDITION WAS MADE ON THE BASIS OF BILL NO. 558 AND 992 THAT THE ASSESSEE HAS ADDED MAJURI IN RESPECT OF OLD GOLD ORNAMENTS PURCH ASE. IN THIS CONNECTION IT IS SUBMITTED THAT IT WAS NOT THE PURCHASE OF OLD GOLD ORNAMENTS BUT NEW ORNAMENTS PURCHASE FROM JEWELLERS NAMELY JINJUWADIA JEWELLERS AND SHRADDHA GOLD CORPORATION. HOWEVER, NO CONFIRMATION OF THE SAID P ARTY HAS BEEN FURNISHED. 2. TO VERIFY THE LABOUR EXPENSES ADDED IN THE CLOSING STOCK WITH REFERENCE TO THE RELEVANT BILLS PERTAINING TO THE YEAR, THE ASSESSEE HAS FURNISHED THE DETAILS OF CLOSING S TOCK IN 4 CATEGORY:- (I) 24CT BULLION (II) ORNAMENTS PREPARED FROM PURCHASES OF OLD ORNAM ENTS MAKE IT REFINED INTO 24CT BULLION AND THEN MADE NEW ORNAMENTS OF 22CT FR OM OUTSIDE KARIGARS. (III) OUTRIGHT PURCHASE OF NEW ORNAMENT OF ONE BILL . (IV) DIRECT PURCHASE OF BULLION SEND TO KARIGAR FOR MAKING ORNAMENTS OF 22CT AND ORNAMENTS REMAIN IN STOCK. IN THE FIRST CATEGORY IT IS BULLION AND HENCE THE Q UESTION OF ADDING MAJURI IN THIS CATEGORY DOES NOT ARISE, IN RESPECT OF CATEGORY NO. II AND IV, IN ALL THE CASES MAJURI @ 10 PER GRAM HAS BEEN ADDED FOR THE VALUATION OF C LOSING STOCK. IN RESPECT OF CATEGORY NO. III THE BILL IS FOR THE PURCHASE OF NE W ORNAMENTS AND HENCE THE MAJURI ITA NO. 519/ AHD/2013 . A.Y. 2009-1 0 8 IS INCLUDED IN THE COSTS. HENCE, THE MAJURI IS ADDE D IN THE CLOSING STOCK AS ABOVE. HENCE, THE MAJURI EXPENSES WERE INCLUDED IN THE SAL E BILLS. 3. TO VERITY FROM THE SALE BILLS OF THE WHOLE YEAR , THE RATE OF GOLD ON THE DATE OF SALE WITH THE RATE OF STANDARD GOLD PREVAILING O N THE RESPECTIVE DAY SO AS TO DETERMINE AS TO WHETHER THE DIFFERENCE BETWEEN THE TWO RATES REASONABLE COVERS THE LABOUR CHARGE CLAIMED TO HAVE BEEN PAID BY ASSESSEE AND ALSO THE NORMAL PROFIT DECLARED BY THE ASSESSEE. IN THIS CONNECTION, THE ASSESSEE HAS FURNISHED D ATE WISE AND MONTH WISE STATEMENT OF SALE OF OLD GOLD ORNAMENTS ON RETAIL BASIS AS PE R EXHIBIT-3 AND ALSO FURNISHED THE DETAILS REGARDING NEW ORNAMENTS SOLD TO THE JEWELLE RS. THE MONTH WISE SUMMARY IN RESPECT OF GOLD ORNAMENTS SOLD ON RETAIL BASIS AND SOLD TO JEWELLERS HAVE BEEN PREPARED AND ENCLOSED HEREWI TH AS PER ANNEXURE-'B'. THE BILLS FOR THE SALES HAVE BEEN PRODUCED BY THE ASSESSEE AN D THE SAME HAVE BEEN VERIFIED WITH THE DETAILS SUBMITTED IN EXHIBIT-3. THIS INCLU DES LABOUR CHARGES OF RS. 6,40,300/- FOR GOLD ORNAMENTS SOLD ON RETAIL BASIS AND RS, 13, 95,396/- IN RESPECT OF GOLD ORNAMENTS SOLD TO JEWELLERS. CONSIDERING THE ABOVE FACTS THE ISSUE MAY KIN DLY BE DECIDED ON MERITS. YOURS FAITHFULLY, (F R MEENA) DY. COMMISSIONER OF INCOME TAX, ENCL: AS ABOVE CIRCLE-1(2), AHMED ABAD 18. A PERUSAL OF THE AFOREMENTIONED REMAND REPORT CLEAR LY SHOWS THAT THE ADDITION TO THE VALUE OF CLOSING STOCK AND ADDITION ON ACCOUNT OF ALLEGED LABOUR CHARGES RECEIPT ARE WITHOUT ANY B ASIS AND THE DIFFERENCE IN THE PURITY LOSS AS CLAIMED BY THE ASS ESSEE AT 17.381% AND AS ACCEPTED BY THE A.O. IN HIS REMAND REPORT AT 16.51% IS ONLY 0.871%. ITA NO. 519/ AHD/2013 . A.Y. 2009-1 0 9 19. CONSIDERING THE FACT THAT THE BOOKS OF THE ACCOUNTS ARE AUDITED AND THE TRADING ACCOUNT IS QUANTIFIED, WE DO NOT FI ND ANY REASON IN MAKING ANY ADDITION ON THIS ACCOUNT. WE, THEREFORE, ON THE STRENGTH OF THE REMAND REPORT OF THE A.O. DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). APPEAL FILED BY THE REVENUE IS ACCO RDINGLY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 19 - 07 - 2 016. SD/- SD/- (S.K. YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD