The ACIT, Circle-9, Surat V. Shri Ravjibhai Bhecharbhai Dhamelia, Surat

ITA 534/AHD/2009

• Counselvise Citation: 53420514 RSA 2009
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 19-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV; S S PARIDA
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. K. GARO DIA, AM) ITA NO. 534/AHD/2009 A. Y.: 2005-06 THE A. C. I. T., CIRCLE-9, ROOM NO.423, 4 TH FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS SHRI RAVJIBHAI BECHARBHAI DHAMELIYA, PROP. VRAJ DIAMOND & AMRUT EXPORTS, VRJSHILLA, KAPODARA CHAR RASTA, VARACHHA ROAD, SURAT PA NO. ACCPD 5423 C (APPELLANT) (RESPONDENT) APPELLANT BY SHRI S. S. PARIDA, CIT DR AND SHRI B. L. YADAV, DR RESPONDENT BY NONE DATE OF HEARING: 10-01-2012 DATE OF PRONOUNCEMENT: 20-01-01-2012 O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-V, SURAT DATED 24-11-2008, FOR ASSESSMENT YEAR 2005-06 ON THE FOL LOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. C. I. T. (A) HAS ERRED IN DELETING THE ADDITION OF RS.2,71,55,649/- MADE BY THE A. O. ON ACCOUNT OF LO W G. P., WITHOUT APPRECIATING THE FACTS OF THE CASE AND INTENT OF THE LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. C. I. T. (A) HAS ERRED IN DELETING THE ADDITION OF ITA NO.534/AHD/2009 THE ACIT, CIR-9, SURAT VS SHRI RAVJIBHAI BECHARBHAI DHAMELIYA 2 RS.3,18,87,684/- MADE BY THE A. O. ON ACCOUNT OF BO GUS LIABILITY OF THE I. T. ACT, WITHOUT APPRECIATING TH E FACTS OF THE CASE AND INTENT OF THE LAW. 2. WE HAVE HEARD THE LEARNED DR AND PERUSED THE FIN DINGS OF THE AUTHORITIES BELOW. HOWEVER, NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE THROUGH LEARNED DR. SERVICE REPORT IS PRODUCED BY THE LEARNED DR. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS AN INDIVIDUAL RUNNING TWO SEPARATE PROPRIETARY CONCERN S (1) M/S. VRAJ DIAMONDS WHEREIN THE ACTIVITY OF CUTTING AND POLISH ING OF DIAMONDS ON JOB WORK BASIS OF OUTSIDE PARTIES IS CARRIED OUT AND (2) M/S. AMRUT EXPORTS WHEREIN THE ACTIVITY OF EXPORTS OF DIAMONDS IS CARRIED OUT. A SURVEY U/S 133A OF THE IT ACT WAS CONDUCTED IN THE CASE OF THE ASSESSEE ON 09-09-2004 WHEREIN INCOME OF RS.2.51 CR ORES WAS DISCLOSED IN THE HANDS OF ONE OF THE PROPRIETARY CO NCERNS OF THE ASSESSEE M/S. VRAJ DIAMONDS. DURING THE YEAR UNDER CONSIDERATION M/S. VRAJ DIAMONDS HAD CLAIMED LABOUR EXPENSES IN R ESPECT OF PAYMENTS MADE TO 12 SUB-CONTRACTORS, FOR WHICH COMP LETE DETAILS IN THE FORM OF THEIR NAME, AMOUNT OF LABOUR CHARGED PA ID, INCOME TAX RETURNS, AUDIT REPORTS, CONFIRMATIONS ETC. WERE FIL ED BEFORE THE AO. DURING THE COURSE OF SURVEY AT THE PREMISES OF THE ASSESSEE STATEMENT OF 7 SUB-CONTRACTORS OUT OF 12 SUB-CONTRA CTORS WERE RECORDED WHEREIN THEY STATED THAT THEY WERE EMPLOYE ES OF M/S. VRAJ DIAMONDS WHEREAS THE AO OBSERVED THAT THE ASSESSEE WAS CLAIMING THESE PERSONS TO BE AS SUB-CONTRACTORS AND PAYMENTS MADE TO SUCH PERSONS WERE CLAIMED AS LABOUR CHARGES PAID BY THE ASSESSEE IN THE ITA NO.534/AHD/2009 THE ACIT, CIR-9, SURAT VS SHRI RAVJIBHAI BECHARBHAI DHAMELIYA 3 BOOKS OF ACCOUNTS. THE AO FURTHER OBSERVED THAT IN FACT THESE DEEMED SUB-CONTRACTORS WERE EMPLOYEES OF THE ASSESS EE SINCE THEY WERE WORKING IN THE SAME BUILDING AND WERE UNDER TO TAL CONTROL OF THE ASSESSEE AND MANY ARE RELATIVES. ACCORDINGLY, BOOKS OF ACCOUNTS WERE NOT FOUND TO BE RELIABLE AND THE SAME WERE ACC ORDINGLY REJECTED AND GROSS PROFIT WAS ESTIMATED AT RS.2,71,55,649/- @ 10% OF THE TOTAL TURNOVER OF RS.27,15,56,498/- INSTEAD OF GRO SS PROFIT OF RS.1,78,52,699/- @ 6.57% SHOWN IN THE BOOKS OF ACCO UNTS. IT WAS CLAIMED THAT THESE OUTSTANDING LIABILITIES WERE PAI D IN THE SUBSEQUENT YEARS. HOWEVER, THE AO WAS OF THE VIEW THAT THESE A RE BOGUS OUTSTANDING LIABILITIES AND ACCORDINGLY THE AO ESTI MATED THAT ONLY ONE MONTH SALARY AMOUNTING TO RS.2,26,29,708/- OF THE T OTAL TURNOVER WOULD ACTUALLY BE PAYABLE TO THESE PERSONS AND ACCO RDINGLY BALANCE AMOUNT OF RS.3,18,87,684/- WAS CONSIDERED AS BOGUS AND ADDITION WAS ACCORDINGLY MADE IN RESPECT OF BOGUS LIABILITIE S TO THE SUB- CONTRACTORS BY INVOKING THE PROVISIONS OF SECTION 4 1(1) OF THE IT ACT. 4. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE HAD ALREADY DECLARED RS.2.51 CRORES DURING THE COUR SE OF SURVEY AS WERE DISCLOSED IN THE RETURN OF INCOME AS ADDITIONA L INCOME OVER AND ABOVE THE REGULAR INCOME WHICH IS ALSO CLEAR FROM T HE PROFIT & LOSS ACCOUNT. IT WAS SUBMITTED THAT THE ASSESSEE GROSS P ROFIT RATE IS ALREADY BETTER BECAUSE IN THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE HAS SHOWN GROSS PROFIT RATE OF 6.57% AS AG AINST 6.47% SHOWN IN THE PRECEDING ASSESSMENT YEAR 2004-05. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE MAINTAINED COMPLETE DET AILS; THEREFORE, ADDITION ON ACCOUNT OF GROSS PROFIT IS UNJUSTIFIED. RELIANCE UPON THE ITA NO.534/AHD/2009 THE ACIT, CIR-9, SURAT VS SHRI RAVJIBHAI BECHARBHAI DHAMELIYA 4 DECISION OF ITAT AHMEDABAD BENCH WAS PLACED IN THE CASE OF BHADIYADRA DIAMONDS VS DCIT, DATED 08-11-2005 IN IT A NO.16/AHD/2009 WHEREIN THE BENCH UPHELD THE GROSS P ROFIT RATE OF 6% IN SIMILAR BUSINESS. IT WAS, THEREFORE, EXPLAINED T HAT THE ASSESSEE HAS SHOWN MORE GROSS PROFIT RATE IN THE ASSESSMENT YEAR UNDER APPEAL, THEREFORE, 10% PROFIT RATE SHOULD NOT HAVE BEEN APP LIED FOR MAKING FURTHER ADDITION. IT WAS FURTHER SUBMITTED THAT SIN CE COMPLETE DETAILS HAVE BEEN MAINTAINED, THEREFORE, BOOK RESULTS SHOUL D NOT HAVE BEEN REJECTED. IT WAS FURTHER SUBMITTED THAT THE ASSESSE E EMPLOYED SUB- CONTRACTORS AS PER AGREEMENT WITH THEM AND COMPLETE DETAILS HAVE BEEN MAINTAINED. PAYMENTS HAVE BEEN MADE THROUGH AC COUNT PAYEE CHEQUES AND ALL THE SUB-CONTRACTORS ARE INCOME TAX PAYEE. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS ALREADY MAD E DISCLOSURE OF RS.2.51 CRORES IN THE SURVEY; THEREFORE, FURTHER AD DITION IS UNJUSTIFIED. AS REGARDS ADDITION U/S 41 (1) OF THE IT ACT, IT WA S SUBMITTED THAT THE AO HAS ACCEPTED THE CLAIM OF THE ASSESSEE FOR PAYME NT OF LABOUR CHARGES IN THE SUBSTANTIAL MONTHS WHICH ARE RECORDE D IN THE BOOKS OF ACCOUNTS. THEREFORE, THEY CANNOT BE NON-EXISTENT. P AYMENTS HAVE BEEN MADE TO THEM BY ACCOUNT PAYEE CHEQUES AND ALL THE AMOUNTS PAYABLE AT THE END OF THE YEAR HAVE ALSO BEEN PAID TO THEM BY ACCOUNT PAYEE CHEQUES. THEREFORE, PROVISIONS OF SEC TION 41 (1) OF THE IT ACT WOULD NOT APPLY BECAUSE THE AO HAS FAILED TO PROVE ANY REMISSION OR CESSATION OF LIABILITY. THE LEARNED CI T(A) CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE EXPLANATION O F THE ASSESSEE FOUND THAT THE ASSESSEE HAS ALREADY SHOWN BETTER GROSS PR OFIT IN THE ASSESSMENT YEAR UNDER APPEAL WHICH IS ALSO HIGHER A S AGAINST THE BENCH MARK OF 6% DECIDED BY ITAT AHMEDABAD BENCH IN THE CASE OF ITA NO.534/AHD/2009 THE ACIT, CIR-9, SURAT VS SHRI RAVJIBHAI BECHARBHAI DHAMELIYA 5 BHADIYADRA DIAMONDS (SUPRA). IT IS ALSO NOTED THAT WHATEVER DISCREPANCY WAS FOUND DURING SURVEY, THE ASSESSEE H AS MADE DISCLOSURE OF RS.2.51 CRORES AND IT WOULD TAKE CARE OF THE ADDITION. THEREFORE, APPLICATION OF PROFIT RATE OF 10% FOR MA KING FURTHER ADDITION ON ACCOUNT OF GROSS PROFIT WAS FOUND TO BE UNJUSTIF IED AND ADDITION WAS ACCORDINGLY DELETED. THE LEARNED CIT(A) ALSO FO UND THAT THE ASSESSEE MAINTAINED COMPLETE DETAILS AND PRODUCED T HE DOCUMENTARY EVIDENCES, THEREFORE, PAYMENTS TO THE S UB-CONTRACTORS CANNOT BE DISBELIEVED. THE LEARNED CIT(A) ACCORDING LY DELETED THE GROSS PROFIT ADDITION. THE LEARNED CIT(A) FURTHER F OUND WITH REGARD TO ADDITION OF RS.3,18,87,648/- AS INCOME U/S 41 (1) O F THE IT ACT THAT THE AO HAS TREATED PART OF THE AMOUNT PAYABLE TO P ARTICULAR PERSONS AS JUSTIFIED BUT FOR SMALL PERIOD IT WAS HELD TO BE BOGUS PAYMENT OF NON-EXISTING PARTIES. THE LEARNED CIT(A) ALSO FOUND THAT IN FACT OUTSTANDING AMOUNT IS PAID IN THE NEXT YEAR THROUGH ACCOUNT PAYEE CHEQUES WHICH IS SUPPORTED BY DOCUMENTARY EVIDENCES . THEREFORE, THERE IS NO CESSATION OR REMISSION OF LIABILITY AND AS SUCH SECTION 41(1) OF THE IT ACT WOULD NOT BE APPLICABLE IN THIS CASE. SECOND ADDITION WAS ACCORDINGLY DELETED. 5. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. 6. ON CONSIDERATION OF THE SUBMISSIONS OF THE LEARN ED DR, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE OR DER OF THE LEARNED CIT(A) IN DELETING BOTH THE ADDITIONS. DURING THE C OURSE OF SURVEY INCRIMINATING MATERIAL WAS FOUND AGAINST THE ASSESS EE, THEREFORE, THE ASSESSEE SURRENDERED UNDISCLOSED INCOME OF RS.2.51 CRORES IN THE ITA NO.534/AHD/2009 THE ACIT, CIR-9, SURAT VS SHRI RAVJIBHAI BECHARBHAI DHAMELIYA 6 RETURN OF INCOME FILED FOR ASSESSMENT YEAR UNDER AP PEAL. THIS SURRENDERED INCOME WAS MADE OVER AND ABOVE THE REGU LAR INCOME. THE AO HAS NOT DISPUTED THE TURNOVER OF THE ASSESSE E. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS SHOWN BETTER GROSS PROFIT IN THE BOOKS OF ACCOUNTS IN THE ASSESSMENT YEAR APPEAL AT 6.57% AS AGAINST GROSS PROFIT RATE OF PRECEDING ASSESSMENT Y EAR AT 6.47%. THE HIGHER PROFIT RATE DISCLOSED BY THE ASSESSEE AND TH E FURTHER UNDISCLOSED INCOME OF RS.2.51 CRORES DISCLOSED IN T HE RETURN OF INCOME AS PER SURVEY CLEARLY PROVE THAT THE ASSESSE E PROVED THAT THE ASSESSEE HAS SHOWN BETTER BUSINESS RESULTS IN THE B OOKS OF ACCOUNTS AS WELL AS SURRENDERED ADDITIONAL INCOME ON ACCOUNT OF DISCREPANCY FOUND DURING THE COURSE OF SURVEY. NOTHING IS BROUG HT ON RECORD FURTHER AS TO WHY FURTHER ADDITION BY ENHANCEMENT O F GROSS PROFIT RATE SHOULD BE MADE AGAINST THE ASSESSEE. THE ASSESSEE M AINTAINED COMPLETE RECORDS WHICH WERE FOUND SATISFACTORY BY T HE LEARNED CIT(A). THEREFORE, THERE WAS NO REASON TO INTERFERE IN THE FINDING OF FACT RECORDED BY THE LEARNED CIT(A) FOR DELETING TH E ADDITION ON ACCOUNT OF GROSS PROFIT. FURTHER, THERE WAS NO JUST IFICATION TO ENHANCE THE GROSS PROFIT OF THE ASSESSEE PARTICULARLY WHEN SUBSTANTIAL AMOUNT OF RS.2.51 CRORES HAS BEEN DECLARED AS ADDITIONAL I NCOME DURING THE ASSESSMENT YEAR UNDER APPEAL. THE LEARNED CIT(A), T HEREFORE, RIGHTLY DELETED THE ADDITION ON ACCOUNT OF GROSS PROFIT. AS REGARDS BOGUS LIABILITIES, THE AO DID NOT DISPUTE THE PAYMENTS MA DE TO THE SAME PARTIES DURING THE ASSESSMENT YEAR UNDER APPEAL. ON LY PART OF THE OUTSTANDING PAYMENT HAS BEEN DISBELIEVED. THE AO HA S INVOKED THE PROVISIONS OF SECTION 41 (1) OF THE IT ACT WHICH IS APPLICABLE WHEN THERE IS A REMISSION OF CESSATION OF LIABILITY. FUR THER, THE ASSESSEE HAS ITA NO.534/AHD/2009 THE ACIT, CIR-9, SURAT VS SHRI RAVJIBHAI BECHARBHAI DHAMELIYA 7 MADE PAYMENTS AGAINST THE OUTSTANDING LIABILITY IN THE SUBSEQUENT YEAR BY ACCOUNT PAYEE CHEQUES. NOTHING IS BROUGHT O N RECORD AS TO HOW THE CONDITIONS OF SECTION 41(1) OF THE IT ACT A RE SATISFIED IN THIS CASE. THEREFORE, THE LEARNED CIT(A) ON PROPER APPRE CIATION OF FACTS AND MATERIAL ON RECORD RIGHTLY DELETED THE SECOND A DDITION AS WELL. THE REVENUE IS IN APPEAL ON THE ABOVE GROUNDS. HOWE VER, DURING THE COURSE OF ARGUMENTS NO MATERIAL IS PRODUCED BEFORE US TO REBUT THE FINDINGS OF THE LEARNED CIT(A). IN THE ABSENCE OF A NY MATERIAL IN FAVOUR OF THE REVENUE, WE DO NOT FIND ANY JUSTIFICA TION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). WE CONFIRM HIS FIN DINGS AND DISMISS THE DEPARTMENTAL APPEAL. 7. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT SD/- SD/- (A. K. GARODIA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD