The ITO, Ward-9(3), Surat V. Shri Popatlal Bachubhai Sagar, Surat

ITA 601/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5792 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 19-05-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 15-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI LAXMI
• Assessee Lawyers: SAPNESH SHETH
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI D.C. AGRAWAL, A.M.) I.T.A. NO. 601/AHD./2008 ASSESSMENT YEAR : 2004-2005 INCOME TAX OFFICER, WARD-9(3), SURAT VS.- SHRI PO PATBHAI BACHHUBHAI SAGAR, SURAT (PAN : AKZPS 0072 K) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. JYOTI LAXMI, SR. D.R. RESPONDENT BY : SHRI SAPNESH SHETH O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 28.11.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-V, SURAT DELETI NG THE ADDITION OF RS.23,68,998/- OUT OF ADDITION OF RS.24,42,266/- MADE BY THE ASSESSING OF FICER IN RESPECT OF UNVERIFIABLE LABOUR CHARGES FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S AN INDIVIDUAL. FOR THE ASSESSMENT YEAR UNDER APPEAL, HE FILED THE RETURN OF INCOME ON 4.3. 2005 DECLARING TOTAL INCOME AT RS.63,092/- AND RS.40,940/- AS AGRICULTURAL INCOME ALONGWITH THE CO PY OF PROFIT & LOSS A/C. AND BALANCE-SHEET. THE ASSESSING OFFICER FRAMED THE ASSESSMENT UNDER SECTION 143(3), WHEREIN THE A.O. CONCLUDED THAT THE ASSESSEE HAS NOT CARRIED OUT ANY LABOUR WO RK THROUGH LABOUR CONTRACTORS AGAINST WHOM HE CLAIMED TO HAVE PAID RS.23,54,650/-. THE A.O. FURTH ER HELD THAT THE ENTIRE TRANSACTION ENTERED INTO BETWEEN THE ASSESSEE AND M/S. SANGHVI DIAMOND MFG. PVT. LTD. IS ONLY AN ACCOMMODATION ENTRY AND COLOURFUL TRANSACTION ENTERED INTO BETWEE N THE PARTIES FOR AVOIDANCE OF PAYMENT OF TAX. THEREFORE, THE A.O. MADE THE ADDITION OF RS.24,42,2 66/- BEING LABOUR INCOME SHOWN TO HAVE RECEIVED FROM M/S. SANGHVI DIAMOND MFG. PVT. LTD. O N PROTECTIVE BASIS IN THE HANDS OF THE ASSESSEE AND PROPOSED TO CONSIDER IT SUBSTANTIVELY IN THE CASE OF M/S. SANGHVI DIAMOND MFG. PVT. LTD. 2 ITA NO. 601/AHD/2008 3. ON APPEAL, BEFORE THE LD. CIT(A) THE ASSESSEE RE LIED ON THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF ATUL M. ZAVERI (HUF), WHEREIN T HE A.O. WAS DIRECTED TO WORK OUT THE PROFIT @ 3% OF THE JOB WORK RECEIPTS AND TAX THE SAME ON S UBSTANTIVE BASIS IN THE CASE OF THAT ASSESSEE. THE LD. CIT(A) ACCEPTED THE PLEA OF THE ASSESSEE AN D DIRECTED THE A.O. TO WORK OUT THE PROFIT @ 3% OF THE JOB WORK RECEIPTS AND TAX THE SAME ON SUB STANTIVE BASIS AND DELETED THE BALANCE AMOUNT. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE R EVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING BEFORE US, SMT. JYOTI LAX MI, SR. D.R. APPEARING ON BEHALF OF THE REVENUE DREW OUR ATTENTION ON THE GROUNDS RAISED BY THE REVENUE IN APPEAL MEMO. THESE GROUNDS ARE EXTRACTED BELOW :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.23,68,998/ - OUT OF RS.24,42,266/- MADE BY THE AO IN RESPECT OF UNVERIFIABLE LABOUR CHARGES. (2) IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF A.O. U/S. 143(3) DATED 29.12.2006 MAY BE RE STORED. 5. THE LD. D.R. ALSO TOOK US THROUGH THE REASONING GIVEN BY THE A.O. FOR TAXING THE INCOME OF RS.24,42,266/- ON PROTECTIVE BASIS WHICH WERE RE CEIVED FROM M/S. SANGHVI DIAMOND MFG. PVT. LTD. AND PROPOSED TO CONSIDER IT IN THE CASE O F M/S. SANGHVI DIAMOND MFG. PVT. LTD., WHO HAVE MADE PAYMENT TO THE ASSESSEE. TO A QUERY FROM THE BENCH, WHETHER THE AMOUNT OF RS.24,42,266/- HAS BEEN TAXED / DISALLOWED IN THE C ASE OF M/S. SANGHVI DIAMOND MFG. PVT. LTD., SHE POINTED OUT THAT THE A.O. OF THE ASSESSEE HAS R ETURNED TO THE ASSESSING OFFICER, WHO IS HAVING THE JURISDICTION OVER THE CASE OF M/S. SANGHVI DIAM OND MFG. PVT. LTD. TO TAKE APPROPRIATE ACTION. THE LD. D.R. SUBMITTED THAT WHETHER ANY ACTION IS T AKEN OR NOT TAKEN BY THE CONCERNED A.O., IS NOT KNOWN. 6. ON THE OTHER HAND, SHRI SAPNESH SHETH, LD. COUNS EL APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LD. CIT(A). THE L D. COUNSEL OF THE ASSESSEE POINTED OUT THAT THE ENTIRE LABOUR CHARGES CANNOT BE TAXED. HE FURTH ER EXPLAINED THAT IN DIAMOND INDUSTRY, LABOUR WORK RELATING TO CUTTING AND POLISHING OF DIAMOND I S CARRIED OUT ON COMMISSION BASIS AND PAYMENTS ARE GENERALLY MADE IN CASH TO VARIOUS PART IES. FOR THIS, REFERENCE CAN BE MADE TO THE 3 ITA NO. 601/AHD/2008 DECISION OF ITAT, AHMEDABAD BENCH IN THE CASE OF AT UL M. JHAVERI HUF VS.- ITO IN ITA N. 2128/AHD/2003, WHEREIN THAT ASSESSEE WAS ALSO ENGAG ED IN DIAMOND JOB WORK ACTIVITY APART FROM TRADING ACTIVITY. IN THAT CASE, IT WAS OBSERVE D BY AO THAT ASSESSEE PAID LABOUR CHARGES RUNNING INTO CRORES OF RUPEES TO MORE THAN 300 PART IES AND ENTIRE PAYMENTS WERE IN CASH. THE ASSESSING OFFICER ISSUED SUMMONS U/S. 131 ON VARIOU S PARTIES & IT WAS FOUND THAT ADDRESSES WERE NOT TRUE AND THE PARTIES WERE NOT AVAILABLE ON THEI R RESPECTIVE ADDRESSES. THE ASSESSEE WAS ALSO UNABLE TO PRODUCE PARTIES BEFORE ASSESSING OFFICER. SIMILARLY, WITH REGARD TO VARIOUS OTHER EXPENSES, VIZ. SALARY, BROKERAGE, ASSORTMENT CHARGE S IT WAS OBSERVED THAT THE SAME ARE NOT VERIFIABLE. ON THE BASIS OF THESE FACTS, IN THAT CA SE, HUGE ADDITIONS WERE MADE TO THE INCOME OF ASSESSEE. HOWEVER, HONBLE ITAT IN THAT CASE DIRECT ED TO APPLY THE PROFIT RATE IN RESPECT OF TRADING ACTIVITY AND JOB WORK ACTIVITY BY TAKING AV ERAGE OF PROFIT EARNED BY ASSESSEE IN EARLIER 2-3 YEARS SUBJECT TO MINIMUM OF 2% IN TRADING ACTIVITY & 3% IN JOB WORK ACTIVITY. 7. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE ASSESSME NT ORDER, THE ASSESSING OFFICER TAXED THE ENTIRE LABOUR CHARGES RECEIVED FROM M/S. SANGHVI DIAMOND M FG. PVT. LTD. AND IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TOO K THE VIEW THAT ONLY 3% OF THE LABOUR CHARGES CAN BE TAXED. IT IS NOT KNOWN WHAT ACTION D EPARTMENT HAS TAKEN IN THE CASE OF M/S. SANGHVI DIAMOND MFG. PVT. LTD. BE THAT IT MAY BE, T HE ENTIRE LABOUR CHARGES CANNOT BE INCOME OF THE ASSESSEE. TO APPLY TAX 3% OF THE LABOUR CHAR GES, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS FOLLOWED THE DECISION OF COORDINAT E BENCH OF TRIBUNAL IN THE CASE OF ATUL M. JHAVERI HUF. WE, THEREFORE, INCLINE TO UPHOLD THE O RDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 25.06.2010 . SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 25 / 06 /2010 4 ITA NO. 601/AHD/2008 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.