The DCIT, Central Circle-4, Surat V. M/s. Indian Polyfins Ltd., Surat

ITA 711/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9458 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH SR D R
• Assessee Lawyers: HARDIK V VORA
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA K. YADAV, JUDICIAL MEMBER AN D SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ ITA NO. 711/AHD/2011 / ASSESSMENT YEAR: 2007-08 DCIT, CENTRAL CIRCLE-4, SURAT .. APPELLANT VS M/S. INDIAN POLYFINS LTD, 5T FLOOR, RUSHABH TEX TOWER, RING ROAD, SURAT .. RESPONDENT PAN : AAACI 4935 R REVENUE BY : SHRI DINESH SINGH, SR-DR ASSESSEE(S) BY : SHRI HARDIK V. VORA, AR / DATE OF HEARING 11/02/2016 /DATE OF PRONOUNCEMENT 19/02/2016 / O R D E R PER SHAILENDRA K. YADAV, JUDICIAL MEMBER: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, AHMEDABAD, DATED 24.12.2010, FOR ASSESSMENT YEAR 2007-08, ON THE FOL LOWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN LAW AND IN FACTS IN DELETING TH E ADDITION AT RS.38,34,000/- MADE ON ACCOUNT OF UNEXPLAINED INCRE ASE IN THE WAGES AND SALARY AS COMPARED TO THE INCREASE IN PRO DUCTION. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN LAW AND IN FACTS IN DELETING TH E ADDITION AT RS.38,34,000/- MADE ON ACCOUNT OF UNEXPLAINED INCRE ASE IN THE WAGES AND SALARY AS COMPARED TO THE INCREASE IN PRO DUCTION, HOLDING THAT ONLY BECAUSE INCREASE IN WAGES IS NOT PROPORTIONAL TO THE INCREASE IN PRODUCTION, THE ADDITION CANNOT BE MADE, WITHOUT APPRECIATING THE FACT THAT THE EXPENDITURE WAS INCURRED ITA NO. 711/AHD/2011 DCIT VS. INDIAN POLYFINS LTD AY : 2007-08 2 IN CASH AND IN NONE OF THE CASES, AS THE ADDRESSES OF THE WORKERS WERE PROVIDED, IT WAS DIFFICULT TO VERIFY THE IDENT ITY OF THE WORKERS AND THEREBY THE GENUINENESS OF THE PAYMENT, APART FROM THE UNEXPLAINED INCREASE IN WAGES AND SALARY AS COM PARED TO THE INCREASE IN PRODUCTION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASID E AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A FIRM ENGAGED IN THE BUSINESS OF ART SILK CLOTH SAREES. THE ASSE SSEE PURCHASES GREY CLOTH FROM LOCAL VIEWERS AND SELLS THE SAME AFTER G ETTING PROCESSED FROM DYEING AND PRINTING MILLS. DURING THE YEAR UN DER CONSIDERATION, THE ASSESSEE HAS SHOWN GROSS PROFIT OF RS.33,16,757 /- ON TOTAL SALES OF RS.3,84,56,001/- WHICH COMES TO 8.62% AS AGAINST TH E GROSS PROFIT OF RS.28,90,990/- ON THE TURNOVER OF RS.3,56,39,770 WI TH 8.11% IN THE IMMEDIATELY PRECEDING YEAR. 2.1 THE ONLY ISSUE BEFORE US IS REGARDING THE DELET ION OF ADDITION OF RS.38,34,000/- MADE ON ACCOUNT OF UNEXPLAINED INCRE ASE IN THE WAGES AND SALARY. THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS SHOWN THE EXPENSES FOR WAGES IN RESPECT OF WATER JE T MACHINES AT RS.1,15,68,007/- AS AGAINST THE LAST YEARS EXPENSE S OF RS.62,63,201/- WHICH WAS WORKED OUT THE INCREASE OF 85%, WHEREAS T HE PRODUCTION HAS ARISEN ONLY BY 23.49%. THE ASSESSING OFFICER F URTHER OBSERVED THAT THE ASSESSEE HAS NOT PURCHASED ANY NEW WATER JET MA CHINERY AND NOT TAKEN ANY MACHINERY ON RENT OR LEASE. HE ALSO OBSE RVED THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE IN CASH, THER E WAS NO REVENUE STAMP ON SUCH RECEIPTS AND THOSE EXPENSES WERE NOT FOUND TO BE VERIFIABLE. HE, THEREFORE, TREATED THE INCREASE IN EXPENSES OF 23.49% AS ITA NO. 711/AHD/2011 DCIT VS. INDIAN POLYFINS LTD AY : 2007-08 3 REASONABLE AND BALANCE 25.51% AS UNREASONABLE. ACC ORDINGLY, THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.38,34, 000/- BY DISALLOWING THE EXCESS CLAIM OF WAGES. 2.2 MATTER WAS CARRIED BEFORE THE FIRST APPELLATE A UTHORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF OF THE AS SESSEE. THE STAND OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT THE WAGES W ERE PAID ON FIXED MONTHLY BASIS IN RESPECT OF PRODUCTION ACHIEVED AS WORKERS WERE EMPLOYED ON MACHINE ON FIXED BASIS AND IN CASE THE NUMBER OF MACHINES ARE INCREASED, THE WAGES ARE ALSO INCREASE D. IT WAS ALSO THE ASSESSEES SUBMISSION BEFORE THE CIT(A) THAT, DURIN G THE YEAR UNDER CONSIDERATION, SELF OWNED MACHINES WERE ONLY 15; BU T MACHINES TAKEN ON LEASE AS ON 31.03.2005 WAS 2, IT WAS 80 AS ON 31 .03.2006 AND 102 AS ON 31.03.2004. FURTHER, IT WAS SUBMITTED BY THE ASS ESSEE BEFORE THE CIT(A) THAT THERE WAS PROPER AGREEMENT FOR LEASE. LEASE RENTAL WERE PAID AND TDS WERE DEDUCTED AND IN THE LEDGER ACCOUN T, COPY OF LEASE RENTALS WERE SHOWN UNDER THE HEAD SERVICE CHARGES. THE COPY OF THE ACCOUNT AND DETAILS WERE ALSO FURNISHED. THESE DETA ILS WERE SENT TO THE ASSESSING OFFICER FOR HIS COMMENTS VIDE LETTER DATE D 23.03.2010 AND 19.08.2010. BEFORE THE CIT(A), THE ASSESSEE HAS AL SO SUBMITTED THAT REVENUE STAMP WAS AFFIXED WHEN PAYMENT EXCEEDED RS. 5,000/-, THE EMPLOYMENT OF LABOURERS WAS EVIDENT FROM THE PF REC ORD AS WELL AND THERE WAS INCREASE IN PRODUCTION AND THE GROSS PROF IT RATE WAS BETTER THAN THE LAST YEAR; AND THEREFORE, NO ADDITION WAS CALLED FOR. AGREED WITH THE CONTENTION OF THE ASSESSEE, THE CIT(A) GRA NTED RELIEF TO THE ASSESSEE BY OBSERVING THAT THE ASSESSEE HAS TAKEN M ACHINES ON LEASE AND HAS BEEN PAYING LEASE RENTALS AFTER DEDUCTING T DS. FURTHER, HE OBSERVED THAT THERE WAS INCREASE IN PRODUCTION DURI NG THE YEAR UNDER ITA NO. 711/AHD/2011 DCIT VS. INDIAN POLYFINS LTD AY : 2007-08 4 CONSIDERATION AND THE GROSS PROFIT RATE WAS ALSO BE TTER. THE CIT(A) ALSO HELD THAT THE ADDITION COULD NOT BE MADE MERELY BEC AUSE OF INCREASE IN WAGES WAS NOT PROPORTIONAL TO INCREASE IN PRODUCTIO N. ACCORDINGLY, HE RIGHTLY DELETED THE ADDITION IN QUESTION BY OBSE RVING THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE WAGES AND MAKING SUCH ADDITION IN QUESTION. THESE REASONED AN D FACTUAL FINDINGS OF THE CIT(A) DO NOT NEED ANY INTERFERENCE FROM OUR SIDE; WE UPHOLD THE SAME. 3. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE COURT ON 19TH FEBRUARY 2016 AT AHMEDABAD. SD/- SD/- N.K. BILLAIYA SHAILENDRA K. YADAV (ACCOUNTANT MEMBER) (JUDICI AL MEMBER) AHMEDABAD; DATED 19/02/2016 BIJU T., PS !' #'$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! ' ' # / CONCERNED CIT 4. ' ' # ( ) / THE CIT(A) 5. &'( ! , ' ! , / DR, ITAT, AHMEDABAD 6. (- . / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD