The DCIT, Circle-9, Surat V. M/s. Ruchi Exports, Surat

ITA 780/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 72920 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 24-01-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2011
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: SAPNESH SHETH

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO. 780/AHD/2011 A.Y. 2007-08 DCIT, CIRCLE-9, SURAT. VS M/S RUCHI EXPORTS SURAT. PAN:AADFR0705Q (APPELLANT) (RESPONDENT) REVENUE BY : SH. P.L. KUREEL, SR.D.R. ASSESSEE(S) BY : SH. SAPNESH SHETH, AR / // / DATE OF HEARING : 24/01/2014 !' / DATE OF PRONOUNCEMENT : 30/01/2014 #$ #$ #$ #$/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT/A DATED 03.11.2010. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT T HE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS 15,22,088/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF LABOUR CHARGE S. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF POLISHED DI AMONDS FROM ITA NOS.780/AHD/2011 M/S RUCHI EXPORTS VS DCIT, CIRCLE-9, SURAT. FOR A.Y. 2007-08 - 2 - ROUGH DIAMONDS. DURING THE YEAR UNDER CONSIDERATIO N, THE ASSESSEE SHOWED GROSS PROFIT OF RS 1.19 CRORE ON TU RNOVER OF RS 18.38 CRORES AND GROSS PROFIT OF RS 1.14 CRORE ON T URNOVER OF RS 18.25 CRORE FOR THE IMMEDIATELY PRECEDING YEAR. TH E GROSS PROFIT RATIO FOR THE YEAR UNDER CONSIDERATION WORKED OUT T O 6.51% AND THE SAME FOR THE PRECEDING YEAR WORKED OUT TO 6.26%. T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD SHOWN LABOUR CHARGES OF RS 1,39,09,673/- AT THE RATE OF RS 393/- PER CARAT WHE REAS IN THE EARLIER YEAR, THE SAME WAS RS 361/- PER CARAT. HE OBSERVED THAT THE FOLLOWING CONCERNS ENGAGED IN SIMILAR BUSINESS PAID LABOUR CHARGES IN THE RANGE OF RS 250/- TO RS 300/- PER CA RAT: SR.NO. NAME OF THE PARTIES RATE (PER CTS) 1 M/S R. VIPUL & CO. RS 300/- 2 M/S PATEL EXPORTS, PROP. KIRTI I. PATEL RS 250/- 3 AMARSHIBHAI R. MIYANI RS 300/- HE THEREFORE ISSUED SHOW CAUSE NOTICE ON 07.12.20 09 REQUIRING THE ASSESSEE TO EXPLAIN AS TO WHY LABOUR CHARGES AT THE RATE OF RS 393/- PER CARAT SHOULD NOT BE HELD AS EXCESSIVE AND RATE OF RS 300/- PER CARAT BE ASSUMED. THE ASSESSEE VIDE LETTER DATED 0 6.12.2009 SUBMITTED THAT MARKET RATE FOR LABOUR CHARGES PER C ARAT VARIED FROM RS 300/- TO RS 500/- PER CARAT DEPENDING ON THE SIZ E AND SHAPE, QUALITY OF ROUGH DIAMONDS AND SKILL OF THE LABOUR. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF T HE ASSESSEE. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS FA ILED TO SUBMIT DATA WITH REGARD TO SHAPE, SIZE, QUALITY OF ROUGH D IAMOND AND ALSO OBSERVED THAT DIAMOND LABOUR IS PAID DIFFERENT RATE FOR DIFFERENT JOB ITA NOS.780/AHD/2011 M/S RUCHI EXPORTS VS DCIT, CIRCLE-9, SURAT. FOR A.Y. 2007-08 - 3 - AND THE RATE VARIES AS PER THE SIZE, WEIGHT AND QUA LITY OF ROUGH DIAMOND AND THE ASSESSEE KNOWS ALL THESE FACTS BUT DOES NOT PRODUCE THE DETAILS OF SUCH COMPUTATION. THEREFORE , HE CONSIDERED THE LABOUR CHARGES AT THE RATE OF RS 350/- PER CA RAT AS REASONABLE AND DIFFERENCE OF RS 43/- PER CARAT WHICH WORKED OU T TO RS 15,22,088/- WAS DISALLOWED AND ADDED TO THE TOTAL I NCOME OF THE ASSESSEE. 4. THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) WHILE ADJUDICATING THE ISSUE, OBSERVED THAT AHMEDAB AD BENCH OF THE TRIBUNAL IN THE CASE OF DHAMI BROTHERS AND M/S PANKAJ DIAMOND HAS HELD THAT BOOK RESULTS OF THE ASSESSEE CANNOT BE REGARDED AS DEFECTIVE ON THE GROUND OF NON-MAINTENA NCE OF QUALITY-WISE DETAILS OF DIAMONDS. HE FURTHER OBSER VED THAT THE DISALLOWANCE WAS MADE MAINLY ON THE GROUND THAT SOM E OTHER ENTITIES WERE MAKING PAYMENT OF LABOUR CHARGES AT T HE RATE LOWER THAN THAT OF THE ASSESSEE. THE LD. CIT(A) OPINED T HAT DISALLOWANCE CANNOT BE MADE BARELY ON THE BASIS OF THIS REASON AS IT IS NOT NECESSARY THAT ENTIRE FACTORS AFFECTING T HE BUSINESS OF ASSESSEE AND THAT OF THE ENTITIES RELIED UPON BY TH E ASSESSING OFFICER ARE IDENTICAL. HE NOTED THAT THE ASSESSING OFFICER HIMSELF ACCEPTS THE FACT THAT DIAMOND LABOUR IS PAID DIFFER ENT RATES FOR DIFFERENT JOBS AND THE RATE VARIES AS PER SIZE, WEI GHT, AND QUALITY ETC. OF ROUGH DIAMOND. REGARDING THE OBSERVATION O F ASSESSING OFFICER THAT THE ASSESSEE HAS NOT PRODUCED DETAILS RELATING TO SIZE, WEIGHT, QUALITY ETC. OF ROUGH DIAMOND, THE LD. CIT( A) OBSERVED THAT THE ASSESSING OFFICER HAS NOT POINTED OUT AS T O WHAT IS THE SIZE, WEIGHT, QUALITY ETC. OF ROUGH DIAMONDS OF THE ENTITIES RELIED ITA NOS.780/AHD/2011 M/S RUCHI EXPORTS VS DCIT, CIRCLE-9, SURAT. FOR A.Y. 2007-08 - 4 - UPON BY HIM. THE LD. CIT(A) FURTHER NOTED THAT DES PITE RISE IN THE RATE OF LABOUR CHARGES, THERE WAS INCREASE IN GROSS PROFIT RATE AND THAT TOO ON INCREASED TURNOVER AS COMPARED TO THE P RECEDING YEAR. THE GROSS PROFIT RATE COMES TO 6.51% OF TURNOVER OF RS 18.38 CRORES AS AGAINST GROSS PROFIT RATE OF 6.26% ON TUR NOVER OF RS 8.25 CRORE FOR THE IMMEDIATELY PRECEDING YEAR. HE ALSO OBSERVED THAT THE ASSESSEE HAS PRODUCED ALL THE RELEVANT EVIDENCE S IN SUPPORT OF THE CLAIM OF LABOUR CHARGES AND THEREFORE, NO DISAL LOWANCE ON PRESUMPTIVE BASIS SHOULD BE MADE IF THERE ARE NO DE FECTS IN THE EVIDENCES PRODUCED BY THE ASSESSEE. THE LD. CIT(A) ALSO OBSERVED THAT THERE WAS NO BASIS IN RESTRICTING THE CLAIM OF LABOUR CHARGES ONLY TO THE EXTENT OF RS 350/- PER CARAT. THEREFORE, THE LD. CIT(A) DELETED THE ADDITION OF RS 15,22,088/-. 5. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 6. THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER O F THE LD. CIT(A). HE ALSO FILED COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF FOR ASSESSMENT YEAR 2005-06 PASSED IN ITA NO. 3386/AHD/2008 ORDER DATED 29.12.2008 AND SUBMITTED THAT ON SIMILAR FACTS OF THE CASE, THE TRIBUNAL HAD CONFIRM ED THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION AND DISMISS ED THE APPEAL OF THE REVENUE. IT WAS THE SUBMISSION OF THE LD. AR T HAT AS THE FACTS OF THE CASE IN THE PRESENT YEAR OF APPEAL ARE IDENT ICAL TO THE FACTS OF THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2005-0 6, FOLLOWING THE SAME, THE APPEAL OF THE REVENUE DESERVES TO BE DISMISSED. ITA NOS.780/AHD/2011 M/S RUCHI EXPORTS VS DCIT, CIRCLE-9, SURAT. FOR A.Y. 2007-08 - 5 - 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EX PORT AND MANUFACTURING OF POLISHED DIAMONDS FROM ROUGH DIAMO NDS. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS PA ID LABOUR CHARGES FOR POLISHING OF DIAMONDS AT THE RATE OF RS 393/- PER CARAT WHEREAS IN THE EARLIER YEAR, THE RATE PAID WAS RS 3 61/- PER CARAT. THE ASSESSING OFFICER ALSO OBSERVED THAT OTHER CONC ERNED ENGAGED IN SIMILAR BUSINESS WERE PAYING LABOUR CHARGES IN T HE RANGE OF RS 250/- TO RS 300/- PER CARAT. HE ALSO OBSERVED THAT THE ASSESSEE HAS NOT FILED THE QUANTITY AND QUALITY-WISE DATA OF ROU GH DIAMONDS ON WHICH LABOUR CHARGES WERE PAID. HE, THEREFORE, EST IMATED THE LABOUR CHARGE AT THE RATE OF RS 350/- PER CARAT AND THEREBY MADE ADDITION FOR THE DIFFERENCE AMOUNT OF RS 43/- PER C ARAT WHICH WORKED OUT TO RS 15,22,088/-. 8. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION. WHILE DOING SO, THE OBSERVATION OF THE LD. CIT(A) WAS THAT DURING T HE YEAR UNDER CONSIDERATION, THE GROSS PROFIT RATE OF 6.51% SHOWN BY THE ASSESSEE WAS HIGHER THAN GROSS PROFIT RATE OF 6.26% SHOWN IN THE EARLIER YEAR AND THAT TOO ON AN INCREASED TURNOVER OF RS 18 .38 CRORES AS AGAINST RS 8.25 CRORES IN THE EARLIER YEAR. THE LD . CIT(A) HAS FURTHER NOTED THAT THE ASSESSEE HAD PRODUCED ALL RE LEVANT EVIDENCES IN SUPPORT OF THE CLAIM OF THE LABOUR CHARGES AND N O DEFECTS WERE POINTED OUT BY THE ASSESSING OFFICER IN THOSE EVIDE NCES AND THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING O FFICER ON PRESUMPTIVE BASIS WAS NOT JUSTIFIED. THE LD. DR CO ULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE CIT(A) B Y BRINGING ANY ITA NOS.780/AHD/2011 M/S RUCHI EXPORTS VS DCIT, CIRCLE-9, SURAT. FOR A.Y. 2007-08 - 6 - COGENT OR POSITIVE MATERIALS ON RECORD. FURTHER, W E FIND THAT IN THE ASSESSMENT YEAR 2006-07 WHICH IS THE IMMEDIATELY PR ECEDING ASSESSMENT YEAR IN THE CASE OF THE ASSESSEE ITSELF, THE TRIBUNAL HAS CONFIRMED THE ORDER OF THE LD. CIT(A) DELETING THE ADDITION MADE ON SIMILAR FACTS AND GROUNDS BY OBSERVING AS UNDER: 6. I HAVE CONSIDERED THE REASONS GIVEN BY ASSESSING OFFICER AND ALSO THE SUBMISSIONS OF APPELLANT. I HAVE ALSO GONE THROUGH THE DECISION OF HONOURABLE ITAT AHMEDABAD BENCH IN THE CASE OF M/S DHAMI BROTHERS & M/S PANKAJ DIAMOND RELIED UPON BY THE LEARNED AR. AFTER CAREFULLY GOING THROUGH THE SAME, IT IS S EEN THAT IT HAS BEEN CLEARLY HELD BY HONOURABLE ITAT AHMEDABAD BENC H THAT BOOK RESULTS CANNOT BE REGARDED AS DEFECTIVE ON THE GROU ND OF NON- MAINTENANCE OF QUALITY WISE DETAILS OF DIAMONDS. IT IS FURTHER SEEN THAT DISALLOWANCE HAS BEEN MADE MAINLY ON THE GROUN D THAT SOME OTHER ENTITIES ARE MAKING PAYMENT OF LABOUR CHARGES AT THE RATE WHICH IS LOWER THAN THAT OF THE ASSESSEE. HOWEVER, IN MY OPINION DISALLOWANCE CANNOT BE MADE PURELY ON THE BASIS OF THIS REASON, AS IT IS NOT NECESSARY THAT ENTIRE FACTORS AFFECTING T HE BUSINESS OF ASSESSEE & THAT OF THE ENTITIES RELIED UPON BY ASSE SSING OFFICER ARE IDENTICAL. THE ASSESSING OFFICER HIMSELF ACCEPTS TH E FACT THAT DIAMOND LABOUR IS PAID AT DIFFERENT RATES FOR DIFFE RENT JOBS & THE RATE VARIES AS PER SIZE, WEIGHT, QUALITY, ETC. OF R OUGH. WHILE CONTENDING THAT ASSESSEE HAS NOT PRODUCED DETAILS R ELATING TO SIZE, WEIGHT, QUALITY, ETC., THE ASSESSING OFFICER HAS NO T POINTED OUT AS TO WHAT IS THE SIZE, WEIGHT, QUALITY, ETC. OF ROUGH DI AMONDS OF THE 3 ENTITIES RELIED UPON BY HIM. IT IS ALSO SEEN THAT D ESPITE RISE IN RATE OF LABOUR CHARGES THERE IS INCREASE IN G.P. RATE & THA T TOO ON INCREASED TURNOVER, AS COMPARED TO THE PRECEDING YE AR AS G.P. RATE COMES TO 6.51% ON TURNOVER OF RS. 18.38 CRORES, AS AGAINST G.P. ITA NOS.780/AHD/2011 M/S RUCHI EXPORTS VS DCIT, CIRCLE-9, SURAT. FOR A.Y. 2007-08 - 7 - RATE 6.26% ON TURNOVER OF RS. 8.25 CRORES FOR THE IMMEDIATELY PRECEDING YEAR. FURTHER, ASSESSEE HAS PRODUCED ALL THE RELEVANT EVIDENCES FIN SUPPORT OF THE CLAIM OF LABOUR CHARGES & THEREFORE NO DISALLOWANCE ON PRESUMPTIVE BASIS SHOU LD BE MADE IF THERE ARE NO DEFECTS IN THE EVIDENCES PRODUCED BY A SSESSEE. IT IS ALSO SEEN THAT THERE IS NO BASIS IN RESTRICTING THE CLAIM OF LABOUR CHARGES ONLY TO THE EXTENT OF RS. 350 PER CARAT. HE NCE, THE ADDITION OF RS. 15,22,088 IS HEREBY DELETED AND THE GROUND O F APPEAL IS ALLOWED. 9. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE WITH THE O RDER OF THE CIT(A) WHICH IS HEREBY CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON THURSDAY, THE 30 TH JANUARY, 2014 AT AHMEDABAD. SD/- SD/- (KUL BHARAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 30/01/2014 GHANSHYAM MAURYA GHANSHYAM MAURYA GHANSHYAM MAURYA GHANSHYAM MAURYA, SR. P , SR. P , SR. P , SR. P. .. .S SS S. .. .