KANTILAL K GADA, BHIWANDI V. I.T.O. CENTRAL, THANE

ITA 8431/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71446 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2013
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 30-09-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 12-12-2011
• Court: TRIBUNAL
• Department Lawyers: S J SINGH
• Assessee Lawyers: S ATISH CHANDAK
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND SANJAY ARORA (AM) . . , , & ./I.T.A. NO.8431, 8433, 8432/MUM/2011 ( / ASSESSMENT YEARS:2003-04, 2005-06 & 2006-07) KANTILAL K. GADA, 10/A-1, FLAT NO.501-502, GOPAL NAGAR, KALYAN ROAD, BHIWANDI. / VS. INCOME TAX OFFICER, CENTRAL,2 ND FLOOR, PAWAR INDUSTRIAL ESTATE, EDULJI ROAD, CHARAI, THANE. ./ ./PAN/GIR NO. : AAWPG9426A ( / APPELLANT) .. ( / RESPONDENT) / APPELLANT BY : SHRI S ATISH CHANDAK /RESPONDENT BY : SHRI S.J.SINGH ' / DATE OF HEARING : 30.9.2013 ' /DATE OF PRONOUNCEMENT : 11.10.2013 / O R D E R PER BENCH: THE ASSESSEE FILED THESE THREE APPEALS FOR ASSESSM ENT YEARS 2003-04, 2005-06 AND 2006-07 AGAINST ALL THREE ORDERS OF LD. CIT(A) , DATED 15.07.2011. IN ALL THESE THREE APPEALS ASSESSEE DISPUTED THE CONFIRMATION OF ADDITION MADE BY AO IN RESPECT OF INFLATED LABOUR CHARGES. 2. SINCE THE FACTS AND THE ISSUE INVOLVED IN ALL THESE APPEALS ARE SIMILAR, SAVE AND EXCEPT AMOUNT INVOLVED, WE HAVE HEARD THESE AP PEALS TOGETHER AND DISPOSE OF THEM BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. WE CONSIDER IT PRUDENT TO STATE THE FACTS RELATI NG TO ASSESSMENT YEAR 2003-04. THE SPECIFIC GROUND OF APPEAL TAKEN BY ASSESSEE IN ASSESSMENT YEAR 2003-04 IS AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION RS. 13,16,649/- MA DE BY THE LD. A.O IN RESPECT OF ALLEGED INFLATED LABOUR CHARGES WITHOUT APPRECIA TING THE FACT THAT THE APPELLANT HAD PAID CONSOLIDATED CHARGES TO THE CONTRACTORS TO WARDS GODOWN CHARGES, INWARD TRANSPORT, OCTROI, WARPINS, SIZING, BEAM SET TER, DROPIN CHARGES, WEAVING, I.T.A. NO.8431, 8433, 8432/MUM/2011 2 JOBBER, CLIPPING, FOLDERS, OUTWARD TRANSPORT, ELECT RICITY, MILL STORES SPARES, LUBRICANT AND HAMAL CHARGES WHICH WERE CLAIMED UNDE R THE HEAD LABOUR CHARGES. 4. RELEVANT FACTS GIVING RISE TO ABOVE GROUND HAVE BEEN STATED BY LD. CIT(A) IN PARA 3 ALONG WITH ORDER OF AO WHICH IS AS UNDER : 3.1 THE SHORT FACTS CONCERNING THIS ADDITION ARE THAT, DURING SEARCH AT THE RESIDENCE OF SHRI KALPESH GADA, CERTAIN DOCUMENTS L IKE CHEQUE BOOKS, PAY IN SLIPS AND BANK PASS BOOKS HELD IN THE NAME OF VARIO US OTHER PERSONS WERE FOUND. SHRI KALPESH GADA IN A STATEMENT RECORDED U/S 132(4 ) ON 12/07/07 , ADMITTED THE DOCUMENTS TO REPRESENT BANK ACCOUNTS MAINTAINED IN THE NAME OF LABOURERS FOR THE PURPOSE OF INFLATING EXPENSES IN THE CASE O F APPU TEXTILES (APPELLANT) AND K K ENTERPRISES. 3.2 SHRI KALPESH GADA, FURTHER STATED THAT, HE HI MSELF WAS SHOWING RECEIPT OF LABOURS CHARGES FROM SHRI ALPESH GADA , PROPRIETOR M/S APPU TEXTILES, WHICH ACTUALLY WAS DONE TO INFLATE THE EXPENSES. HE FURTHER ADMITTED THAT, THE EXPENDITURE ON ACCOUNT OF LABOUR CHARGES WAS INFLAT ED BY SHOWING PAYMENTS TO OTHER MEMBERS OF THE FAMILY AS WELL. WITH REGARD T O THE FINDING OF BANK PASS BOOKS IN THE NAME OF VARIOUS OTHER PERSONS, IT WAS ADMITTED BY HIM THAT, THOUGH SALARIES WERE PAID TO THE WORKERS, THEY WERE SHOWN TO BE DOING JOB WORK ON CONTRACT BASIS ON RECORD. A FEW SUCH EMPLOYEES ADMI TTED IN STATEMENT THAT, THOUGH THEY WERE PAID SALARIES, THEY WERE SHOWN AS CONTRACT LABOURS. PAYMENTS MADE TO THEM BY CHEQUES WERE DEPOSITED IN THE BANK ACCOUNTS MAINTAINED IN THEIR NAME AND CASH WITHDRAWN BY THE APPELLANT HIMS ELF. RETURNS OF INCOME WERE ALSO FILED IN THE NAME OF THESE PERSONS. THE SE PERSONS HAD AFFIXED THEIR SIGNATURES ON BLANK CHEQUES. THE BANK ACCOUNTS WERE FOUND TO BE OPENED AND OPERATED BY NONE OTHER THAN EMPLOYER. NONE OF THE E MPLOYEES WAS HAVING ANY IDEA ABOUT THE TRANSACTIONS IN BANK ACCOUNTS. ONE SHRI DILIP PRAJAPATI, IN A STATEMENT RECORDED DURING SEARCH IN THE FACTORY PR EMISES AT PARK COMPOUND ADMITTED THAT, HE HAD NOT DONE ANY JOB WORK FOR THE APPELLANT. IN REPLY TO A SPECIFIC QUESTION, SHRI KALPESH GADA ADMITTED THAT , KARIGAR WAGES ARE PAID ON METER BASIS @ RS.1.25 PER METER. FURTHER FINDING OF THE AO WAS THAT, THE TOTAL LABOUR CHARGES CLAIMED BY THE GROUP OVER A PERIOD O F 4 YEARS FROM 2002 TO 2003 TO 2008-09 WAS OF THE ORDER OF RS.14.09 CRORE. THE AO WORKED OUT AND FOUND THAT, WHILE THE APPELLANT WAS CLAIMING IN BOOKS RS .6.50 PER METER, THE ACTUAL EXPENDITURE WAS OF THE ORDER OF RS.1.5 TO 2 PER ME TER. IN THIS CONNECTION A SHOW CAUSE NOTICE WAS ISSUED CALLING UPON THE APPEL LANT TO SHOW CAUSE AS TO WHY LABOUR CHARGES SHOULD NOT BE RESTRICTED. THE R EPLAY THAT CAME FROM THE APPELLANT THAT THE STATEMENT OF SHRI KALPESH GADA A DMITTING INFLATION OF LABOUR EXPENSES WAS WRONG. SHRI BHAGWAJI GADA, THE MAIN PE RSON HAS STRONGLY OBJECTED TO IT. ONLY , FEW PERSONS OUT OF 80 LABOURERS HAD GIVEN ADVERSE STATEMENTS AND FURTHER REPLY WAS THAT, IN ORDER TO BUY PEACE OF MI ND, THE APPELLANT HAS DISCLOSED RS 50.50 LACS AS ADDITIONAL INCOME. THROUGH ANOTHER SHOW CAUSE NOTICE, THE APPELLANT WAS ASKED TO EXPLAIN WHY LABOUR CHARGES C LAIMED BEYOND RS 1.50 PER METER SHOULD NOT BE DISALLOWED. THE APPELLANT REPLI ED THAT, RS 4 TO RS 4.5 PER METER WAS PAID DURING THE AY 04-05 AND 05-06 AND RS 4 AND RS 6 WERE PAID DURING THE YEARS RELEVANT TO THE AYS 07-08 AND 08-0 9. CONSIDERING THE ARGUMENT OF THE APPELLANT THAT, HE HAD INCURRED CERTAIN EXPE NSES OTHER THAN THE EXPENSES RECORDED IN BOOKS, THE AO CHOSE TO ALLOW RS. 3 PER METER AS LABOUR CHARGES, WHICH WORKED OUT TO RS.1,41,516/- AND, BALANCE AMOU NT OF RS.13,16,649/- WAS I.T.A. NO.8431, 8433, 8432/MUM/2011 3 DISALLOWED AND ADDED. THE FOLLOWING IS THE OBSERVAT ION OF THE AO IN THE ASSESSMENT ORDER. THE ASSESSEE'S SUBMISSIONS HAVE BEEN DULY CONSIDERE D. IT IS A SETTLED LAW THAT DOCUMENTS / EVIDENCES/ RECORDINGS ON LOOSE PAP ERS, BOOKS OF ACCOUNTS ETC FOUND DURING THE COURSE OF SEARCH REPR ESENT THE TRUE STATE OF AFFAIRS OF THE ASSESSEE'S BUSINESS EXISTING ON D ATE OF SEARCH. IT IS AN ADMITTED FACT THAT, INSTANCES OF LARGE SCALE INFLAT ION OF EXPENSES WERE FOUND DURING THE COURSE OF SEARCH AND THE ASSESSEE GROUP HAD DECLARED AN INCOME OF RS 50.50 LACS ON ACCOUNT OF SUCH UNVER IFIABLE EXPENSES. WHAT REMAINS TO BE SEEN NOW IS WHETHER THE SAID DIS CLOSURE WAS COMMENSURATE WITH THE DISCREPANCIES FOUND OR IS JUS T AN EYE WASH. IT IS PERTINENT TO POINT OUT AT THIS STAGE THAT, THE FAMI LY MEMBERS IN WHOSE NAMES LABOUR CHARGES WERE BOOKED WERE MERE CONDUIT FOR SIPHONING OFF OF FUNDS AND HAD NOT RENDERED ANY SERVICES TO THE S AID BUSINESS CONCERN IN QUESTION BY WAY OF JOB WORK. TO THAT EXTENT LAB OUR CHARGES PAID WERE NOT EVEN REMOTELY CONNECTED WITH THE BUSINESS. THE LABOUR EXPENSES IN ORDER TO QUALITY FOR ALLOWANCE HAD TO BE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THIS IS A TYPICAL CAS E WHERE THE MANUFACTURING WAS DONE BY THE CONCERN USING ITS OWN WORKFORCE BUT LABOUR CHARGES WERE PAID TO PERSONS SPECIFIED U/S 40A(2)(B) AND OR ITS EMPLOYEES WHO FACILITATED THE ASSESSEES DESIGN. T HUS, THE EXPENDITURE WAS DONE TO INFLATE THE EXPENSES AND BRING DOWN THE PROFIT MARGIN. THE NET PROFIT PERCENTAGE FOR VARIOUS ASSESSMENT YEARS VARIES IN A NARROW RANGE OF 0.5% TO 2%. THUS, IT IS INEVITABLE TO IN FER THAT THERE WAS INDEED INFLATION OF EXPENSES. TO ASCERTAIN THE QUA NTUM OF SUCH INFLATION, IT IS PERTINENT TO TAKE INTO ACCOUNT THAT ACTUAL W AGE RATE PAID TO THE WORKERS AND THE LABOUR CHARGES SHOWN IN THE BOOKS OF ACCOUNTS. IT IS AGAIN AN ADMITTED POSITION THAT THE LABOUR CHARGES PAID PER METER OF GREY CLOTH WERE RS.1.5 TO 2 WHEREAS THE AMOUNT DEB ITED IN THE BOOKS WAS @ RS.6.5. THE ASSESSEE ALSO ARGUED THAT DURING ASSESSMENT THAT IT HAD BOOKED ALL OTHER RELATED MANUFACTURING EXPENSES UNDER LABOUR CHARGES, AND THE SAME SHOULD BE CONSIDERED. IN VIE W OF THIS, A FURTHER ALLOWANCE OF RS.1.5/ PER METER IS GRANTED. THE ASS ESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS FAILED TO FURNIS H STOCK REGISTER FOR VERIFICATION. IN VIEW OF THIS, THE QUANTITATIVE DE TAILS AVAILABLE IN THE TAX AUDIT REPORT HAVE TO BE COMPULSORILY LEVIED UPON. THUS, FROM THE QUANTITATIVE DETAILS, THE TOTAL QUANTITY MANUFACTU RED DURING THE YEAR IS DETERMINED, AND THE QUANTUM OF INFLATED EXPENSES RE CORDED IN THE BOOKS OF ACCOUNTS, AFTER ALLOWING A MARGIN OF RS.3/- PER METER (RS.1.5 FOR LABOUR + RS.1.5 FOR OTHER INCIDENTAL EXPENSES LIKE TRANSPORT, POWER, BEAM DRAWING ETC) IS WORKED OUT AS BELOW :- CLOSING STOCK OF FABRIC = 12875, METERS, RS.309255 /- AVERAGE PRICE=RS.309255/12875 = RS.24 SALES SHOWN IS RS.1132121/- @RS.24 PER METER, QUANTITY OF FABRIC MANUFACTURED = 1132121/24=47172 METERS. LABOUR CHARGES CLAIMED RS. 1458165/- LABOUR CHARGES ALLOWABLE @ RS.3 PER METER = 47172 METERS X 3 = RS.141516/- DISALLOWANCE RS.1458165- RS.141516/-=RS.1316649/- I.T.A. NO.8431, 8433, 8432/MUM/2011 4 3.3 THAT IS, THE AO WORKED OUT THE NUMBER OF METER S WOVEN AT 47,172/- METER BY DIVIDING THE TOTAL SALES BY THE AVERAGE SALE PRICE AND ALLOWED RS. 3 PER METER FOR LABOUR CHARGES, WHICH WORKED OUT TO RS.1,41,516/- AND DISALLOWED THE BALANCE AMOUNT OF RS.13,16,649/- OU T OF TOTAL EXPENSES CLAIMED OF RS.14,58,165/- 5. THE ASSESSEE FILED APPEAL BEFORE LD. CIT(A) AND CONTENDED THAT ASSESSEE MANUFACTURED FABRICS OF DIFFERENT QUALITIES AND PAI D LABOUR CHARGES AT DIFFERENT RATES. THE LABOUR CHARGES RANGED FROM RS.4.50 TO RS.6.50 PER METER. THEREFORE, UNIFORM RATE COULD NOT BE APPLIED. IT WAS ALSO CONTENDED THAT SHRI KALPESH GADA ADMITTED INFLATION OF LABOUR CHARGES WITHOUT UNDERSTANDING THE QUESTI ON. ON BEHALF OF THE ASSESSEE, IT WAS ALSO CONTENDED THAT THE AO HAD TAKEN UNIFORM R ATE OF RS.3 PER METER PER FABRICS FOR LABOUR CHARGES FOR ALL THE YEARS FROM 2002-03 T O 2008-09 WITHOUT CONSIDERING THE INFLATION EFFECT. 6. LD. CIT(A) CONFIRMED THE ACTION OF AO AFTER OB SERVING THAT THE ASSESSEE HAS NOT DENIED THE FACT OF HAVING RESORTED TO INFLATION OF WEAVING CHARGES UNDER THE GUISE OF PAYMENT OF LABOURERS ON CONTRACT. HENCE, ASSESS EE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING, LD. AR SUBMITTED THAT SI MILAR ISSUE HAD BEEN CONSIDERED BY TRIBUNAL IN THE CASE OF OTHER FAMILY MEMBERS A ND THE TRIBUNAL IN THE CASE OF BHAGWAN GADA V/S ITO IN ITA NO.376/MUM/2011, ORDER DATED 29.7.2011 ON SIMILAR FACTS HAS RESTORED THE MATTER TO THE FILE OF AO FO R FRESH ADJUDICATION TO DECIDE WHETHER THE LABOUR CHARGES CLAIMED BY ASSESSEE ARE CORRECT. HE SUBMITTED THAT THE TRIBUNAL BY FOLLOWING THE ORDER IN THE CASE OF ANOTHER FAMILY M EMBERS OF GROUP OF MR.ALPESH B. GADA IN ITA NOS.893 TO 896 AND 1487/MUM/2011 FOR AS SESSMENT YEARS 2003-04, 2005- 06, 2006-07, 2008-09 & 2007-08 BY ITS ORDER DATED 2 5.11.2011 BY FOLLOWING THE ORDER DATED 29.7.2011 (SUPRA) AND ALSO THE CASE OF M/S B .K.TEX CORPORATION V/S ITO IN ITA NOS.371 AND 370/MUM/2011 FOR ASSESSMENT YEARS 200 4-05 AND 2005-06 DATED 29.7.2011 RESTORED THE MATTER TO AO AND FURNISHED A COPY OF THE SAID ORDER TO SUBSTANTIATE HIS SUBMISSIONS. WE CONSIDER IT PRUDE NT TO REFER PARA 29 OF THE SAID ORDER WHICH READS AS UNDER : 29. COMING TO GROUND NO.2, FROM THE SEIZED DOCUMEN TS AT PAGES-22 AND 34 TO ANNEXURE A-3/29 AT PAGE-168 AND 180 OF THE PAPER BOOK, IT CAN BE SAID THAT THE LABOUR CHARGES ARE PAID @ RS.3.25 PER METER FOR THE PERIOD FROM 1ST APRIL 2002 TO 31 ST MARCH 2003. THE CLAIM OF THE ASSESSEE THAT FOR THE SUBSEQUENT YEARS, DUE TO INFLATION, THE LABOUR CHARGES PAID HA S INCREASED, CANNOT BE BRUSHED I.T.A. NO.8431, 8433, 8432/MUM/2011 5 ASIDE. THIS BENCH OF THE TRIBUNAL IN M/S. B.K. TEX CORP. AND MR. BHAGWAN G. GADA (SUPRA), HAS COME TO A CONCLUSION THAT LABOUR CHARGES COULD BE ALLOWED BY ADOPTING RS.3.00 PER METER. AS THE EVIDENCE IN THE SEIZED MATERIAL, IN THE CASE ON HAND, IS LEADING US TO A CONCLUSION THAT THE EXP ENDITURE IS MORE THAN RS.3.00 PER METER LAID DOWN BY THE BENCH, AS SUGGESTED BY B OTH THE PARTIES, WE RESTORE THE MATTER TO THE FILE OF ASSESSING OFFICER FOR AD JUDICATION AFRESH IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER IS DIRECTED TO CONS IDER THE PROPOSITIONS LAID DOWN BY THIS BENCH IN THE CASE OF M/S. B.K. TEX CORP. (S UPRA) AND IN THE CASE OF MR. BHAGWAN GADA (SUPRA), AS WELL AS THE MATERIAL FOUND DURING THE COURSE OF SEARCH AND THE INFLATION FACTOR CLAIMED BY THE ASSESSEE AN D COME TO AN APPROPRIATE CONCLUSION. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONER (APPEALS) AND RESTORE THIS ISSUE TO TH E FILE OF ASSESSING OFFICER FOR ADJUDICATION AFRESH. THUS, GROUND NO.2, IS ALLOWED FOR STATISTICAL PURPOSES. LD. AR SUBMITTED THAT THE TRIBUNAL BY FOLLOWING TH E ABOVE ORDER DATED 25.11.2011 (SUPRA) IN THE CASE OF ANOTHER FAMILY MEMBERS OF S AVITABEN GADA V/S ITO IN ITA NO.3671/MUM/2011 FOR ASSESSMENT YEAR 2002-03 VIDE O RDER DATED 12.4.2012 AGAIN RESTORED THE MATTER TO THE AO FOR HIS FRESH CONSIDE RATION AND TO SUBSTANTIATE HIS SUBMISSION HE FILED A COPY OF THE SAID ORDER. 8. IN VIEW OF ABOVE, LD. AR SUBMITTED THAT THE MATT ER BE RESTORED TO AO FOR HIS FRESH CONSIDERATION IN THE LIGHT OF THE EARLIER ORD ERS OF TRIBUNAL ON THE SAME FACTS AND IDENTICAL ISSUE. 9. LD. DR SUBMITTED THAT HE HAS NO OBJECTION IN RES TORING THE MATTER TO THE AO. 10. ON CONSIDERATION OF THE SUBMISSIONS OF LD. REPR ESENTATIVES OF THE PARTIES AND THE EARLIER ORDERS OF THE TRIBUNAL IN THE GROUP CASES O F ASSESSEE (SUPRA), WE RESPECTFULLY FOLLOWING THE EARLIER ORDERS OF TRIBUNAL RESTORE THE MATTER OF INFLATED LABOUR /JOB WORK CHARGES TO THE FILE OF THE AO FOR HIS FRESH CONS IDERATION AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. HENCE, GROUND OF APPE AL TAKEN BY ASSESSEE FOR ASSESSMENT YEAR 2003-04 IS ALLOWED FOR STATISTICAL PURPOSES. 11. SINCE GROUND FOR ASSESSMENT YEAR 2006-07 DISPUT ING THE CONFIRMATION OF THE ADDITION OF RS.27,12,542/- AND FOR ASSESSMENT YEAR 2005-06 DISPUTING THE CONFIRMATION OF ADDITION OF RS.7,95,665/- ON ACCOUNT OF INFLATE D LABOUR CHARGES ARE IDENTICAL AND THE FACTS ARE ALSO SIMILAR TO ASSESSMENT YEAR 2003-04, WE FOR THE REASONS MENTIONED HEREINABOVE FOR ASSESSMENT YEAR 2003-04 SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THE MATTER TO THE AO FOR HIS FRESH CONSIDER ATION AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE AND CONSIDERING MATERIAL AS MAY BE PLACED BEFORE HIM. HENCE I.T.A. NO.8431, 8433, 8432/MUM/2011 6 GROUND OF APPEAL FOR BOTH ASSESSMENT YEARS 2006-07 AND 2005-06 ARE ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT, ALL THE THREE APPEALS OF THE AS SESSEE FOR ASSESSMENT YEARS 2003- 04, 2006-07 AND 2005-06 ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH OCTOBER , 2 013 ( * + 11TH OCTOBER, 2013 SD SD ( /SANJAY ARORA) ( . . 1 /B.R.MITTAL) / ACCOUNTANT MEMBER ( / JUDICIAL MEMBER MUMBAI; ON THIS 11 TH DAY OF OCTOBER, 2013 . . ./ SRL , SR. PS * +, -, / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 2 ( ) / THE CIT(A)- 4. 2 / CIT 5. 3 5 , ' 5 , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , / ITAT, MUMBAI