The ITO, Ward-8(1),, Surat v. Shri Dalsukhbhai Labhubhai Narola, Surat

ITA 1601/AHD/2009 | 2006-2007
Pronouncement Date: 30-08-2011 | Result: Partly Allowed

Appeal Details

RSA Number 160120514 RSA 2009
Bench Ahmedabad
Appeal Number ITA 1601/AHD/2009
Duration Of Justice 2 year(s) 3 month(s) 12 day(s)
Appellant The ITO, Ward-8(1),, Surat
Respondent Shri Dalsukhbhai Labhubhai Narola, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 30-08-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 30-08-2011
Date Of Final Hearing 11-08-2011
Next Hearing Date 11-08-2011
Assessment Year 2006-2007
Appeal Filed On 18-05-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD B BENCH . .. . . .. . !' !' !' !' #$ #$ #$ #$ %&' ( %&' ( %&' ( %&' ( ) ) ) ) & ' & ' & ' & ' BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND BHAVNESH SAINI JUDICIAL MEMBER) ITA NO.1601/AHD/2009 [ASSTT.YEAR : 2006-2007 ITO WARD-8(1) SURAT. /VS. SHRI DALSUKHBHAI LABHUBHAI NAROLA 27 UDYANAGAR SOCIETY KATARGAM ROAD SURAT. ITA NO.1602/AHD/2009 [ASSTT.YEAR : 2006-2007 ITO WARD-8(1) SURAT. /VS. SHRI DALSUKHBHAI LABHUBHAI NAROLA (HUF) 27 UDYANAGAR SOCIETY KATARGAM ROAD SURAT. ITA NO.1603/AHD/2009 WITH CO NO.144/AHD/2009 [ASSTT.YEAR : 2006-2007 ITO WARD-8(1) SURAT. /VS. SHRI DHIRUBHAI LABHUBHAI NAROLA 27 UDYANAGAR SOCIETY-1 KATARGAM ROAD SURAT. ( (( (+ + + + / APPELLANT) ( (( (-.+ -.+ -.+ -.+ / RESPONDENT) ) / 0 &/ REVENUE BY : SHRI RAJ MEHRA 23 / 0 &/ ASSESSEE BY : SHRI P.M. MEHTA 45 / 36/ DATE OF HEARING : 11TH AUGUST 2011 789 / 36/ DATE OF PRONOUNCEMENT : 30 TH AUGUST 2011 &' / O R D E R PER G.D. AGARWAL VICE-PRESIDENT : THESE ARE THREE REVENUES APPEALS AND ONE ASSESSEES CO AGAINST RESPECTIVE OR DERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V SURAT ARISING OUT OF THE ORDER OF THE ASSESSING ITA NO.1601/AHD/2009 AND OTHERS -2- OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961. SINCE ISSUES ARE COMMON IN ALL THESE APPEALS FOR THE SAKE OF CONVEN IENCE WE DISPOSE OF ALL THESE APPEALS AND CO BY THIS CONSOLIDATED ORDER. ITA NO.1601/AHD/20009 : ASSTT.YEAR 2006-2007 (SHRI DALSUKBHAI LABHUBHAI NAROLA) 2. IN THIS APPEAL OF THE REVENUE THE FOLLOWING GRO UNDS ARE RAISED: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE LD.CIT(A) IS RIGHT TO HOLD THAT THE AO CANNOT REJEC T THE BOOK RESULT U/S.145 OF THE ITAT ACT 1961? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) IS RIGHT IN DELETING RS.15 05 378/- ADDED BY THE AO UNDER THE HEAD NET PROFIT ? IT IS THEREFORE PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE FACTS OF THE CASE ARE THAT THE ASSESSEE DE RIVES INCOME FROM THE BUSINESS OF DIAMOND POLISHING ON JOB WORK BASIS. THE AO REJ ECTED THE BOOKS OF ACCOUNTS BECAUSE THE ASSESSEE DID NOT PRODUCE COMPL ETE DETAILS INCLUDING INVOICES BILLS AND VOUCHERS CONTRA ACCOUNTS FROM JOB WORKERS ETC. HE ALSO DID NOT PRODUCE JOB WORKERS FOR VERIFICATION BEFORE THE AO. THE CONFIRMATIONS FROM THE JOB WORKERS WERE ALSO NOT PRODUCED. THE A O APPLIED NET PROFIT RATE OF 5% WHICH RESULTED IN THE ADDITION OF RS.15 05 378/- . THE CIT(A) WAS OF THE OPINION THAT ON THE FACTS OF THE CASE THE AO WAS N OT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS. ACCORDINGLY THE CIT(A) DELETED THE ADDITION MADE BY THE AO. THE REVENUE AGGRIEVED WITH THE ORDER OF THE CI T(A) IS IN APPEAL BEFORE US. 4. AFTER CONSIDERING THE FACTS OF THE CASE AND ARGU MENTS OF BOTH THE SIDES WE ARE OF THE OPINION THAT THE ASSESSEE FAILED TO F URNISH DETAILS BEFORE THE AO. ITA NO.1601/AHD/2009 AND OTHERS -3- HE EVEN DID NOT PRODUCE NECESSARY BILLS AND VOUCHER S IN SUPPORT OF THE EXPENSES ON JOB WORK THEREFORE IN OUR OPINION THE REJECTION OF THE BOOKS OF ACCOUNTS IS JUSTIFIED. HOWEVER EVEN AFTER THE REJ ECTION OF THE BOOKS OF ACCOUNTS IN OUR OPINION A PROPER NET PROFIT RATE IS TO BE ESTIMATED. THE AO HAS NOT GIVEN ANY JUSTIFICATION FOR APPLYING THE NE T PROFIT OF 5%. THE RELEVANT FINDING OF THE AO IN THIS REGARD READS AS UNDER: 13. THE NET PROFIT SHOWN BY THE ASSESSEE IS ALSO N OT IN ACCORDANCE TO THE RECENT BOARDS CIRCULAR IN WHICH MORE THAN 5% A ND UPTO 6% NET PROFIT IS NECESSARY IN DIAMOND POLISHING JOB WORK B USINESS. THE MANY CASES IN THIS LINE OF BUSINESS ARE ASSESSED IN THIS OFFICE-RANGE IN WHICH NET PROFIT OF DIAMOND POLISHING JOB WORK BUSINESS I F REFLECTED MORE THAN 5% OF TOTAL JOB WORK RECEIPT. 14. BUT LOOKING INTO THE FACT THAT IN THE DIAMOND I NDUSTRY THAT TOO PARTICULAR IN DIAMOND JOB WORK WHERE THE ASSESSEE DOES NOT HAVE TO BEAR OTHER MAJOR COST AND ONE OF THE MAJOR HEAD OF EXPENSES IS LABOUR EXPENSES DISALLOWANCE OF 50% WILL LEAD TO AN ABNOR MAL GROSS PROFIT RATIO WHICH WILL BE UNPARALLEL IN SIMILAR KIND OF B USINESS. FURTHER TAKING INTO CONSIDERATION THE SUBMISSION OF THE ASS ESSEE IT WOULD BE QUITE REASONABLE AND JUSTIFIABLE TO ESTIMATE THE NE T PROFIT OF THE ASSESSEE AT 5%. THIS WILL GIVE A FAIR AND REASONABLE ESTIMA TE IN VIEW OF THE FACT THAT THE LABOUR PAYMENT IS NOT AT ALL VERIFIABLE. I THEREFORE TAKE NET PROFIT OF THE ASSESSEE AT RS.22 25 535/- @ 5% OF TO TAL RECEIPT OF RS.4 45 10 716/-. THE ASSESSEE HAS SHOWN A NET PRO FIT OF RS.7 20 157/-. THEREFORE AN ADDITION OF RS.15 05 378/- (RS.22 25 535 PROFIT SHOWN RS.7 20 157) IS MADE TO TOTAL INCOME OF THE ASSESSE E. PENALTY PROCEEDINGS U/S.271(1)(C) OF THE INCOME-TAX ACT IS INITIATED SEPARATELY FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME AND THEREBY CONCEALMENT OF INCOME. FROM THE ABOVE IT IS EVIDENT THAT THE AO REFERRED TO SOME BOARD CIRCULAR WHEREIN ACCORDING TO HIM THE BOARD IS OF THE OPINIO N THAT NET PROFIT OF 5% TO 6% IN THE DIAMOND POLISHING JOB WORK BUSINESS IS EX PECTED PROFIT. HOWEVER NEITHER IN THE ASSESSMENT ORDER SUCH CIRCULAR IS RE FERRED NOR THE SAME IS PRODUCED BEFORE US AT THE TIME OF HEARING. MOREOVE R IN OUR OPINION WHEN THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNTS YEAR AFT ER YEAR THE NET PROFIT RATE ITA NO.1601/AHD/2009 AND OTHERS -4- CANNOT BE APPLIED ON THE BASIS OF BOARD CIRCULAR. FROM PARA-14 OF THE ASSESSMENT ORDER IT IS EVIDENT THAT THE AO FIRST W ANTED TO DISALLOW 50% OF THE LABOUR EXPENSES WHICH IS AGAIN WITHOUT ANY BASIS BU T ULTIMATELY HE ESTIMATED THE NET PROFIT AT 5%. HE HAS NOT REFERRED ANY COMP ARATIVE CASES. HE HAS NOT GIVEN ANY BASIS FOR ADOPTING NET PROFIT RATE OF 5%. AT THE TIME OF HEARING BEFORE US THE ASSESSEE HAS GIVEN COMPARATIVE DETAILS OF S ALES GROSS PROFIT NET PROFIT LABOUR EXPENSES AND RATIO OF LABOUR EXPENSES TO THE SALES OF THE YEAR UNDER APPEAL AND PRECEDING TWO YEARS. THE SAME READS AS UNDER: ASSESSMENT YEAR PARTICULARS 2006-2007 2005-2006 2004-2005 SALES/INCOME 4 45 10 716 2 71 61 136 4 52 67 870 GROSS PROFIT 4.19% 4.39% 3.09% NET PROFIT 1.62% 1.21% 1.09% LABOUR EXPENSES 4 32 30 546 2 63 46 394 4 42 63 223 LABOUR TO SALES RATIO 0.97 0.97 0.98 FROM THE ABOVE IT IS EVIDENT THAT RATIO OF THE LAB OUR EXPENSES TO THE SALES IN THE YEAR UNDER CONSIDERATION IS SIMILAR TO THE LAST YEA R AND LOWER THAN THE ASSESSMENT YEAR 2004-2005. THE NET PROFIT RATE IN THE YEAR UNDER CONSIDERATION IS BETTER THAN PRECEDING TWO YEARS. THE GP RATE IS BETTER THAN THE ASSESSMENT YEAR 2004-05 BUT SLIGHTLY LOWER THAN THE ASSESSMEN T YEAR 2005-2006. THE ASSESSEE HAS PRODUCED BEFORE US THE COPY OF THE ASS ESSMENT ORDER PASSED UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 2004-05 WHER EIN THE GP AND NET PROFIT DISCLOSED BY THE ASSESSEE WERE DULY ACCEPTED. CONS IDERING THESE FACTS IN OUR OPINION THE NET PROFIT DISCLOSED BY THE ASSESSEE I S BETTER THAN THE PRECEDING TWO YEARS. NO OTHER COMPARABLE CASE IS CITED BY THE RE VENUE. WHEN IN THE PRECEDING TWO YEARS THE REVENUE HAS ACCEPTED NET P ROFIT AT 1.09% AND 1.21% AND THERE IS NO JUSTIFICATION FOR NOT ACCEPTING THE NET PROFIT RATE OF 1.62% IN THE YEAR UNDER CONSIDERATION. IN VIEW OF THE ABOVE WE ARE OF THE OPINION THAT DESPITE REJECTION OF THE BOOKS OF ACCOUNTS NO ADDI TION TO THE NET PROFIT DISCLOSED BY THE ASSESSEE IS REQUIRED TO BE MADE. WE THEREFORE UPHOLD THE ITA NO.1601/AHD/2009 AND OTHERS -5- DELETION OF THE ADDITION BY THE CIT(A). ACCORDINGL Y THE GROUND NO.1 OF THE REVENUES APPEAL IS ALLOWED WHILE GROUND NO.2 OF TH E REVENUES APPEAL IS REJECTED. ITA NO.1602/AHD/2009 : A.Y.2006-2007 (SHRI DALSUKH LABHUBHAI NAROLA (HUF) 5. IN THIS APPEAL BY THE REVENUE THE FOLLOWING GRO UNDS ARE RAISED: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE LD.CIT(A) IS RIGHT TO HOLD THAT THE AO CANNOT REJEC T THE BOOK RESULT U/S.145 OF THE ITAT ACT 1961? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) IS RIGHT IN DELETING RS.9 99 638/- ADDED BY THE AO UNDER THE HEAD NET PROFIT ? IT IS THEREFORE PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE FACTS OF THE CASE ARE ALMOST IDENTICAL WIT H THE FACTS IN THE CASE OF SHRI DALSUKBHAI LABHUBHAI NAROLA (INDL) DISCUSSED ABOVE . WE THEREFORE UPHOLD THE REJECTION OF THE BOOK RESULTS. HOWEVER THE NE T PROFIT DISCLOSED BY THE ASSESSEE IS BETTER THAN THE PRECEDING YEAR WHICH W AS ACCEPTED BY THE REVENUE IN THE ORDER PASSED UNDER SECTION 143(3). THE RELE VANT DETAILS ARE AS UNDER: ASSESSMENT YEAR PARTICULARS 2006-2007 2005-2006 SALES/INCOME 2 73 64 828 1 63 42 263 GROSS PROFIT 4.42% 4.62% NET PROFIT 1.35% 1.11% LABOUR EXPENSES 2 65 88 560 1 58 71 399 LABOUR TO SALES RATIO 0.97 0.97 SINCE IN A.Y.2005-2006 THE REVENUE ACCEPTED THE NE T PROFIT OF 1.11% THERE IS NO JUSTIFICATION FOR HOLDING THE NET PROFIT OF 1.35 % TO BE LOW. FOR THE DETAILED ITA NO.1601/AHD/2009 AND OTHERS -6- DISCUSSION IN PARA NO.4 ABOVE WE UPHOLD THE DELET ION OF ADDITION OF RS.9 99 638/- BY THE CIT(A). ACCORDINGLY GROUND N O.1 OF THE REVENUES APPEAL IS ALLOWED AND GROUND NO.2 OF THE APPEAL IS REJECTED. ITA NO.1603/AHD/2009 ASSTT.YEAR 2006-2007 AND CO NO.144/AHD/2009 (SHRI DHIRUBHAI LABHUBHAI NAROLA) 7. IN THIS APPEAL OF THE REVENUE THE FOLLOWING GROU NDS ARE RAISED: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE LD.CIT(A) IS RIGHT TO HOLD THAT THE AO CANNOT REJEC T THE BOOK RESULT U/S.145 OF THE ITAT ACT 1961? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD.CIT(A) IS RIGHT IN DELETING RS.11 82 370/- ADDED BY THE AO UNDER THE HEAD NET PROFIT ? IT IS THEREFORE PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. THE FACTS OF THE CASE ARE SIMILAR TO THE FACTS IN THE CASE OF SHRI DALSUKBHAI LABHUBHAI NAROLA. FOR THE DETAILED DISCUSSION THER EIN WE UPHOLD THE REJECTION OF THE BOOKS OF ACCOUNTS. HOWEVER IN THIS CASE AL SO THE RATE OF NET PROFIT DISCLOSED BY THE ASSESSEE IS BETTER THAN THE PRECED ING TWO YEARS WHICH WAS ACCEPTED BY THE REVENUE. THE COMPARATIVE POSITION IS AS UNDER: ASSESSMENT YEAR PARTICULARS 2006-2007 2005-2006 2004-2005 SALES/INCOME 3 74 29 985 2 66 78 651 3 46 61 727 GROSS PROFIT 4.95% 4.78% 3.40% NET PROFIT 1.84% 1.07% 1.09% LABOUR EXPENSES 3 60 64 216 2 57 94 804 3 38 13 781 LABOUR TO SALES RATIO 0.96 0.97 0.98 THEREFORE FOR THE DETAILED DISCUSSION IN PARA-4 AB OVE WE UPHOLD THE ORDER OF THE CIT(A) DELETING THE ADDITION OF RS.11 82 370/-. THUS THE GROUND NO.1 OF ITA NO.1601/AHD/2009 AND OTHERS -7- THE REVENUES APPEAL IS ALLOWED AND THE GROUND NO.2 OF THE REVENUES APPEAL IS REJECTED. 9. IN THE CO THE ASSESSEE RAISED THE FOLLOWING GROU NDS: 1. THE LD.CIT(A) GROSSLY ERRED IN NOT DELETING STR AIGHT WAY THE ADDITION OF RS.1 20 000/- BEING THE AMOUNT WRONGLY ASSUMED BY THE AO AS SALARY FROM THE FIRMS. 2. THE LD.CIT(A) GROSSLY ERRED IN NOT DELETING STRA IGHT WAY THE ADDITION OF RS.1 00 000/- BEING THE CONTRA AMOUNT I N THE CAPITAL ACCOUNT. 10. AT THE TIME OF HEARING BEFORE US NO ARGUMENT W AS ADVANCED TO EXPLAIN HOW THE AO WAS NOT JUSTIFIED IN TAXING THE SALARY W HICH WAS CREDITED TO THE ASSESSEES ACCOUNT IN THE FIRM M/S. NAROLA GEMS. SINCE NO ARGUMENT WAS ADVANCED WITH REGARD TO GROUNDS RAISED IN THE CO W E TREAT THE SAME AS NOT PRESSED AND REJECT AS SUCH. 11. IN THE RESULT REVENUES APPEALS ARE PARTLY ALL OWED AND THE ASSESSEES CO IS REJECTED. ORDER PRONOUNCED IN OPEN COURT THE DATE MENTIONED O N THE FIRST PAGE OF THIS ORDER. SD/- SD/- ( %&' ( %&' ( %&' ( %&' ( /BHAVNESH SAINI ) ) ) ) ) /JUDICIAL MEMBER ( . .. . . .. . G.D. AGARWAL) !' !' !' !' /VICE-PRESIDENT PLACE : AHMEDABAD DATE : 30-08-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER DR/AR ITAT AHMEDABAD