The ACIT, Circle-9,, Surat v. Shri Harshadbhai N.Bagadia, Surat

ITA 3564/AHD/2008 | 2005-2006
Pronouncement Date: 24-12-2010 | Result: Dismissed

Appeal Details

RSA Number 356420514 RSA 2008
Assessee PAN ABNPB4119Q
Bench Ahmedabad
Appeal Number ITA 3564/AHD/2008
Duration Of Justice 2 year(s) 1 month(s) 27 day(s)
Appellant The ACIT, Circle-9,, Surat
Respondent Shri Harshadbhai N.Bagadia, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 24-12-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 24-12-2010
Date Of Final Hearing 22-11-2010
Next Hearing Date 22-11-2010
Assessment Year 2005-2006
Appeal Filed On 27-10-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH BEFORE SHRI G.D. AGARWAL VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.3564/AHD/2008 [ASSTT.YEAR: 2005-06] ASSTT. COMMISSIONER OF INCOME-TAX -VS- SHRI HARS HADBHAI N BAGADIA CIRCLE-9 ROOM NO.423 4 TH FLOOR 8/AB ANMOL APARTMENTS AAYAKAR BHAVAN MAAJURA GATE SUMUL DAIRY ROAD SURAT SURAT PAN NO.ABNPB4119Q (APPELLANT) (RESPONDENT) REVENUE BY : SHRI H.P.MEENA SR-DR ASSESSEE BY: NONE O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-V SURAT IN APPEAL NO.CAS-V/26 9/07-08 DATED 26-08-2008. THE ASSESSMENT WAS FRAMED BY ACIT CIRCLE-9 SURAT U/S 143(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VI DE HIS ORDER DATED 21-12-2007 FOR ASSESSMENT YEAR 2005-06. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF LABOUR CHARGES. FOR THIS REVENUE HAS RAISED THE FOLLOWING GROUND NO.1 :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. C.I.T.(A)-V SURAT HAS ERRED IN DELETING THE ADDITION OF RS.30 75 987/- MADE BY THE A.O ON ACCOUNT OF LABOUR CHARGES WITHOUT APPRECIATING TH E FACTS OF THE CASE. ITA NO. PAGE 2 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSEE ENGAGED IN THE BUSINESS OF CUTTING AND POLISHING OF DIAMOND. DURIN G THE ASSESSMENT YEAR UNDER CONSIDERATION ASSESSEE FILED THE RETURN OF INCOME O N 28-10-2005 DECLARING TOTAL INCOME OF RS.7 83 396/- AND SUBSEQUENTLY ASSESSMENT WAS COMPLETED U/S.143(3) VIDE ORDER DATED 21-12-2007 AT TOTAL INCOME DETERMI NED AT RS.38 59 387/- AND ASSESSING OFFICER MADE ADDITION OF RS.30 75 987/- O N ACCOUNT OF EXCESS LABOUR PAYMENTS. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFO RE CIT(A).THE CIT(A) DELETED THE ADDITION BY GIVING FOLLOWING FINDINGS AT PAGES-4 & 5 IN HIS APPELLATE ORDER:- I HAVE GONE THROUGH THE CONTENTION OF THE APPELLAT E AS WELL AS THAT OF THE AO. I HAVE PERUSED THE DETAILS PROVIDED BY THE APPELLAN T ON APPRECIATION OF SUCH DETAILS I AM OF THE CONSIDERED VIEW THAT THE ONUS L IED ON THE ASSESSEE HAS BEEN DISCHARGED IN SO FAR AS HIS LIABILITY TO EXPLA IN SUCH CLAIM IS CONCERNED. IN THE INSTANT CASE THE AO HAS BROODED OVER THE MARKET CONDITIONS ASSUMPTIONS AND PRESUMPTION. BUT AT NO PLACE HE HAS BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE DETAILS PROVIDED BY THE APPELLANT WER E FAULTY FURTHER APART FROM FINDING FAULT IF THE AO WAS KEEN IN FINDING OUT THE TRUTH HE COULD HAVE ISSUED SUMMONS OR NOTICES U/S.131 OR 133(6) OF THE ACT. HO WEVER NOT DOING SO HE COULD NOT ASSUME THAT THE ASSESSEE HAD MADE A WRONG CLAIM. IT IS NOT IN DISPUTE THAT RATE OF LABOUR CHARGES DIFFER FROM PER SONS TO PERSON AND HIS CALIBER. EVEN THE SAME JOB WOULD COST DIFFERENT AMO UNT DEPENDING UPON THE WORKMANS CALIBER. AND THEREFORE MERELY IN MARKET R ATE OF LABOUR CHARGES WAS LOW DID NOT PER SE BECOME GROUND FOR DISALLOWANCE MAY IT BE THE GROUND FOR SUSPICION REQUIRING FURTHER PROBE. HOWEVER IN THE I NSTANT CASE THE AO HAS NOT ACTED IN LAID DOWN PRINCIPLES OF JURISPRUDENCE AND WITHOUT FINDING FAULT IN THE BOOKS AND RECORDS OF THE APPELLANT HE HAD NO JURIS DICTION TO MAKE DISALLOWANCE ON THE BASIS OF WILD GUESS. IT IS WELL SETTLED THAT CONJECTURE AND SURMISE WOULD NOT BE THE GROUND FOR DISALLOWANCE OF EXPENSES. FURTHER THE APPELLANT HAS RELIED ON THE JUDGEMENT OF JURISDICTI ONAL ITAT AHMEDABAD IN THE CASE OF ANISH B SHAH HUF ITA NO.2223/AHD/2004 FOR A.Y. 2001-02 WHERE THEIR LORDSHIP HAS HELD THAT SINCE THE APPELLANT HA D PROVED THE BY QUANTITATIVE DETAILS AND AMOUNT RECEIVED THERE IS NO REASONS FOR MAKING ADDITION IN THE HANDS OF THE APPELLANT IN THE INSTANT CASE ALSO TH E APPELLANT HAD PRODUCED THE DETAILS SHOWING PARTY WISE PAYMENT RECEIVED AND PAID AS ALSO DETAILS OF QUANTITY ON WHICH THE LABOUR CHARGES RECEIVED AND P AID AND THEREFORE SINCE THERE IS NO AMBIGUITY IN SUCH DETAILS FOUND I AM UN ABLE TO ACCEDE TO THE ACTION OF AO. THE APEX COURT IN THE CASE OF LALCHAND BHAGAT AMBIKA RAM REPORTED IN 37 ITR 288 HAS OBSERVED THAT: IT IS THEREFORE CLEAR THAT THE TRIBUNAL IN ARRIV ING AT THE CONCLUSIONS IT DID DIN THE PRESENT CASE INDULGED IN SUSPICIONS CO NJECTURES AND SURMISES AND ACTED WITHOUT ANY EVIDENCE OR UPON A V IEW OF THE FACTS WHICH COULD NOT REASONABLY BE ENTERTAINED OR THE FA CTS FOUND WERE SUCH THAT NO PERSON ACTING JUDICIALLY AND PROPERLY INSTR UCTED AS TO THE RELEVANT LAW COULD HAVE FOUND OR THE FINDINGS WAS IN OTHER WORDS PERVERSE AND THIS COURT IS ENTITLED TO INTERFERE. ITA NO. PAGE 3 WE ARE THEREFORE OF OPINION THAT THE HIGH COURT W AS CLEARLY IN ERROR IN ANSWERING THE REFERRED QUESTION HAVING REGARD TO AL L THE CIRCUMSTANCES OF THE CASE WHICH WE HAVE ADVERTED TO ABOVE IN SHREELEKHA BENGERJIS CASES THUS OBSERVED THAT T HE DEPARTMENT CANNOT BY MERELY REJECTING UNREASONABLY A GOOD EXPLANATION C ONVERT GOOD PROOF INTO NO PROOF. IT IS WITHIN THE RANGE OF THESE PRINCIPLES T HAT SUCH CASES HAVE TO BE DECIDED. WE DO NOT THINK THAT THE ALLAHABAD VIEW PU TS NO BURDEN UPON THE ASSESSEE AND THROWS THE ENTIRE BURDEN ON THE DEPART MENT. THE CASE ITSELF DOES NOT BEAR THIS OUT. IF IT DOES THEN IT IS NOT THE RIGHT VIEW. AGGRIEVED REVENUE CAME IN SECOND APPEAL BEFORE US. 4. WE HAVE HEARD LD. SRDR AND GONE THROUGH FACTS AN D CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE IS INVOLVED IN THE BUSINESS OF CUTTING AND POLISHING OF DIAMONDS WHICH ARE RECEIVED FROM THE PRINCIPLE. THE ASSESSEE AFTER ASSORTMENT OF ROUGH DIAMONDS MAKE LOTS OF DIAMONDS AND CUTTING OF ROUGH DIAMONDS BY MARKING THROUGH LASER MACHINE THE ASSESSEE RECEIVED TOTAL R OUGH DIAMONDS OF 86467.JTS CTS OUT OF WHICH REJECTION OF 14020. 14 CTS WAS MAD E THROUGH ASSORTMENT AND 21210 CTS OF POLISHED DIAMONDS WERE PREPARED BY THE ASSES SEE. FROM THIS ASSESSEE RECEIVED TOTAL LABOUR CHARGES OF RS.3 47 95 329/- A ND PAID LABOUR CHARGES AT RS.3 07 59 872/-. ACCORDING TO THE ASSESSING OFFICE R LABOUR CHARGES RECEIVED FROM THE PRINCIPLE ON AVERAGE AT RS. 488/-PER CARAT WHE RE AS PAYMENT TO LABOUR CONTRACTORS WAS MADE AT RS.432/-PER CARAT. FURTHER. ACCORDING TO ASSESSING OFFICER AS PER THE DETAILS PROVIDED BY THE ASSESSEE IN TERM S OF NUMBER OF PIECES AND CARATS MANUFACTURED BY HIM IT WAS DEALING WITH SMALL DIAM ONDS OF FEW CENTS WHICH OTHER DIAMOND MANUFACTURERS OF THIS CIRCLE ALSO PREPARING AND CLAIMING LABOUR CHARGES OF RS. 250 TO 350 PER CARAT BUT ASSESSEE WAS PAYING MO RE LABOUR CHARGES PER CARAT TO KARIGARS WHICH IS ABOVE THE MARKET RATE. HE FURTHER NOTED THAT IF THE LIST OF KARIGARS I.E LABOUR CONTRACTORS AND THEIR PLACE OF WORK IS OBSER VED THEY ARE LOCATED AT DIFFERENT PLACES IN GUJARAT WHICH GIVES ASSESSEE A CLEAR BARG AINING POWER IN PAYING LABOUR CHARGES AND EVENTUALLY ASSESSEE IS NOT COMPELLED BY THE MARKET CONDITIONS EXISTING AT SINGLE PLACE OF WORK WHERE FOR KARIGARS LOT OF DEMAND EXISTS AND ASSESSEE NEED TO PAY MORE JOB CHARGES FOR KARIGARS. THE PAYMENTS TO LABOUR CONTRACTORS AS CLAIMED BY ASSESSEE WERE PAID PER PIECE AND AS PER THE GENE RAL ENQUIRY THEY VARY FROM PIECE TO PIECE AND THE HIGHER CHARGES WILL BE THERE FOR BIGGER PIECES. WE FIND THAT THE ITA NO. PAGE 4 ASSESSEE WAS SHOW CAUSED VIDE ORDER SHEET ENTRY DAT E 14-12-2007 TO EXPLAIN WHY LABOUR CHARGES WERE PAID MORE TO LABOUR CONTRACTORS AND ASSESSEE EXPLAINED THAT PER PIECE LABOUR CHARGE OF RS.23/- WAS PAID AND IN CASE OF LABOUR CONTRACTORS WHO ARE HANDLING THAT AND OTHER PROCESSES THE LABOUR C HARGES VARY FROM RS.23 TO 26/- PIECE. THE ASSESSING OFFICER ACCORDINGLY CAME TO CO NCLUSION THAT PAYMENTS MADE BY ASSESSEE TO LABOUR CONTRACTORS APPEARS TO BE EXCESS IVE IN COMPARISON TO THE MARKET RATE AND ALSO KEEPING IN VIEW OF THE WORK ASSESSEE WAS DOING ON MAKEABLE DIAMONDS BEFORE PASSING ON TO LABOUR CONTRACTORS. W E FIND THE BASIC FACTS THAT THE ASSESSEE HAD PAID THE SALARY FOR FOLLOWING WORKS FO R THE YEAR 2004-05:- NATURE OF WORK SALARY PAID (RS) ASSORTER 10 73 920/- LOTTING 3 16 440/- SIGNER 3 57 180/- CHECKER 1 53 800/- LASER OPERATOR 90 320/- STITCHING WORK 90 480/- OFFICE STAFF 2 36 320/- SWEEPER 15 900/- WATCHMAN 11 400/- MANAGER 1 62 000/- 25 07 760/- WE FIND THAT THE ASSESSEE HAS INCURRED TOTAL MANUFA CTURING EXPENSES OF RS.3 37 73 897/- (LABOUR RS.3 07 59 872/-+ SALARY R S.25 07 760/- + POWER RS.5 06 265/-) AND ALL THE EXPENSES WERE FOR THE PR OCESSING ON MAKEABLE DIAMONDS. 5. WE FIND THAT THE MAIN ISSUE IN APPEAL IS RELATING TO DISALLOWANC E OF RS.30 75 957/- BEING 10% OF TOTAL LABOUR CHARGES PA ID AMOUNTING TO RS.3 07 59 872/-. THE ASSESSEE IS IN THE BUSINESS O F PROCESSING OF ROUGH DIAMONDS ON JOB BASIS. THE BRIEF PARTICULARS ARE AS UNDER:- LABOUR INCOME RS.3 07 59 872/- LABOUR CHARGES PAID RS.3 47 95 329/- THE ASSESSEE OBTAINS ROUGH DIAMONDS FROM PERSONS HA VING ROUGH DIAMONDS AND GETS THEM PROCESSED AND RETURN POLISHED DIAMONDS TO THE ROUGH DIAMOND TRADERS. THE ASSESSEE DOES MAJORITY PROCESSES ON MAKEABLE RO UGH DIAMONDS AND MAIN ITA NO. PAGE 5 PROCEDURE IS THAT WHEN ROUGH DIAMONDS ARE RECEIVED REJECTED ROUGH DIAMONDS WHICH CANNOT BE PROCESSED ARE ASSORTED THROUGH ASSO RTERS AND RETURNED TO THE PRINCIPALS WITHOUT ANY PROCESSING. THE ASSESSEE MAK ES VARIOUS LOTS OF ROUGH DIAMONDS BY ITS STAFF WHICH ARE SIGNED AND CHECKED BY HIS STAFF MEMBERS AND CLEAVING OF DIAMONDS IS DONE WITH THE HELP OF LASER OPERATOR. THEREAFTER THE DIAMONDS ARE SENT FOR PROCESSING TO CONTRACTORS. WE FURTHER FIND FROM THE FACTS OF THE CASE THAT THE ASSESSEE HAS OBTAINED SUCH DIAMONDS F ROM 10 SUPPLIERS WHOSE NAMES ADDRESSES AND PAN WERE GIVEN IN THE COURSE O F ASSESSMENT PROCEEDINGS AND ARE AGAIN NOW ENCLOSED IN ASSESSEES PAPER BOOK . THE ASSESSEE HAS FILED DETAILS OF ROUGH DIAMONDS GIVEN BY THEM DIAMONDS P OLISHED RETURNED TO THEM AND TOTAL JOB CHARGES RECEIVED ARE ENCLOSED AND ALL THE PAYMENTS ARE RECEIVED BY CHEQUES. THE ASSESSEE GETS THE ROUGH DIAMONDS PROCE SSED THROUGH 13 SUB- CONTRACTORS. COPY OF STATEMENT GIVING THEIR NAMES ADDRESSES TOTAL AMOUNT OF LABOUR PAID AND OUTSTANDING WERE PROVIDED BEFORE LOWER AUT HORITIES. IN ALL CASES COMPLETE ADDRESSES HAVE BEEN GIVEN AND PAYMENTS ARE ALSO MAD E BY ACCOUNT PAYEE CHEQUE AND MOREOVER THERE IS COMPLETE QUANTITY TALLY OF DI AMONDS PROCESSED AND LABOUR CHARGES RECEIVED MONTH-WISE AS PER STATEMENT WHICH SHOWS THE QUANTITY OF ROUGH PARTY-WISE RECEIVED QUANTITY OF ROUGH OF SUBCONTRA CTORS ISSUED PARTY-WISE AND THE AMOUNT RECEIVED AND PAID. WE FIND THE COMPLETELY TA LLY IN TERMS OF CARATS FOR WHICH LABOUR CHARGES RECEIVED AND PAID AND THERE IS NOT A SINGLE CARAT FOR WHICH LABOUR CHARGE PAID IS MORE ON THE CARATS THAT ARE RECEIVED NOR A SINGLE CARAT LESS OF DIAMOND CHARGE RECEIVED THAN WHAT IS PAID. WE FIND THAT THE ASSESSING OFFICER HOWEVER CHOSEN TO DISALLOW 10% OF THE LABOUR CHARG ES WITHOUT EVEN SEEKING TO CONFIRM THE PAYMENTS MADE TO SUB CONTRACTORS. WE FI ND THAT THE ASSESSING OFFICER HAS NOT GIVEN DETAILS AS TO WHO IS PAYING LABOUR CH ARGE AT RS.250/- TO RS.350/- PER CARAT. LABOUR CHARGES VARY FROM DIAMOND TO DIAMOND DEPENDING UPON THE SIZE OF DIAMOND NUMBER OF DIAMONDS IN A CARAT SHAPE OF DI AMOND THE MASTERY OF ARTISANS ETC. UNLESS SIMILAR DETAILS ARE AVAILABLE IT WOULD NOT BE POSSIBLE TO EXPLAIN THE DIFFERENCE. WHAT SHOULD BE HOWEVER CONSIDERED IS THAT NONE OF THE SUBCONTRACTOR IS A RELATIVE; THE FACT OF EXPENDITURE OF SUCH PAYMENT IS NOT DOUBTED THOUGH THE ASSESSING OFFICER STATES THAT THEY ARE SELF MADE VO UCHERS. THE FACT REMAINS THAT THE CONCERNED LABOUR CONTRACTORS HAVE SHOWN THE AMOUNTS AS THEIR INCOME AND PAID TAX THEREON. THOUGH COMPLETE DETAILS OF NAMES ADDRESSE S EVERYTHING WERE FURNISHED THE ASSESSING OFFICE NEVER MADE AN ATTEMPT TO VERIF Y OR GET CONFIRMATION FROM SUB ITA NO. PAGE 6 CONTRACTORS BECAUSE HE DID NOT DOUBT THE QUANTITY T ALLY NOR THE FACT OF PAYMENT. THE ASSESSING OFFICER ALSO MENTIONS THAT THE PAYMENT IS EXCESSIVE AS THE ASSESSEE HAS ALSO SPENT WITH HIS LABOUR FORCE THE DETAILS WHERE OF ARE ON PAGE 5 OF THE ASSESSMENT ORDER. SOME OF THE STAFF IS ADMINISTRATIVE STAFF TO LOOK AFTER SUCH HUGE VOLUME OF BUSINESS. WE ARE OF THE VIEW THAT THE ASSESSING OFF ICE CANNOT SIT IN PLACE OF BUSINESSMAN TO DECIDE AS TO WHAT PAYMENT SHOULD BE MADE. IN VIEW OF THE ABOVE DISCUSSION AND FACTS WE ARE OF THE VIEW THAT THE O RDER OF CIT(A) NEED NO INTERFERENCE AND ACCORDINGLY WE UPHOLD THE SAME. 6. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS DAY OF 24 TH DEC 2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD DATED : 24/12/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD