The ACIT, Circle-2,, Surat v. M/s. Abhishek Exports,, Surat

ITA 4287/AHD/2007 | 2004-2005
Pronouncement Date: 09-12-2011 | Result: Partly Allowed

Appeal Details

RSA Number 428720514 RSA 2007
Assessee PAN AAEFA8406E
Bench Ahmedabad
Appeal Number ITA 4287/AHD/2007
Duration Of Justice 4 year(s) 5 day(s)
Appellant The ACIT, Circle-2,, Surat
Respondent M/s. Abhishek Exports,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 09-12-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 09-12-2011
Date Of Final Hearing 07-12-2011
Next Hearing Date 07-12-2011
Assessment Year 2004-2005
Appeal Filed On 04-12-2007
Judgment Text
-1- IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI D K TYAGI JUDICIAL MEMBER AND SHRI B P JAIN ACCOUNTANT MEMBER ITA NO.4287/AHD/2007 (ASSESSMENT YEAR:-2004-05) THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-2 ROOM NO.110 1 ST FLOOR AAYAKAR BHAVAN MAJURA GATE SURAT V/S M/S ABHISHEK EXPORTS (INDIA) PVT. LTD. ABHISHEK HOUSE OPP. JIVAN BHARTI SCHOOL KADAMPALLI SOCIETY NANPURA SURAT PAN: AAEFA 8406 E [APPELLANT] [RESPONDENT] ITA NO.2753/AHD/2009 (ASSESSMENT YEAR:-2004-05) ITA NO.2531/AHD/2008 (ASSESSMENT YEAR:-2005-06) ITA NO.1442/AHD/2009 (ASSESSMENT YEAR:-2006-07) ITA NO.2296/AHD/2010 (ASSESSMENT YEAR:-2007-08) M/S ABHISHEK EXPORTS (INDIA) PVT. LTD. ABHISHEK HOUSE OPP. JIVAN BHARTI SCHOOL KADAMPALLI SOCIETY NANPURA SURAT V/S THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-2 ROOM NO.110 1 ST FLOOR AAYAKAR BHAVAN MAJURA GATE SURAT [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI R K VOHRA DR ASSESSEE BY:- SHRI KIRAN K SHAH AR 2 DATE OF HEARING:- 07-12-2011 DATE OF PRONOUNCEMENT:- 09-12-2011 O R D E R PER B P JAIN (ACCOUNTANT MEMBER) :- THESE FIVE APPEALS OF THE ASSESSEE AND THE DEPARTMENT ARISE FR OM FOUR DIFFERENT ORDERS OF LEARNED CIT(A) AS PER DETAILS B ELOW:- SR. NO. ITA NO. ASST. YEAR DATE OF ORDER OF CIT(A) APPEAL BY 1 4287/AHD/07 2004-05 28-09-07 REVENUE 2 2753/AHD/09 2004-05 28-09-07 ASSESSEE 3 2531/AHD/08 2005-06 24-06-08 ASSESSEE 4 1442/AHD/09 2006-07 25-03-09 ASSESSEE 5 2296/AHD/10 2007-08 18-05-10 ASSESSEE 2 SINCE THE ISSUES INVOLVED IN THESE APPEALS ARE CO NNECTED WITH EACH OTHER AND THEREFORE ALL THE APPEALS ARE BEING DECIDED TOGETHER BY THIS CONSOLIDATED ORDER. 3 FIRST OF ALL WE TAKE UP THE APPEAL OF THE REVENU E IN ITA NO.4287/AHD/2007 FOR AY 2004-05 AS UNDER:- 4 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- [1] ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.100 77 996/- B EING 25% OF UNVERIFIABLE PURCHASES OF RS.4 03 11 985/- RELATED TO 8 PARTIES WAS MADE AFTER RELYING UPON THE DECISION OF AHMEDAB AD BENCH OF THE ITAT IN THE CASE OF VIJAY PROTEINS LTD. VS. ACIT (1996) 55 TTJ 76 AS THE PURCHASES SHOWN TO HAVE BEEN MADE FROM 8 3 PARTIES WERE FOUND TO BE NON-GENUINE/BOGUS IN COURS E OF THE ASSESSMENT PROCEEDINGS. [2] ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.35 00 000/- BE ING UNEXPLAINED EXPENDITURE WAS MADE U/S 69 C OF THE I. T. ACT BECAUSE OUT PAYMENT OF RS.55 00 000/- MADE TO M/S. AAYAPPA'S KNIT EXPORTS ONLY RS.20 00 000/- WAS CONFIRMED BY T HE SAID PARTY. [3] IN THE FACTS ARID CIRCUMSTANCES OF THE CASE TH E LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. [4] IT IS THEREFORE PRAYED THAT THE ORDER OF THE CIT(A) BE SET-ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 5 AS REGARDS GROUND NO.1 OF THE REVENUES APPEAL T HE BRIEF FACTS ARE THAT THE ASSESSES IS ENGAGED IN THE BUSIN ESS OF EXPORT DURING THE YEAR THE ASSESSEE EXPORTED GARMENTS DI AMONDS AND SOFTWARE ETC. THE TOTAL TURNOVER WAS RS.20 01 43 36 5/- WHICH COMPRISED OF EXPORT SALES OF RS.18 70 92 501/-AND L OCAL SALES OF RS.1 30 50 864/-. DURING THE YEAR THE GROSS PROFIT RATIO WORKED OUT TO 6.10% AS COMPARED TO 17.18% IN THE IMMEDIATE LY PRECEDING YEAR. ACCORDING TO THE JCIT THE ASSESSEE FAILED TO FURNISH ANY EXPLANATION REGARDING THE FALL IN THE G P RATIO. THE JCIT THEN PROCEEDED TO EXAMINE THE PURCHASES AND I SSUED LETTERS U/S 133(6) OF THE IT ACT TO 19 PARTIES. INITIALLY ONLY ONE OF THE PARTIES RESPONDED TO THE LETTER. THE JCIT THEN REQU ESTED THE ASSESSEE TO PRODUCE THE PARTIES BEFORE HIM AND AT THE SAME TIME ISSUED A DETAILED SHOW-CAUSE NOTICE. THE ASSESSEE S UBMITTED THAT DURING THE YEAR IT HAD EXPORTED DIAMONDS AND SUGA R AND HAD ALSO TRADED IN FABRIC AND OTHER MERCHANDISE. DURING THE PRECEDING 4 YEAR THE ASSESSEE HAD EXPORTED ONLY READYMADE GAR MENTS. THE GP RATE OF READYMADE GARMENTS DURING THE YEAR WAS 8 .6% AS AGAINST 12.86% IN THE PRECEDING YEAR. THEREFORE TH E ONLY COMPARABLE GP RATE COULD BE WITH REGARD TO READYMAD E GARMENTS WHICH HAD FALLEN FROM 12.86% TO 8.6%. THE FALL WAS BECAUSE OF THE VOLATILITY IN THE INTERNATIONAL MARKET. OUT OF THE 19 PARTIES TO WHOM THE JCIT HAD ISSUED LETTERS U/S 133(6) OF THE IT ACT EVEN THOUGH ONLY ONE HAD RESPONDED ORIGINALLY THE ASSES SEE FURNISHED CONFIRMATIONS FROM SOME MORE PARTIES ALONG WITH TH E REPLY TO THE SHOW-CAUSE NOTICE. IT WAS SUBMITTED THAT THE RE MAINING PARTIES HAD CHANGED THEIR ADDRESSES AND THEREFORE THE LETTERS ISSUED BY THE JCIT COULD NOT BE SERVED. IN ANY CASE THE PURCHASES WERE SUPPORTED BY THE BILLS RAISED BY SUC H PARTIES AND THE PAYMENTS WERE MADE BY THE ASSESSEE BY A/C PAYEE CHEQUES AND DRAFTS. PHOTOCOPIES OF THE CHEQUES / DRAFTS WER E FILED. THE ASSESSEE FURTHER CONTENDED THAT SINCE THE EXPORTS W ERE THE ONES WHICH WERE NOT DISPUTED AND SINCE THE ITEMS WHICH WERE EXPORTED WERE THE ONES WHICH WERE PURCHASED THE GE NUINENESS OF THE PURCHASES COULD NOT BE DOUBTED. QUANTITATIVE TA LLY OF THE PURCHASES AND THE EXPORTS OF EACH ITEM HAD BEEN SUB MITTED. THE JCIT REJECTED THE ASSESSEES CONTENTIONS. HE OBSERV ED THAT THE ASSESSEE HAD ACCEPTED THE FALL IN THE GP RATIO OF R EADYMADE GARMENTS. AS REGARDS PURCHASES THE JCIT ACCEPTED T HE CONFIRMATION LETTERS FILED BY THE ASSESSEE. BUT HE OBSERVED THAT THERE THAT THERE WERE STILL 8 PARTIES WHO HAD NOT F URNISHED ANY CONFIRMATION WHILE SOME OF THEM WERE NOT TRACEABLE. THE ASSESSEE HAD FAILED TO PRODUCE THE CONCERNED PARTIE S FOR VERIFICATION. MOREOVER THE ASSESSEE DID NOT MAINTAI N A DAY-TO- 5 DAY STOCK REGISTER. THE JCIT THEREFORE TOOK THE VIE W THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE NOT RELIABLE AND CONSEQUENTLY HE REJECTED THE SAME UNDER THE PROVIS IONS OF SECTION 145(3) OF THE IT ACT. THE PURCHASES MADE FR OM THE 8 PARTIES FROM WHOM NO CONFIRMATION WAS RECEIVED TOTA LLED RS.4 03 11 985/-. THE JCIT TOOK THE VIEW THAT SUCH PURCHASES WERE NOT GENUINE. EVEN THOUGH HE ACCEPTED THE FACTS THAT THE SALES/EXPORTS HAD BEEN MADE OF THE ITEMS OR GOODS P URCHASED BY THE ASSESSEE YET IT WAS NOT CLEAR AS TO WHICH PAR TIES HAD SUPPLIED SUCH GOODS. RELYING ON THE DECISION OF THE AHMEDABAD BENCH OF THE IT AT IN THE CASE OF VIJAY PROTEINS LT D. VS. ACJT [1996] 55 1TJ 76 THE JCIT DISALLOWED 25% OF THE UN VERIFIABLE PURCHASES OF RS.4 03 11 985 AND MADE THE ADDITION O F THE SUM OF RS.1 00 77 996. 6 THE LEARNED CIT(A) VIDE PARA 7.5 AND 7.6 OF HIS O RDER OBSERVED THAT OUT OF 31 SELLERS FROM WHOM THE ASSES SEE HAD MADE PURCHASES 23 WERE FOUND TO BE GENUINE. THEREFORE THE PRESUMPTION COULD CLEARLY BE DRAWN THAT PURCHASES M ADE FROM REMAINING 8 PARTIES WERE ALSO GENUINE. THERE IS NO EVIDENCE FOUND THAT EITHER THE SELLERS WERE BOGUS OR THE PAY MENTS MADE BY THE ASSESSEE BY ACCOUNT PAYEE CHEQUES AND DEMAND DR AFTS HAD SUBSEQUENTLY FLOWN INTO THE HANDS OF THE ASSESSEE. THEREFORE THE LEARNED CIT(A) DELETED THE ADDITION MADE BY THE AO. 7 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE FACTS OF THE CASE. THE ASSESSEE HAD MADE PURCHASES TOTAL ING TO RS.15 46 15 018/- FROM DIFFERENT PARTIES. FROM THE NAMES AND 6 ADDRESSES GIVEN THE JCIT ISSUED LETTERS U/S 133(6) TO ONLY 19 PARTIES. OUT OF 19 PARTIES THE REPLIES OF 8 PARTIE S WERE NOT RECEIVED. THE AO OBSERVED THAT 75% OF THE PURCHASES WERE VERIFIABLE AND 25% OF THE PURCHASES WERE NOT VERIFI ABLE. AS PER PARA 7 THE LEARNED CIT(A) OBSERVED THAT THE JCIT F AILED TO CARRY OUT THE INQUIRY TO LOGICAL END. THE NOTICES U/S 133 (6) OF THE ACT MAY NOT HAVE BEEN SERVED FOR VARIOUS REASONS I.E. T HEY COULD HAVE CHANGED THEIR ADDRESSES OR COULD HAVE SIMPLY REFUSE D TO ACCEPT ANY COMMUNICATION FROM THE INCOME-TAX DEPARTMENT FE ARING INQUIRIES IN THEIR OWN CASES. FOR SIMILAR REASONS TWO PARTIES HAD RECEIVED THE LETTERS MAY HAVE DELIBERATELY NOT FUR NISHED ANY REPLY. IN SUCH A SITUATION THE JCIT OUGHT TO HAVE ISSUED THE SUMMONS OR COULD HAVE ISSUED COMMISSION. OF THE EIG HT PARTIES SIX WERE FROM MUMBAI WHILE TWO WERE FROM TIRUPUR. THE INQUIRIES COULD EASILY HAVE BEEN CONDUCTED AT MUMBA I TO VERIFY WHETHER OR NOT THESE PARTIES EXISTED OR WHETHER THE Y HAD INDEED MADE SALES TO THE ASSESSEE AS CLAIMED. WITHOUT COND UCTING SUCH INQUIRIES THE JCIT SIMPLY CAME TO THE CONCLUSION T HAT THE PURCHASES SHOWN TO HAVE BEEN MADE FROM SUCH 8 PARTI ES ARE NOT VERIFIABLE. ON THE OTHER HAND THE LEARNED CIT(A) VIDE PARAS 7.5 AND 7.6 HAS OBSERVED THAT THE PRESUMPTION COULD CLE ARLY BE DRAWN THAT THE PURCHASES MADE FROM REMAINING 8 PARTIES WE RE ALSO GENUINE ESPECIALLY WHEN NO EVIDENCE WAS FOUND TO SH OW THAT EITHER THE SELLERS WERE BOGUS OR THAT THE PAYMENTS MADE BY THE ASSESSEE BY ACCOUNT PAYEE CHEQUES AND DEMAND DRAFTS HAD SUBSEQUENTLY FLOWN INTO THE HANDS OF THE ASSESSEE. IN THE CIRCUMSTANCES AND FACTS OF THE CASE THE LEARNED CI T(A) CANNOT BLOW BOTH HOT AND COLD IN THE SAME BREATH I.E. VIDE PARA 7 HE HAS 7 OBSERVED AS MENTIONED HEREINABOVE THAT THE JCIT / A O HAS COME TO THE CONCLUSION WITHOUT CONDUCTING THE INQUIRIES VIDE PARA 7 OF HIS ORDER AND ON THE OTHER HAND VIDE PARA 7.5 AND 7 .6 OF HIS ORDER HE IS MAKING THE PRESUMPTION THAT THE PURCHASES FRO M SUCH 8 PARTIES WHICH CONSTITUTES 25% OF THE PURCHASES TO W HOM THE LETTERS WERE SENT FOR VERIFICATION ARE GENUINE IN THE ABSENCE OF ANY EVIDENCE AGAINST THE ASSESSEE. THERE IS NO DIS PUTE TO THE FACTS THE ASSESSEE HAVING SUBMITTED THE CONFIRMATIO NS OF ALL THE PARTIES BUT WHETHER THOSE CONFIRMATIONS AND ESPECIA LLY FROM THE SAID 8 PARTIES MENTIONED HEREINABOVE ARE GENUINE O R NOT REMAINS TO BE INQUIRED. THEREFORE THE AO CANNOT DECIDE THE ISSUE WITHOUT CONDUCTING THE INQUIRIES AS RIGHTLY MENTIONED BY TH E LEARNED CIT(A) IN PARA 7 OF HIS ORDER. IN THE CIRCUMSTANCES AND FACTS OF THE CASE AND IN THE INTEREST OF JUSTICE THE MATTE R IS RESTORED TO THE FILE OF THE AO WHO WILL DECIDE THE ISSUE DE NOV O BUT AFTER CONDUCTING INQUIRIES INTO THE GENUINENESS OF THE PU RCHASES. THE NECESSARY OPPORTUNITY SHOULD BE GIVEN TO THE ASSESS EE BEFORE DECIDING THE ISSUE. THUS GROUND NO.1 OF THE REVENU ES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 8 AS REGARDS GROUND NO.2 THE BRIEF FACTS ARE THAT THE ASSESSEE HAD DECLARED A SUM OF RS.91 45 884/- PAYABLE TO M/S AAYAPPA KNIT EXPORTS [M/S AKE]. ACCORDING TO THE JCIT IN R ESPONSE TO A LETTER U/S 133(6) ISSUED BY HIM M/S. AKE HAD SUBMI TTED THAT DURING THE YEAR UNDER CONSIDERATION THEY HAD NOT E NTERED INTO ANY TRANSACTION WITH THE ASSESSEE. THE ASSESSEE SUB MITTED THAT DURING THE YEAR A PAYMENT OF RS.55 00 000 HAD BEEN MADE TO M/S. AKE. ON THE OTHER HAND M/S. AKE HAD STATED TH AT IT 8 RECEIVED A SUM OF ONLY RS.20 00 000 FROM THE ASSESS EE. THE JCIT ASKED THE ASSESSEE TO EXPLAIN WHY THE SUM OF RS.35 00 000/-[RS.55 00 000/- (-) RS.20 00 000/-] SHOULD NOT BE TREATED AS UNEXPLAINED EXPENDITURE. THE ASSESSEE SU BMITTED THAT IN THE IMMEDIATELY PRECEDING YEAR M/S. AKE HAD FUR NISHED A CONFIRMATION SHOWING THE CLOSING BALANCE THAT IS T HE AMOUNT PAYABLE BY THE ASSESSEE AT RSL 46 45 884. AGAINST THIS SUM THE; ASSESSEE HAD PAID A TOTAL OF RS.55 00 000 BY ACCOUN T-PAYEE CHEQUES LEAVING A BALANCE OF RS.91 45 884/- AND M/ S. AKE HAD BEEN SHOWN AS A CREDITOR TO THAT EXTENT IN THE BALA NCE SHEET. THE ASSESSEE THUS SUBMITTED THAT M/S. AKE HAD NOT MAINT AINED ITS BOOKS PROPERLY AND HAD PERHAPS MADE ADJUSTMENTS BY SHOWING BOGUS SALES IN THE NAME OF THE ASSESSEE. THE ASSESS EE ASKED THE JCIT TO ALLOW CROSS-EXAMINATION OF M/S. AKE. IT WAS FURTHER SUBMITTED THAT THE CREDIT BALANCE WHICH STOOD IN T HE NAME OR M/S. AKE COULD NOT BE TREATED AS INCOME OF THE CURR ENT YEAR. THE JCIT REJECTED THE ASSESSEE'S SUBMISSIONS AND ON TH E BASIS OF THE SUBMISSIONS OF M/S. AKE TREATED THE SUM OF RS.35 00 000/- AS UNEXPLAINED EXPENDITURE UNDER THE PROVISIONS OF SEC TION 69C OF THE IT ACT. 9 THE LEARNED CIT(A) VIDE PARA 15 TO 15.4 OBSERVED THAT THE ASSESSEE HAD MADE THE PAYMENTS OF RS.55 LAKHS DURIN G THE YEAR OUT OF THE DECLARED SOURCES WHICH HAS BEEN ACCOUNTE D FOR IN THE REGULAR BOOKS OF ACCOUNT FOR THE PURCHASES MADE IN THE EARLIER YEARS. SECONDLY WHILE EXAMINING M/S AKE THE AO DID NOT ALLOW ANY CROSS EXAMINATION TO THE ASSESSEE WHICH IS CLEA RLY VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. THEREFORE IN THE CIRCUMSTANCES 9 AND FACTS OF THE CASE THE LEARNED CIT(A) OBSERVED THAT THE PAYMENTS HAVING BEEN MADE BY THE ASSESSEE FOR THE P RECEDING YEARS THE PURCHASES CANNOT BE SUBJECT MATTER OF SE CTION 69C OF THE ACT AND THEREFORE HE DIRECTED THE AO TO DELETE THE ADDITION AFTER FOLLOWING THE DECISION IN ASSESSEES OWN CASE BY HI S PREDECESSOR IN THE PRECEDING ASSESSMENT YEAR WHERE ADDITIONS HA D BEEN DELETED ON IDENTICAL ISSUES. 10 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LEARNE D CIT(A) THAT THE ASSESSEE HAD MADE PAYMENTS OF RS.55 LAKHS DURIN G THE YEAR FOR THE PURCHASES MADE DURING THE PRECEDING YEARS A ND NONE OF THE PURCHASES HAVE BEEN MADE DURING THE YEAR. THE A SSESSEE HAD NOT CLAIMED ANY EXPENDITURE DURING THE YEAR. THEREF ORE THE PROVISIONS OF SECTION 69C CANNOT BE MADE APPLICABLE IN THE PRESENT CASE. ON IDENTICAL ISSUE THE TRIBUNAL AHME DABAD BENCH- D IN ITA NO.1686/AHD/2007 FOR THE AY 2003-04 DATED 12-12- 2010 IN ASSESSEES OWN CASE HAD DECIDED SUCH ISSUE IN FAVOUR OF THE ASSESSEE BY DISMISSING THE APPEAL OF THE REVENU E. THEREFORE IN THE CIRCUMSTANCES AND FACTS OF THE CASE AND OUR EARLIER DECISION OF THE ITAT BENCH IN ASSESSEES OWN CASE F OR THE AY 2003-04 (SUPRA) WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) WHO HAS RIGHTLY DELETED THE ADDITION MADE BY THE AO. THUS GROUND NO.2 OF REVENUES APPEAL IS DISMISSED. 11 GROUND NOS. 3 AND 4 ARE GENERAL IN NATURE AND TH EREFORE DO NOT REQUIRE ANY ADJUDICATION. 10 12 THUS REVENUES APPEAL IN ITA NO.4287/AHD/2007 I S PARTLY ALLOWED FOR STATISTICAL PURPOSE. 13 NOW WE TAKE UP THE APPEAL OF THE ASSESSEE IN I TA NO.2753/AHD/2009 FOR AY 2004-05. THE ASSESSEE HAS R AISED THE FOLLOWING GROUNDS:- [1] THE LEARNED CIT(A) ERRED IN CONFIRMING ADDITION OF RS.46 06 930/-BEING 20% OF DISALLOWANCE OUT OF WAGE S. [2] THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE ISSUE OF DEDUCTION U/S 80HHC OF THE ACT EVEN ON INCENTIVE LI KE AMOUNT RECEIVED UNDER DEPB. [3] THE APPELLANT RESERVE RIGHT TO ADD ALTER AND W ITHDRAW ANY GROUNDS OF APPEAL. 14 AT THE OUTSET THE LEARNED DR RAISED PRELIMINARY OBJECTION NOT TO ADMIT THE APPEAL SINCE THE APPEAL OF THE ASS ESSEE IS TIME- BARRED WHICH HAS BEEN FILED LATE BY 672 DAYS. 15 THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT DUE TO PRESSURE OF WORK IN THE OFFICE BECAUSE OF ONE OF TH E EMPLOYEES MR. PARIMAL BHAGAT CA HAD LEFT THE OFFICE ABRUPTLY IN JANUARY 2007 AND THEREFORE THE APPEAL COULD NOT BE FILED IN TIME. TO THIS EFFECT THE ASSESSEE HAS GIVEN AN AFFIDAVIT WHICH I S ON RECORD. THE AFFIDAVIT OF THE ASSESSEE FOR THE SAKE OF CLARI TY IS REPRODUCED AS UNDER:- AFFIDAVIT I THE UNDERSIGNED KIRAN SHAH SON OF KASTURCHAND SHAH CASTE BY HINDU AGED ABOUT 59 YEARS RESIDING AT 14 PRAKASH SOCIETY I.G. 11 CLASSES GALLY ATHWALINES SURAT TAKE ON OATH AND S TATE SOLEMNLY AFFIRMATION AS UNDER:- (1) THAT I AM LOOKING AFTER THE TAXATION MATTERS A ND ALSO APPEAL MATTERS OF M/S ABHISHEK EXPORTS. (2) THAT I AM LOOKING AFTER THE REGULAR ASSESSMENT PROCEEDINGS AND ALSO THE APPEAL MATTERS UP TO TRIBUNAL. (3) THAT ONE OF MY EMPLOYEES NAMELY PARIMAL BHAGAT CA LEFT ABRUPTLY IN JANUARY 2007 AND THEREFORE THERE WAS LOT OF PRESSURE OF WORK IN THE OFFICE. (4) THAT DUE TO PRESSURE OF WORK THE APPEAL OF M/ S ABHISHEK EXPORTS FOR AY 2004-05 COULD NOT BE FILED IN TIME. (5) THAT THE DELAY FOR THE REASONABLE CAUSE AND MAY PLEASE BE CONDONED. THAT WHATEVER STATED ABOVE IS TRUE AND FOR THAT TH IS AFFIDAVIT IS EXECUTED. PLACE: SURAT SD/- DATE : 02-10-2009 [KIRAN KASTURCHAND SHAH] 16 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NO SUFFICIENT CAUSE SHOWN BY THE LEARNED COUNSEL FOR THE ASSESSEE FOR FILING THE APPEAL LATE BY 672 DAYS AND THEREFORE IN THE CIRCUMSTANCES AND FACTS OF T HE CASE THE APPEAL IS TIME-BARRED AND SAME CANNOT BE ADMITTED. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IN ITA NO.2753/AHD /2009 IS DISMISSED. 17 NOW WE TAKE UP THE APPEAL OF THE ASSESSEE IN IT A NO.2531/AHD/2008 FOR AY 2005-06. THE ASSESSEE HAS R AISED THE FOLLOWING GROUNDS OF APPEAL:- 12 [1] THE LEARNED CIT(A) ERRED IN CONFIRMING ADDITION OF RS.59 70 291/- BEING 20% DISALLOWANCE OF TOTAL WAGE S AS PER PARA 8 OF THE APPEAL ORDER. [2] THE APPELLANT RESERVES RIGHT TO ADD ALTER AND WITHDRAW ANY GROUNDS OF APPEAL. 18 THE BRIEF FACTS AS EMANATING FROM THE ORDER OF T HE AO AT PAGES 2 3 4 AND 5 VIDE PARA-4 ARE AS UNDER:- 4. EXPENDITURE UNDER THE HEAD WAGES TO WORKERS THE ASSESSEE HAS CLAIMED WORKERS- WAGES TO THE TUNE OF RS.2 98 52 958/- IN THE ACCOUNTS OF HEAD OFFICE UND ER THE HEAD MANUFACTURING EXPENSE AS PER SCHEDULE XVI. THE ASSE SSEE CLAIMS THAT HE GETS INCOME FROM OPERATION MAINLY EXPORT SALES O F GARMENTS AND ALSO FROM RAPE SEEDS SOYABEAN EXTRACTION MILL LOC AL SALES OF FABRICS ETC. DURING THE COURSE OF VERIFICATION OF THE BOOKS OF ACCOUNTS IT WAS FOUND THAT THE ASSESSEE WAS SHOWING IN GARMENT ACCO UNT ALL THE PAYMENTS IN CASH FOR DAILY WAGERS AND NO ATTENDANCE REGISTER WAS FOUND TO BE THERE. FURTHER VOUCHERS PRODUCED FOR V ERIFICATION WAS ALSO FOUND UNRELIABLE HENCE THE ASSESSEE WAS ASKED BY T HIS OFFICE SHOW CAUSE LETTER NO. ADDL.CIT-RANGE-2/SHOW CAUSE/2007-0 8 DATED 23.11.07 AS UNDER: 'IN CONTINUATION WITH INCOME TAX PROCEEDINGS IN YOU R CASE AND. AFTER HAVING HEARD THE VARIOUS ISSUES FOR ASSESSMENTS Y OU ARE HEREBY GIVEN IS NOTICE TO SHOW CAUSE AS TO WHY EXPENDITURE SHOWN IN WAGES PUNT SHOULD NOT BE DISALLOWED @ 20% OF THE TOTAL EXPENDI TURE OF RS.29852958/- AS ALL THE PAYMENTS HAVE BEEN MADE IN CASH AND EVERY INDIVIDUAL PAYMENT IS FOUND TO BE MORE THAN RS.2000 0/-. DURING THE COURSE OF VERIFICATION OF RECORDS IT WAS FOUND THAT NO ATTENDANCE REGISTER OF SUCH WORKERS WERE MAINTAINED NOR NAME A ND ADDRESS OF THE WORKERS WERE FOUND TO BE THERE IN VOUCHERS. YOU HA VE ALSO NOT PRODUCED ANY PROOF OF P.F OR ESI EXPENDITURES THERE FORE YOU EVIDENTLY HAVE VIOLATED THE PROVISION OF LAW U/S 40 A(3). ACCORDINGLY 20% OF SUCH EXPENDITURE IS PROPOSED TO BE DIS ALLOWED WHICH IS 13 5970291/-. YOU ARE REQUESTED TO PLEASE EXPLAIN WIT H ALL THE 'NECESSARY EVIDENCES AS TO WHY SUCH ADDITION SHOULD NOT BE MAD E.' IN RESPONSE TO THE ABOVE QUERIES / SHOW CAUSE THE A SSESSEE HAS EXPLAINED VIDE LETTER DATED 27.11.07 AS UNDER: 'DURING THE YEAR UNDER CONSIDERATION THERE IS AN E XPENDITURE OF RS.29852958/- TOWARDS 'WAGES FOR MANUFACTURING OF G ARMENTS. GARMENTS ARE BEING MANUFACTURED BY THE WORKERS AND THE PAYMENT IS MADE ON THE BASE OF PIECES MANUFACTURED DURING THE YEAR. THERE ARE DIFFERENCE PROCESS OF MANUFACTURING OF GARMENTS I.E . STITCHING IRONING ETC. AND FOR THAT WAGES ARE PAID PER PIECE. THE V OUCHERS OF PAYMENT OF WAGES ARE PRODUCED FOR VERIFICATION. IT MAY PL EASE BE NOTED THAT EACH VOUCHER IS LESS THAN RS.20000/- AND HENCE PAYM ENT WAS NOT MADE BY ACCOUNT PAYEE CHEQUES. EVEN THE WORKERS WORKING FOR DIFFERENT PROCESS INSIST CASH PAYMENT. SO FAR AS WAGES REGI STER ARE CONCERNED INITIALLY REGISTER ARE MAINTAINED HOWEVER LATER O N PAYMENTS WERE MADE ENTIRELY ON VOUCHERS. SECONDLY THE GROSS PROFIT IS AT 21.77% AS AGAINST 8.92% IN THE EARLIER YEARS ON SEGMENT OF GARMENTS SALES. THE PROVISIONS OF SECTION 40A(3) ARE NOT APPLICABLE AS THE PAYMENTS ARE LESS THAN RS.20000/- PER VOUCHER. IN VIEW OF TH E ABOVE .DISALLOWANCE OF20% EXPENDITURE IS NOT JUSTIFIED.' AS CAN BE SEEN FROM THE ABOVE REPLY THAT THE ASSESS EE HAS GIVEN ONLY GENERAL TYPE OF EXPLANATION. IT CAN BE SEEN FROM TH E LEDGER THAT MOST OF THE PAYMENTS ARE MORE THAN RS.20000/- IF IT IS SEEN IN ACCUMULATED POINT OF VIEW. SOME CASES CONSTITUTE MINOR PORTION OF THE WHOLE PAYMENTS THUS THERE IS SPLITTING OF THE CASH PAYME NTS AND SHOWING IT TO BE MADE IN INDIVIDUAL AMOUNT WHICH IS LESS THAN RS.20000/-. BUT THAT IS NOT THE TRUE PICTURE OF THE VOUCHERS. DURIN G THE COURSE OF HEARING PROCEEDINGS THE ASSESSEE WAS ASKED TO PRODU CE THE ATTENDANCE REGISTER NAME ADDRESS OF THE WORKERS PROOF OF P.F . / ESI PAYMENTS AND THE BASIS OF CALCULATION OF PIECES FOR WHICH ST ITCHING AND IRON AND PACKING BASIS HAS BEEN GIVEN AT THE FIXED RATE. IT CAN BE SEEN FROM THE VOUCHERS THAT THERE IS NO VOUCHER NUMBERS ON ANY OF THE VOUCHERS. NAME AND ADDRESSES OF THE RECIPIENTS ARE ALSO NOT T HERE. SURPRISINGLY IT IS FOUND IN CASH BOOK THAT VOUCHER NUMBER HAS BE EN WRITTEN BUT NO SUCH VOUCHER NUMBER IS FOUND TO BE THERE IN BUNCH O F VOUCHERS. FOR E.G. IN CASH BOOK VOUCHER NO. 363 HAS BEEN MENTIONE D THROUGH WHICH 14 PAYMENT FOR STITCHING HAS BEEN CLAIMED TO HAVE BEEN GIVEN AT RS.148302/- BUT NO SUCH VOUCHER IS FOUND TO BE THER E. SIMILAR IS THE FACT IN RESPECT OF CASH BOOK DATED 5-6-2004 WHICH R EVEALS CHECKING WAGES OF RS.90668/- THROUGH VOUCHER NUMBER 355 BUT THERE IS NO SUCH VOUCHER. IN USUAL VOUCHERS PRODUCED FOR VERIFICATIO N DOES NOT REVEAL OR POSSES ANY MANUAL OR PRINTED NUMBER THEREFORE G ENUINENESS OF SUCH EXPENDITURE CANNOT BE ACCEPTED AS FULL TRUE. I T IS ALSO WORTHWHILE TO MENTION THAT SOME VOUCHERS HAS BEEN PREPARED AT THE RATE OF RS.5 PER PIECE FOR IRON AND PACKING WAGES WHEREAS SOME V OUCHER HAS BEEN PREPARED AT RS.6. FOR E.G. CUTTING WAGES HAS BEEN SHOWN AT RS.6 WHEREAS IRON AND PACKING WAGES HAS BEEN SHOWN AT TH E RATE OF RS.5. REASON FOR VARIATION HAS NOT BEEN EXPLAINED SATISFA CTORILY. THE NATURE OF VOUCHERS CAN ALSO REVEAL THAT IT HAS BEEN PREPAR ED IN FEW SITTINGS THEREFORE SUCH WAGES CANNOT BE ACCEPTED FULLY. THE RE MAY BE INDIVIDUAL PAYMENTS BELOW RS.20000/- BUT GENUINENES S OF SUCH EXPENDITURE IN ITS ENTIRETY IS NOT FOUND BELIEVABLE AS NO VERIFIABLE DETAILS ARE THERE LIKE ADDRESSES OF THE RECIPIENTS ATTENDANCE REGISTERS ACTUAL INDIVIDUAL OUTPUT THEREFORE THE FULL EXPEN DITURE CANNOT BE ALLOWED ON ACCOUNT OF ALL THESE DEFICIENCY. CONSIDE RING THE PAST HISTORY AND VARIOUS DEFICIENCY AND ALSO ON ACCOUNT OF FACT THAT ATTENDANCE REGISTERS ARE NOT MAINTAINED 20% OF THE EXPENDITURE AS PROPOSED BY SHOW CAUSE NOTICE IS DISALLOWED AND ADD ED TO THE TOTAL INCOME OF THE ASSESSEE WHICH COMES TO RS.59 70 291/ -. PENALTY PROCEEDINGS U/S 271(1)(C) IS INITIATED FOR FURNISHI NG INACCURATE PARTICULARS OF INCOME AND CONCEALMENT OF INCOME. 19 THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE A O. 20 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE LEARNED COUNSEL FOR THE ASSESSEE A RGUED THAT THE ASSESSEE HAD DECLARED THE LESSER WAGES AS COMPARED TO THE PRECEDING YEAR AND ALSO THE GROSS PROFIT IS BETTER IN THE IMPUGNED YEAR AS COMPARED TO THE PRECEDING YEAR. ON THE OTH ER HAND THE LEARNED DR RELIED UPON THE ORDERS OF BOTH THE AUTHO RITIES BELOW. 21 THE ASSESSEE HAD CLAIMED THE WAGES TO THE TUNE O F RS.2 98 52 958/-. ALL THE PAYMENTS HAVING BEEN MADE IN CASH FOR 15 WHICH NO ATTENDANCE REGISTER WAS PRODUCED. THE ASSE SSEE HAD MAINTAINED THE VOUCHERS FOR PAYMENTS MADE IN CASH F OR SUCH WAGES BUT THERE IS NO NAME AND ADDRESS OF ANY RECI PIENT OF SUCH PAYMENT. IN CASH BOOK THE ASSESSEE HAS MENTIONED T HE VOUCHER NUMBERS BUT NO SUCH VOUCHER NUMBER IS FOUND IN THE BUNCH OF VOUCHERS. THE AO FOR E.G. HAD GIVEN ONE VOUCHER NO . 363 FOR WHICH PAYMENT FOR STITCHING HAVE BEEN CLAIMED TO HA VE BEEN GIVEN FOR RS.1 48 302/- BUT THERE IS NO SUCH VOUCHE R IN THE BUNCH OF VOUCHERS. SIMILAR ONE MORE EXAMPLE HAD ALSO BEEN GIVEN BY THE AO IN HIS ASSESSMENT ORDER. THERE IS VARIATION OF THE RATE IN THE WAGES WHICH HAS NOT BEEN EXPLAINED TO THE SATIS FACTION OF THE AO. IT HAS BEEN OBSERVED BY THE AO THAT THE VOUCHER S HAVE BEEN PREPARED IN FEW SITTINGS. THEREFORE THE EXPENDITUR E CLAIMED IS NOT VERIFIABLE. THE AO CONSIDERING THE PAST HISTORY HAS RIGHTLY DISALLOWED 20% OF THE EXPENDITURE AS PROPOSED IN TH E SHOW CAUSE NOTICE REPLY OF WHICH WAS NOT FOUND SATISFACTORY. IN THE CIRCUMSTANCES AND FACTS OF THE CASE IN THE ABSENCE OF VERIFIABILITY OF THE GENUINENESS OF THE EXPENDITURE CLAIMED BY THE ASSESSEE WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) WHO HAS RIGHTLY CONFIRMED THE ACTION OF THE AO. THU S GROUND NO.1 OF THE ASSESSEES APPEAL IS DISMISSED. 22 GROUND NO.2 OF THE ASSESSEES APPEAL IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. THUS THE AP PEAL OF THE ASSESSEE IN ITA NO.2531/AHD/2008 IS DISMISSED. 16 23 NOW WE TAKE UP THE APPEAL OF THE ASSESSEE IN IT A NO.1442/AHD/2009 FOR AY 2006-07. THE ASSESSEE HAS R AISED THE FOLLOWING GROUNDS OF APPEAL:- [1] THE LEARNED CIT(A) GROSSLY ERRED IN CONFIRMING THE ENTIRE ADDITION OF RS.52 58 633/- BEING 20% OUT OF WAGES A S PER PARA 3 OF THE ORDER. [2] THE APPELLANT RESERVE RIGHT TO ADD ALTER AND W ITHDRAW ANY GROUNDS OF APPEAL. 24 THE BRIEF FACTS IN THE PRESENT CASE ARE IDENTICA L TO THE FACTS IN ASSESSEES OWN CASE FOR AY 2005-06 AND THE AO IN THE PRESENT CASE HAS ACCORDINGLY MADE DISALLOWANCE OF RS.52 58 633/-. THE ACTION OF THE AO HAS BEEN CONFIRMED BY THE LEARNED CIT(A). 25 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. SINCE THE FACTS IN THE PRESENT CASE AR E IDENTICAL TO THE FACTS IN ASSESSEES OWN CASE FOR AY 2005-06 WHICH HAS BEEN DECIDED BY US HEREINABOVE IN ITA NO.2531/AHD/2008 O F EVEN DATE FOLLOWING THE SAME WE DISMISS THE APPEAL OF THE ASSESSEE. 26 NOW WE TAKE UP THE APPEAL OF THE ASSESSEE IN IT A NO.2296/AHD/2010 FOR AY 2007-08. THE ASSESSEE HAS R AISED THE FOLLOWING GROUNDS OF APPEAL:- [1] THE LEARNED CIT(A) ERRED IN CONFIRMING ADDITION OF RS.48 23 562/- ON ACCOUNT OF DISALLOWANCE OF WAGES AS PER PARA 3 OF THE CIT(A)S ORDER. 17 [2] THE APPELLANT RESERVE RIGHT TO ADD ALTER AND W ITHDRAW ANY GROUNDS OF APPEAL. 27 THE BRIEF FACTS IN THE PRESENT CASE ARE IDENTICA L TO THE FACTS IN ASSESSEES OWN CASE FOR AY 2005-06 AND THE AO IN THE PRESENT CASE HAS ACCORDINGLY MADE DISALLOWANCE OF RS.48 23 562/-. THE ACTION OF THE AO HAS BEEN CONFIRMED BY THE LEARNED CIT(A). 28 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. SINCE THE FACTS IN THE PRESENT CASE AR E IDENTICAL TO THE FACTS IN ASSESSEES OWN CASE FOR AY 2005-06 WHICH HAS BEEN DECIDED BY US HEREINABOVE IN ITA NO.2531/AHD/2008 O F EVEN DATE FOLLOWING THE SAME WE DISMISS THE APPEAL OF THE ASSESSEE. 29 IN THE RESULT THE APPEAL FILED BY THE REVENUE I .E. ITA NO.4287/AHD/2007 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ALL THE APPEALS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 09-12-2011 SD/- SD/- (D K TYAGI) JUDICIAL MEMBER (B P JAIN) ACCOUNTANT MEMBER DATE : 09-12-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S ABHISHEK EXPORTS (INDIA) PVT. LTD. ABHISHEK HOUSE OPP. JIVAN BHARTI SCHOOL KADAMPALLI SOCIETY NANPU RA SURAT 2. THE ASST. COMMISSIONER OF INCOME-TAX CIRCLE-2 ROOM NO.110 1 ST FLOOR AAYAKAR BHAVAN MAJURA GATE SURAT 18 3. CIT CONCERNED 4. CIT(A)-II SURAT 5. DR ITAT AHMEDABAD BENCH-D AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD