SRUSTI DIAM, MUMBAI v. ADDL CIT 15(1), MUMBAI

ITA 4911/MUM/2008 | 2005-2006
Pronouncement Date: 29-07-2011 | Result: Dismissed

Appeal Details

RSA Number 491119914 RSA 2008
Assessee PAN AAWFS3133N
Bench Mumbai
Appeal Number ITA 4911/MUM/2008
Duration Of Justice 2 year(s) 11 month(s) 24 day(s)
Appellant SRUSTI DIAM, MUMBAI
Respondent ADDL CIT 15(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 29-07-2011
Date Of Final Hearing 11-05-2011
Next Hearing Date 11-05-2011
Assessment Year 2005-2006
Appeal Filed On 04-08-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI PRAMOD KUMAR A.M. AND SHRI V. DURGA RA O J.M. ITA NO. 4911/MUM/2008 ASSESSMENT YEAR: 2005-06 SRUSTI DIAM APPELLANT 107 THE JEWEL BLDG. (ROXY) MAMA PARMANAND MARG OPERA HOUSE MUMBAI 400 004. (PAN AAWFS3133N) VS. ADDL. COMMISSIONER OF INCOME TAX RESPONDENT 15(1) TARDEO MUMBAI 400 007. ITA NO. 5940/MUM/2008 ASSESSMENT YEAR: 2005-06 ADDL. COMMISSIONER OF INCOME TAX APPELLANT 15(1) TARDEO MUMBAI 400 007. VS. SRUSTI DIAM RESPONDENT 107 THE JEWEL BLDG. (ROXY) MAMA PARMANAND MARG OPERA HOUSE MUMBAI 400 004. (PAN AAWFS3133N) ASSESSEE BY : MR. B.V. JHAVERI REVENUE BY : MR. A.P. SINGH . ORDER PER V. DURGA RAO J.M.: THESE ARE THE CROSS APPEALS DIRECTED AGAINST THE O RDER OF CIT(A)- XV MUMBAI PASSED ON 16 TH JULY 2008 FOR THE ASSESSMENT YEAR 2005- 06. ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 2 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A PARTNERSHIP FIRM WHICH WAS CONSTITUTED DURING THE P REVIOUS YEAR RELEVANT TO AY 2004-05 FOR CARRYING ON BUSINESS OF IMPORTING ROUGH DIAMOND MANUFACTURING CUT & POLISHED DIAMOND AND E XPORTING/ SELLING IN THE LOCAL MARKET OF CUT & POLISHED DIAMO ND. THE ASSESSEE FILED RETURN OF INCOME FOR THE AY 2005-06 WHICH IS THE YEAR UNDER CONSIDERATION ON 31/10/2005 DECLARING TOTAL INCOME AT RS. 1 06 14 541/-. THE AO MADE ASSESSMENT U/S 143(3) OF THE ACT DETERMINING THE TOTAL INCOME AT RS. 7 29 10 260/- M AKING DISALLOWANCES AND ADDITION ON VARIOUS ACCOUNTS WHI CH ARE AS UNDER:- 3. AS REGARDS THE DISALLOWANCE OF LABOUR EXPENSES O F RS. 4 80 95 723/- THE AO FOUND THAT THE ASSESSEE HAD C LAIMED LABOUR EXPENSES AT RS. 19.82 CRORE APPROXIMATELY ON CUTTIN G & POLISHING OF 660 735 CARAT OF ROUGH DIAMONDS WHICH WORKS OUT TO RS. 300/- PER CARAT. THE AO FURTHER NOTED THAT GROSS PROFIT SHOWN WAS ONLY RS. 2.36 CRORE WHICH COMES TO GP RATE AT 3.42% AND WHICH APP EARED TO BE ON LOWER SIDE IN THE PRIMARY OBSERVATION OF THE AO. FU RTHER THE AO FOUND THAT SUNDRY CREDITORS APPEARING IN THE BALANCE SHEE T FOR LABOUR BEING SHOWN AT RS. 7.16 CRORE APPROXIMATELY AGAINST THE T OTAL LABOUR EXPENSES INCURRED AT RS. 19.82 CRORE. THE AO ALSO F OUND THAT ENTIRE TDS AMOUNT ON LABOUR CHARGES WAS PAID ONLY ON 31/03 /05 AGAINST THE DUE DATE ARISEN EARLIER; THEREFORE THE AO PROC EEDED TO SCRUTINIZE THE CLAIM OF LABOUR EXPENSES AT RS. 19.82 CRORE. ON BEING ASKED TO EXPLAIN BY THE AO THE ASSESSEE SUBMITTED THAT HE H AD PURCHASED LOW QUALITY OF DIAMOND INVOLVING LARGE NUMBER OF PIECES AND LARGE SURFACE TO BE POLISHED REQUIRING HIGH COST OF LABOUR CHARGE S IN TOTALITY. ACCORDING TO THE ASSESSEE LABOUR CHARGES PAID @ 30 0/- PER CARAT WAS NOT VERY HIGH LOOKING TO LOW QUALITY OF ROUGH DIAMO ND PURCHASED BY HIM. THE ASSESSEE SPECIFICALLY MENTIONED THAT THE L ABOUR CHARGES FINALLY WORKED OUT TO RS. 2 TO 3 PER PIECE WHICH WA S NOT EXCESSIVE OR UNREASONABLE. IT WAS SUBMITTED THAT THE CUTTING AND POLISHING OF ROUGH DIAMONDS GOT DONE BY LABOUR CONTRACTORS. AFTE R SCRUTINY & ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 3 INVESTIGATION AND CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE THE AO HELD THAT THE CLAIM OF LABOUR CHARGES TO THE EXTENT OF RS. 19.82 CRORE ON THE TURNOVER OF RS. 72.72 CRORE IS VERY HIGH. FU RTHER IT WAS INDIGESTIBLE THAT SUNDRY CREDITORS FOR LABOUR EXPEN SES WERE AT RS. 7.16 CRORE WHICH IS 36% OF THE TOTAL CLAIM AND IT I S UNBELIEVABLE THAT SO MUCH AMOUNT OF LABOUR CHARGES REMAINED UNPAID BY THE END OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR. THE AO ALSO OBSERVED THAT THE OUTSTANDING OF LABOUR CHARGES AT RS. 7.16 CRORE WAS ALSO NOT PAID IN THE MONTH OF APRIL05 BUT REMAINED UNPAID F OR MANY MONTHS. THE AO HAS TAKEN TWO COMPARABLE CASES I.E. M/S JEW ELEX PVT. LTD. AND M/S SURESH & COMPANY LTD. THE LABOUR CHARGES I NCURRED BY THESE COMPANIES 5.62% AND 3.75% RESPECTIVELY. IN S O FAR AS ASSESSEE IS CONCERNED THE LABOUR CHARGES CLAIMED AT 27.25%. FINALLY THE AO HELD THAT OUT OF TOTAL LABOUR CHARGES OUTSTANDING A S ON 31/03/2005 OF RS. 7.16 CRORE AN AMOUNT OF RS. 4 80 90 723/- STIL L REMAINING OUTSTANDING AFTER 30/04/05 DISALLOWED THE SAID AMOU NT OF RS. 4 80 90 723/- AND ADDED THE SAME TO THE TOTAL INCOM E OF THE ASSESSEE. 4. ON BEING AGGRIEVED BY THE ORDER OF THE ASS ESSING OFFICER THE ASSESSEE CARRIED MATTER IN APPEAL BEFORE THE LD. CI T (A). 5. BEFORE THE CIT (A) THE ASSESSEE HAD VEHEME NTLY OPPOSED THE FINDING OF THE AO STATING THAT THE VERY BASIS OF TH E DISALLOWANCE MADE BY THE AO IS ABSURD BASELESS AND UNSCIENTIFIC AND THE ADHOC DISALLOWANCE MADE BY THE AO IS WITHOUT ANY BASIS AN D CANNOT BE SUSTAINED IN LAW. IT WAS SUBMITTED BEFORE THE LD. C IT (A) THAT THE ASSESSEE FOR CUTTING AND POLISHING THE ROUGH DIAMON DS WEIGHING 6 60 735.53 CARATS THE ASSESSEE FIRM HAD PAID LABOU R CHARGES OF RS. 19 82 20 605/- WHICH WAS DEBITED TO THE TRADING PR OFIT & LOSS ACCOUNT. OUT OF THE AFORESAID LABOUR CHARGES OF RS . 19 82 20 605/- THE LABOUR CHARGES AGGREGATING TO RS. 7 16 88 364/- WERE OUTSTANDING DUE AND PAYABLE AS ON 31 ST MARCH 2005. IT WAS ALSO SUBMITTED THAT THE ABOVE CUTTING AND POLISHING OF DIAMONDS WORK HA S BEEN GIVEN TO ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 4 59 PARTIES. ALL THE DETAILS IN RESPECT OF THE 59 P ARTIES I.E. NAMES ADDRESSES PAN NOS. AMOUNTS PAYABLE TO EACH PARTY WERE SUBMITTED BEFORE THE ASSESSING OFFICER. IT IS FURTHER SUBMIT TED THAT THE ASSESSEE PAID RS.300/- PER CARAT WHICH IS REASONABLE. IT WA S FURTHER SUBMITTED THAT ALL THE LABOUR CHARGES HAVE CONFIRMED THE PAYM ENT MADE TO THEM AND IN SO FAR AS DELAY OF PAYMENT IS CONCERNED IT W AS SUBMITTED THAT SUBSTANTIAL STOCK OF THE ROUGH DIAMONDS WAS ALWAYS LYING WITH THE LABOURERS AND THEREFORE THE ASSESSEE FIRM HAS TO KE EP CERTAIN LABOUR CHARGES OUTSTANDING IN ORDER TO HAVE CONTROL OVER T HESE LABOURERS. IT IS SUBMITTED BEFORE THE LD. CIT (A) THAT THE ASSESS ING OFFICER WITHOUT CONSIDERING THE MATERIAL SIMPLY DISALLOWED THE LAB OUR CHARGES OF RS. 4 80 90 723/- ON THE GROUND THAT THE LABOUR CHARGES WERE INFLATED. IT WAS SUBMITTED BEFORE THE LD. CIT (A) THE HONBLE TR IBUNAL IN THE CASE OF ACIT VS. ZODIAC JRD-MKJ LTD. ITA NO. 4945/MUM/2 000 & 5140/M/2001 AND 3383/M/2003 FOR ASST. YEARS 1997-98 TO 1999- 2000 DATED 18 TH DECEMBER 2006 WHEREIN THE TRIBUNAL HAS ALLOWED LABOUR CHARGES AT RS. 424/- PER CARAT. 6. IN THE PRESENT CASE IT WAS SUBMITTED THAT THE AS SESSEE HAD PAID LABOUR CHARGES AT RS. 300/- PER CARAT TO 59 PARTIES AND THE PAYMENT MADE TO 22 PARTIES WERE FOUND REASONABLE AND ALLOWE D WHEREAS PAYMENT MADE TO REMAINING 37 PARTIES DISALLOWED ON THE GROUND THAT EXCESSIVE AND UNREASONABLE. THE ASSESSING OFFICER IGNORING THE ENTIRE DETAILS FILED BY THE ASSESSEE DISALLOWED THE LABOUR CHARGES WITHOUT ANY REASON AND PRAYED THAT THE APPEAL FILED FILED B Y THE ASSESSEE MAY BE ALLOWED. 7. AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE THE CIT(A) HELD AS UNDER:- 5.1 AFTER HAVING GIVEN A FINDING IN PARA 3.1.1 OF T HE PRESENT APPELLATE ORDER THAT THE BOOK RESULT CANNOT BE ACC EPTED ON ACCOUNT OF INFLATION OF LABOUR EXPENSES AND ALSO AFTER HAVING OVERRULED THE QUANTIFICATION OF INFLATION OF LABOUR CHARGES MADE AT RS. 4 80 95 723/- BY THE AO IN PARA 4.3 OF THE APPE LLATE ORDER IT MAY BE IN THE FITNESS OF THE THINGS TO ESTIMATE THE GROSS PROFIT ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 5 BASED ON THE FACTS AVAILABLE ON RECORD. I FIND THAT NEITHER BY THE AO NOR BY THE APPELLANT ANY COMPARABLE CASE TO MAT CH THE GROSS PROFIT WAS BROUGHT ON RECORD WHICH HAS SIMILARITY IN TERMS OF QUALITY AND QUANTITY OF ROUGH DIAMOND PURCHASED AND ALSO TO THE TURNOVER. IN THE ASSESSMENT ORDER AT PAGE NO. 26 O F THE ASSESSMENT ORDER THE AO HAS BROUGHT SOME CASES ON RECORD WHERE GP PERCENTAGE HAS BEEN MENTIONED FOR THE PURP OSE OF COMPARISON OF GP CONCEDED BY THE APPELLANT. HOWEVER THE GP SHOWN IN THE CASES OF STERLING DIAMONDS JEWELLEX I NDIA LTD. AND M. SURSH PVT. LTD. CANNOT BE TAKEN A BASE TO ESTIMA TE THE GP IN THE PRESENT CASE FOR A VERY SIMPLE REASON THAT WE D O NOT HAVE THE DETAIL OF QUALITY AND QUANTITY OF ROUGH DIAMOND CU T AND POLISHED BY THEM TO GET A MATCH WITH THE APPELLANT COMPANY F OR THE PURPOSE OF COMPARISON OF GP. THEEFORE GP SHOWN BY THE THOSE CONCERNS CANNOT PROVIDE ANY ASSISTANCE TO ESTIMATE THE GP IN THE PRESENT CASE. UNDER THE CIRCUMSTANCES WHERE NO CRE DIBLE MATCH FOR THE COMPARISON OF GP PERCENTAGE IS AVAILABLE ON RECORD I FIND THAT THE APPELLANTS OWN CASE FOR IMMEDIATELY PRECE DING THAT IS AY 2004-05 MAY PROVIDE BETTER BASE FOR COMPARISON O F THE GP. IT MAY BE RELEVANT TO MENTION THAT FOR AY 2004-05 WAS FIRST YEAR OF OPERATION OF THE BUSINESS AND IT HAS GOT LOT OF SIM ILARITY WITH THE SUCCEEDING AY 2005-06. IT MAY ALSO BE RELEVANT TO N OTE THAT THE AY 2004-05 WAS UNDER THE SCRUTINY U/S 143(3) AND GP SHOWN BY THE APPELLANT @ 4.11% FOR AY 2004-05 HAS BEEN ACCEP TED BY THE DEPARTMENT. AS FAR AS AY 2005-06 IS CONCERNED THE G P IS SHOWN @ 3.24% WHICH IS STRIKINGLY ON LOWER SIDE WITH COMP ARISON TO AY 2004-05. THOUGH THE TURNOVER OF THE AY 2005-06 IS 7 2.70 CRS. AS AGAINST THE TURNOVER SHOWN AT 14.58 FOR THE AY 2004 -05 BUT THAT ITSELF WILL NOT POSE MUCH DIFFICULTY IN COMPARISON OF GP PERCENTAGE FOR THE IMPUGNED TWO ASSESSMENT YEARS IN APPELLANTS OWN CASE AS THE SAME QUALITY OF ROUGH DIAMOND WERE PURCHASED AND GOT CUT AND POLISHED FOR BOTH THE ASSESSMENT YE ARS. HERE IT IS IMPORTANT TO NOTE THAT THE REJECTION OF BOOKS RE SULT FOR THE AY 2005-06 IS PRECISELY ON THE POINT OF INFLATION OF L ABOUR CHARGES. IF WE TAKE THIS FACT IN TO ACCOUNT I AM OF THE OPINIO N THAT THERE CANNOT BE A BETTER CASE OF COMPARISON THAN THE APPE LLANTS OWN CASE FOR AY 2005-06 FOR THE PURPOSE OF COMPARING OF GP. THE FACTUM OF HAVING LOW GP PERCENTAGE CONCEDED BY THE APPELLANT FOR THE AY 2005-06 IN COMPARISON TO AY 2004-05 HAS BEEN UNDER THE CONSIDERATION BY THE AO AND IT HAS GOT REFERENC E IN THE ASSESSMENT ORDER ALSO. FURTHER THIS FACT HAS BEEN A LSO SUBJECT MATTER OF DISCUSSION BY THE AO AS WELL AS THE APPEL LANT IN REMAND PROCEEDING. ON THE POINT OF LESSER PERCENTAG E OF GP SHOWN BY THE APPELLANT BY 0.84% THE ISSUE WAS DISC USSED WITH THE APPELLANT IN COURSE OF APPELLATE PROCEEDING. TH E APPELLANTS MAIN ARGUMENT WAS THAT REDUCTION IN GP PERCENTAGE F OR AY 2005- 06 IN COMPARISON TO AY& 2004-05 IS ATTRIBUTABLE TO THE HIGH TURNOVER SHOWN BY THE APPELLANT FOR THE AY 2005-06 WHICH IS ALMOST 5 TIMES OF THE AY 2004-05. I AM NOT CONVINCE D WITH THE REASON GIVEN BY THE APPELLANT FOR LOW PERCENTAGE O F GP SHOWN ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 6 PARTICULARLY IN THE LIGHT OF THE FACT OF SO MANY DI SCREPANCIES AND ANOMALIES WERE FOUND WITH REFERENCE TO CLAIM OF LAB OUR CHARGES WHICH COULD NOT RECONCILE SATISFACTORILY BY THE APP ELLANT. THERE IS NO ACCEPTED FACT THAT HIGHER TURNOVER WILL ALWAYS L EAD TO LOWER GP. IT IS ALSO MATTER OF RECORD THAT THE AVERAGE LA BOUR CHARGES CLAIMED BY THE APPELLANT FOR AY 2004-05 IS MUCH ON LOWER SIDE THAN THE LABOUR CHARGES FOR AY 2005-06. HENCE I SU STAIN THE ADDITION ON ACCOUNT OF LOWER GP VIS--VIS INFLATION OF LABOUR CHARGES AT RS. 54 88 000/- [72 72 00 00/- X 4% - 2 36 00 000/-] AFTER APPLYING GP OF 4% ON SALES TURNOVER FOR AY 20 05-06 TAKING THE BASE SLIGHTLY LOWER FROM THE GP PERCENTAGE SHOW N FOR THE AY 2004-05 ON ACCOUNT OF LOW TURNOVER. IN THIS WAY AP PELLANT GETS PARTIAL RELIEF ON THIS POINT. 8. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE ADDITION SUSTAINED BY THE CIT(A) TO THE EXTENT OF RS. 54 88 000/- ON ACCOUNT OF ALLEGED LOWER G.P. VIS-- VIS ALLEGED INFLATION OF LABOUR CHARGES WHILE THE REVENUE HAS F ILED AN APPEAL AGAINST THE CIT(A)S ORDER IN DELETING THE ADDITION AMOUNTING TO RS. 4 25 57 723/- OUT OF LABOUR CHARGES. 9. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAD INCURRED THE AGGREGATE LIABIL ITY OF PAYING LABOUR CHARGES OF RS. 19 82 20 605/- OUT OF WHICH THE ASSE SSEE FIRM HAD PAID RS. 12 65 32 241/- DURING THE YEAR UNDER CONSIDERAT ION AND THE BALANCE AMOUNT OF RS. 7 16 88 364/- WAS OUTSTANDING DUE AND PAYABLE. IT IS SUBMITTED THAT ALL THE LABOUR PARTIE S WITH WHOM THE AO MADE ENQUIRIES PROMPTLY REPLIED AND CONFIRMED HAVIN G CARRIED OUT THE LABOUR JOB OF CUTTING AND POLISHING OF ROUGH DIAMON DS FOR THE ASSESSEE FIRM AND ALL THESE PARTIES CONFIRMED HAVING RECEIVE D A PORTION OF THEIR LABOUR CHARGES DURING THE YEAR ENDED 31 ST MARCH 2005 AND THE BALANCE AMOUNT IN THE SUBSEQUENT PREVIOUS YEAR. IT IS FURTHER SUBMITTED THAT ALL THE LABOUR PARTIES ARE ASSESSED TO TAX AND THE ASSESSEE HAD GIVEN THEIR RESPECTIVE NAMES ADDRESSE S AND PERMANENT ACCOUNT NUMBERS. IT IS ALSO SUBMITTED THAT THE LABO UR PARTIES ALSO FILED COMPLETE DETAILS OF THEIR BANK ACCOUNTS AND T HEIR ASSESSMENT RECORDS TO PROVE THAT THE LABOUR CHARGES RECEIVED B Y THEM FROM THE ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 7 ASSESSEE ARE ACCOUNTED IN THEIR BOOKS OF ACCOUNT AN D IN THEIR RESPECTIVE RETURNS OF INCOME ALSO. 10. IN SO FAR THE G.P ADDITION IS CONCERNED THE LEA RNED COUNSEL SUBMITTED THAT THE QUANTITATIVE DETAILS WHICH ARE O N PAGE 18 OF THE PAPER BOOK PROVE THAT ABOUT 96% OF THE CUT AND POL ISHED DIAMONDS MANUFACTURED DURING THE YEAR UNDER CONSIDERATION WE RE SOLD/EXPORTED BY THE ASSESSEE AND THE SALE PROCEEDS THEREOF ARE R ECORDED IN THE AUDITED BOOKS OF ACCOUNT. HE CONTENDED THAT THE AO HAS FAILED TO APPRECIATE THAT IN THE YEAR ENDED 31 ST MARCH 2004 THE TURNOVER OF THE ASSESSEE WAS RS. 14.87 CRORES WHEREAS IN THE YEAR E NDED 31 ST MARCH 2005 THE TURNOVER WAS RS. 72.90 CRORES AND THEREFO RE FALL IN THE GROSS PROFIT RATE FROM 4.11 TO 3.24% CANNOT LEAD ON E TO COME TO THE CONCLUSION THAT THE ASSESSEE HAS INFLATED THE LABOU R CHARGES. THE LEARNED COUNSEL HAS FILED COMPARABLE CASES OF GROSS PROFITS TO ESTABLISH THAT THE GP SHOWN BY THE ASSESSEE IS CORR ECT. IN THE CASE OF M/S SUPER DIAMONDS THE G.P. AT THE RATE OF 1.93% FO R A.Y. 2004-2005 AND 1.97% FOR A.Y. 2005-2006 FILED AN ASSESSMENT O RDER THE SAME WAS ACCEPTED BY THE DEPARTMENT. IN THE CASE OF M/S SIMONI GEMS G.P. RATE FROM 0.3% TO 1.39% AND THE DEPARTMENT ACC EPTED AT THE RATE OF 0.85% AND 1.65%. IN THE CASE OF SHRI GIRISH R. SHAH FOR THE A.Y. 2005-2006 G.P. RATE AT 0.41% WAS ACCEPTED BY THE DE PARTMENT. IN THE CASE OF M/S JIVANI GEMS FOR THE A.Y. 2005-06 3. 59% FOR THE A.Y. 2006-07 2.97% G.P. RATE SHOWN BY THE ASSESSEE WAS A CCEPTED BY THE DEPARTMENT U/S 143(3). IN THE CASE OF M/S J. PRAKA SH & CO. G.P. RATE AT 3.24% IS JUSTIFIED AND SUBMITTED THAT TO THE EXT ENT OF THIS THE ADDITION MADE BY THE LD.CIT (A) HAS TO BE DELETED. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IN THE CASE OF M/S SAMIR DIAMONDS VS. ITO ITA NOS. 5105 & 6243/BOM/19 85 A.Y. 1991-82 DATED 22 ND OCTOBER 1986 LABOUR CHARGES PAID UP TO 40% TO 45% IS ALLOWABLE. IN THE CASE OF ACIT VS. M/S ZODI AC JRD-MKJ LTD. ITA NOS. 4945/M/2000 AND 3950 & 5150/M/2001 AND 338 3/M/2003 ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 8 A.YS. 1997-98 TO 1999-2000 DATED 18 TH DECEMBER 2006 THE TRIBUNAL ALLOWED FOR CARAT AT RS. 422/-. 11. ON THE OTHER HAND THE LEARNED DR HAS CONTENDED THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO AMOUNTING TO RS. 4 25 57 723/- OUT OF RS. 4 80 45 723/-. IN S O FAR AS GP ADDITION IS CONCERNED THE DEPARTMENTAL REPRESENTATI VE HAS SUBMITTED THAT AS PER THE INFORMATION AVAILABLE FROM THE INTE RNET THE AVERAGE GP IN THE BUSINESS OF DIAMOND CUTTING AND POLISHING IS AT 4.90%. 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THE CIT(A) GAVE A CATEGORICAL FINDING THAT THE AO HAS OUTRIGHTLY DISALLOWED RS. 4 80 95 723/- OUT OF THE LABOUR CHARGES ON ADHOC & ESTIMATE BASIS ON THE PRE SUMPTION THAT NO OUTSTANDING LABOUR CHARGES REMAINED TO BE PAID AFTE R 31/03/2005. I DO NOT FIND ANY FACTUAL SUBSTRATUM TO GO FUR SUCH ADHO C FINDING. NEEDLESS TO MENTION THAT EVERY ADDITION OR DISALLOWANCE HAS TO BE BACKED BY CONCRETE FACTUAL FINDING. AS FAR AS THIS CASE IS CO NCERNED I DO NOT FIND ANY SCIENTIFIC & REASONABLE BASIS TO GO FOR SUCH AD HOC DISALLOWANCE ON ESTIMATE BASIS. THERE IS NO LEGAL FICTION EVER CREA TED BY ANY COURT OR LEGISLATION THAT WHATEVER AMOUNT OF LABOUR CHARGES REMAINED UNPAID AFTER 30/04/05 ARE AUTOMATICALLY BOGUS AND NOT TO B E PAID. SUCH KIND OF GENERALIZATION AND SUBJECTIVE FINDING CANNOT BE A BASIS OF DISALLOWANCE. THE CIT (A) GAVE FURTHER FINDING THAT THE FACTUM O F OUTSTANDING AMOUNT HAS UNEQUIVOCALLY BEEN CONFIRMED BY LABOUR CONTRACTORS IN THEIR REPLIES. FURTHER PAYMENTS AGA INST SUCH OUTSTANDING AMOUNTS HAVE BEEN MADE BY ACCOUNT PAYEE CHEQUES AND EVIDENCE TO THIS EFFECT IS AVAILABLE ON RECORD. THE AO HAS NOT REBUTTED THESE HARD EVIDENCES BY MATCHING CREDIBLE EVIDENCE/ PREPONDERANCE OF PROBABILITY GATHERED FROM SURROUNDING CIRCUMSTANTIA L FACTS CANNOT OVERRIDE HARD EVIDENCE HOLD THAT THE OUTSTANDING BA LANCES AS ON ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 9 30/04/05 ARE BOGUS AND FICTITIOUS. THE AO HAS DISBELIEVED THE CLAIM OF THE ASSESSEE MAINLY ON THE GROUND THAT THERE IS A DELAY IN THE PAYMENT ALL THE PARTIES TO WHOM THE PAYMENT WAS MA DE THROUGH THE SAME BANK SIMILAR REPLY. THE ASSESSEE HAS EXPLAIN ED BEFORE THE AO AS WELL AS LD. CIT (A) FOR THE DELAY OF LABOUR PAYM ENTS AND ALSO PAYMENT MADE TO THE PARTIES FROM THE SAME BANK. THE AO WITHOUT CONSIDERING THE EXPLANATION OF THE ASSESSEE DISALLO WED THE PAYMENTS MADE TO THE PARTIES. THE AO HAS TAKEN TWO COMPARAB LE CASES AND ACCORDINGLY THE EXPENSES CLAIMED BY THE ASSESSEE WE RE EXCESSIVE. THE AO IN HIS ORDER DID NOT DISCUSS FACTS OF THOSE CASE S ONLY ON THE BASIS OF TURNOVER HE HAS TAKEN THE GP RATE. IN OUR CONSI DERED OPINION WHEN THE AO WANTED TO COMPARE BETWEEN THE ASSESSEE AND O THER PARTIES THE NATURE OF THE BUSINESS THE QUALITY OF DIAMONDS THE QUANTITY OF DIAMONDS AND THE FACTS AND CIRCUMSTANCES OF THE CAS E HAS TO BE TAKEN INTO CONSIDERATION. THE AO HAS NOT JUSTIFIED IN CO MPARING GP WITHOUT TAKING INTO CONSIDERATION OF MATERIAL ASPECTS. 13. IT IS THE FACT THAT THE ASSESSEE HAD ENGAGED TH E SERVICES OF 59 PARTIES FOR THE PURPOSE OF CUTTING AND POLISHING TH E DIAMONDS. THE ASSESSEE FOR THE ABOVE PURPOSE PAID AT RS. 300/- PE R CARAT TO THE 59 PARTIES. ALL THE DETAILS IN RESPECT OF PAYMENT MAD E TO THE PARTIES FILED BEFORE THE ASSESSING OFFICER AND THOSE DETAILS INCL UDING NAMES ADDRESSES PAN NOS. BANK A/C ETC. ALL THE PAYMENT S MADE THROUGH BANK ONLY. THE MAIN REASON GIVEN TO THE ASSESSING OFFICER IN SO FAR AS PAYMENT MADE TO 37 PARTIES ARE CONCERNED THERE WAS A DELAY IN PAYMENT NEARLY 3 TO 4 MONTHS AND DISALLOWED THE LAB OUR CHARGES PAID BY THE ASSESSEE. THE ASSESSEE HAS EXPLAINED FOR TH E DELAY THAT THE SUBSTANTIAL VALUE OF GOODS ARE LYING WITH LABOURERS AT THE GIVEN POINT OF TIME. THE ASSESSEE KEPT SUCH LABOUR CHARGES OUT STANDING DUE AND PAYABLE TO THEM SO THAT IT CAN HAVE EFFECTIVE CONTR OL ON THESE PARTIES. 14. THE ASSESSING OFFICER ACCEPTED RS. 300/- PER C ARAT IN RESPECT OF 22 PARTIES AND HE DISALLOWED IN RESPECT OF 37 PARTI ES IN SPITE OF ALL THE ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 10 DETAILS SUBMITTED BY THE ASSESSEE PAYMENT WAS MADE THROUGH THE BANKING CHANNEL CONFIRMATION FILED BY THE PARTIES. THE LD. CIT (A) BY CONSIDERING THE DETAILED SUBMISSION MADE BY THE ASS ESSEE AND ALSO FACTS AND CIRCUMSTANCES OF THE CASE DELETED THE ADD ITION MADE BY THE AO. WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (A) AND WE THEREFORE UPHELD THE ORDER OF THE LD. CIT (A) AND THIS GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 15. WHILE SUSTAINING THE ADDITION OF RS. 54 88 000/ - ON ACCOUNT OF LOWER GP/INFLATION OF LABOUR CHARGES THE CIT(A) FO LLOWED THE ASSESSEES OWN CASE FOR AY 2004-05 AND HELD I AM OF THE OPINION THAT THERE CANNOT BE A BETTER CASE OF COMPARISON THAN TH E APPELLANTS OWN CASE FOR 2004-05. THE CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE S ARGUMENT THAT REDUCTION IN GP PERCENTAGE FOR AY 200 5-06 IN COMPARISON TO AY 2004-05 IS ATTRIBUTABLE TO THE HIG H TURNOVER SHOWN BY THE ASSESSEE FOR AY 2005-06 ON THE GROUND THAT THERE IS NO ACCEPTED FACT THAT HIGHER TURNOVER WILL ALWAYS LEAD TO LOWER GP. THE AO HAS TAKEN TWO COMPARABLE CASES FOR THE PURPOSE O F GP AND THE ASSESSEE ALSO SUBMITTED VARIOUS CASE LAWS. TO COMP ARE THE GP ADDITION IN OUR OPINION IT IS MATERIAL TO SEE THAT THE TURNOVER QUANTITY QUALITY AND FACTS AND CIRCUMSTANCES OF EA CH CASE THE COMPARISON CANNOT BE MADE IN ISOLATED BASIS. THE L D. CIT (A) BY CONSIDERING THE A.Y. 2004-05 AND 2005-06 HE HAS TAK EN AN AVERAGE AND APPLIED A GP OF 4%. IN SO FAR AS THE SUBMISSIO N MADE BY THE LEARNED D.R IS CONCERNED ACCORDING TO HIM THE AVERA GE GP RATE OF DIAMOND CUTTING AND POLISHING AT 4.11%. EXCEPT MAKI NG THE ABOVE STATEMENT NO MATERIAL BROUGHT TO OUR NOTICE HOW HE ARRIVED TO SUCH CONCLUSION THAT THE AVERAGE GP RATE OF CUTTING AND POLISHING OF DIAMOND IS AT 4.11%. THE LD. CIT (A) AFTER CONSIDE RING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE UPHELD THE GP R ATE OF 4% SUSTAINING THE ADDITION OF RS. 54 88 000/-. WE FI ND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (A) AND WE THEREFOR E UPHOLD THE ORDER ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 11 PASSED BY THE CIT (A) AND THIS GROUND OF APPEAL RAI SED BY THE ASSESSEE IS DISMISSED. 16. THE REVENUE HAS RAISED ANOTHER GROUND IN ITS AP PEAL WHICH READS AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY T HE AO ON ACCOUNT OF INTRODUCTION OF SHARE CAPITAL AMOUNTING TO RS. 1 27 00 000/- IGNORING THE FACT THAT THE AO HAS ADD ED RS. 1 27 00 000/- PASSED ON THE FACT THAT CREDITWORTHIN ESS OF THE PARTNERS HAS NOT BEEN ESTABLISHED FULLY. 17. THE AO FOUND THAT THE PARTNERS HAD INTRODUCED S OME FRESH CAPITALS DURING THE PREVIOUS YEAR RELEVANT TO ASSES SMENT YEAR THE DETAILS OF WHICH ARE AS UNDER:- 1. DAYABHAI G. JIVANI RS. 1.29 CRORE 2. MANUBHAI G. JIVANI RS. 0.57 CRORE 3. JAGDISHBHAI H. JIVANI RS. 0.70 CRORE 18. ON BEING ASKED TO FURNISH CONFIRMATION LETTERS FOR PARTNERS INTRODUCTION OF CAPITAL ALONG WITH THEIR DETAIL OF RETURN AND BALANCE SHEET ETC. THE ASSESSEE MADE A SUBMISSION ON WHICH COPY OF ACKNOWLEDGMENT OF RETURN WAS FILED FOR ALL THE THRE E PARTNERS BUT BALANCE SHEET OF SHRI DAYAGHAI G. JIVANI WAS ONLY F ILED AS STATED BY THE AO. THE AO FURTHER ASKED TO FILE COPY OF BANK A CCOUNTS OF PARTNERS ALONG WITH THEIR PERSONAL BALANCE SHEETS. THE ASSESSEE FURNISHED BANK ACCOUNTS OF ALL PARTNERS BUT THE BAL ANCE SHEET OF SHRI MANUBHAI & JAGDISHBHAI JIVANI WAS NOT FURNISHED. F ROM THE ACKNOWLEDGMENT OF INCOME TAX RETURN IT WAS NOTED B Y THE AO THAT SHRI M.G. JIVANI & JG JIVANI HAD SHOWN RETURN INCOM E ONLY AT RS. 2 40 000/- AND RS. 1 16 497/- RESPECTIVELY. THE AO HELD THAT IN THE ABSENCE OF THEIR BALANCE SHEETS THEIR CREDITWORTHI NESS IS NOT ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 12 ESTABLISHED TO CONTRIBUTE SUCH CAPITAL. HE FURTHER HELD THAT BANK ACCOUNTS SHOWN CORRESPONDING DEPOSIT TO THEIR BANK ACCOUNTS BEFORE THE CHEQUE WAS ISSUED FOR CAPITAL INTRODUCTION IN T HE FIRM. THE AO WAS OF THE VIEW THAT SOURCES OF SUCH DEPOSITS NEED TO BE EXPLAINED IN ABSENCE OF HIS PERSONAL BALANCE SHEET. THEREFORE T HE AO ADDED RS. 57 LAKH AND RS. 70 LAKH IN RESPECT OF NEW CAPITAL INTR ODUCED BY SHRI M.G. JIVANI & JG JIVANI RESPECTIVELY WHILE HE SATIS FIED WITH THE CAPITAL INTRODUCTION MADE BY SHRI DAYABHAI G. JIVAN I HENCE NO ADDITION MADE. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 19. BEFORE THE CIT(A) THE ASSESSEE STATED THAT ALL THE EVIDENCES IN FORM OF COPY OF THE BANK ACCOUNT OF PARTNERS WHEREF ROM THE FUNDS OF CAPITAL INTRODUCTION IN THE FIRM HAD FLOWED CAPITA L ACCOUNT OF THE PARTNERS WITH THE ASSESSEE FIRM THE ACKNOWLEDGMENT OF RETURN FILED OF THE PARTNERS COMPUTATION OF TOTAL INCOME & BALANCE SHEET OF PARTNERS FOR AY 2005-06 HAD BEEN FILED BEFORE THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE CLAIMED THAT SAME EVIDENCE HAD ALSO BEEN COMPILED IN VOLUME II AT PAGE NOS 404 TO 465 OF THE PAPER BOOK WHICH WAS ALSO SUPPLIED TO AO FOR HIS PE RUSAL UNDER THE REMAND PROCEEDINGS. THE ASSESSEE ARGUED THAT BANK A CCOUNTS OF PARTNERS AND THE ASSESSEE FIRM ITSELF WERE SELF EVI DENT TO EXPLAIN THE NATURE AND SOURCE OF THE CREDITS INTRODUCED IN THE FIRM. IT WAS CLAIMED THAT ALL THE TRANSACTIONS INVARIABLY RELATI NG TO INTRODUCTION OF CAPITAL IN THE PARTNERS ACCOUNT HAD PASSED THROUGH THE BANKING CHANNEL. THE ASSESSEE ALLEGED THAT THE AO IGNORED T HE EVIDENCE AVAILABLE ON RECORD IN TERMS OF VARIOUS DETAILS INC LUDING PERSONAL BALANCE SHEET OF PARTNERS TO ARRIVE AT A CONCLUSION THAT THE CREDITWORTHINESS OF TWO PARTNERS NAMELY SHRI M.G. JIVANI & JG JIVANI COULD NOT BE ESTABLISHED. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE CIT(A) HELD AS UNDER:- I HAVE PERUSED THE EVIDENCE AVAILABLE ON RECORD IN VOLUME III OF THE PAPER BOOK FILED BEFORE ME WHO SE ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 13 COPIES WERE ALSO FORWARDED TO THE AO. A REMAND REP ORT WAS CALLED FOR FROM THE AO VIDE REMAND ORDER DATED 08- 02-2008 TO COMMENT IF ANY ON THE SUBMISSION MADE B Y THE APPELLANT ALONG WITH DETAILS. THE AO IN HIS R EMAND REPORT DATED 05-07-2008 HAS NOT MADE ANY COMMENT ON THIS POINT. I HAVE GONE THROUGH THE BANK ACCOUN TS OF THE PARTNERS IN DIFFERENT BANKS. I FIND THAT A LL THE ENTRIES RELATING TO CAPITAL INTRODUCTION HAVE INVAR IABLY BEEN TRANSACTED THROUGH THE BANKING CHANNEL. I HAV E GONE THROUGH THE BANK ACCOUNTS OF SHRI M.G. JIVANI DAYABHI & J.H. JIVANI. I ALSO FIND THAT BEFORE ANY CHEQUE FOR CAPITAL INTRODUCTION WAS ISSUED BY ANY O F THE PARTNERS THERE IS MATCHING DEPOSIT MADE BY SO ME KNOWN FAMILY SOURCE EITHER IN FORM OF SOME LOAN FRO M SOME FAMILY MEMBER OR SOME GIFT FROM CLOSELY RELATE D PERSON. THIS FACT HAS ALSO BEEN OBSERVED BY THE AO WHICH COULD NOT BE DIGESTIBLE TO HIM. THE AO IN F ACT ATTRIBUTED NEGATIVELY ON SUCH DEPOSITS WITHOUT ASSIGNING ANY REASON. TO BE MORE PRECISE TRAVELLI NG THROUGH THE BANK ACCOUNT OF SHRI J.H. JISVANI I FI ND THAT A CAPITAL WAS INTRODUCED OF RS. 20 LAKH ON 30.08.2004 IN THE APPELLANT FIRM WHICH HAS GOT A CORRESPONDING DEPOSIT ON 28.8.2004 IN FORM OF LOAN FROM SHRI B.G. JIVANI A FAMILY MEMBER OF THE PARTN ER. FURTHER IT IS ALSO FOUND THAT THE CAPITAL INTRODUC TION OF RS. 20 LAKH GOT NEUTRALIZED. AGAIN A CAPITAL OF R S. 12 LAKH WAS INTRODUCED BY SHRI J.H. JIVANI ON 08-12-20 04 WHICH HAS BEEN BACKED BY A DEPOSIT OF RS. 12 LAKH I N THE BANK ACCOUNT OF J.H. JIVANI IN ABM AMRO BANK AS LOAN FROM SHRI H.G. JSIVANI BEING FATHER OF PARTNERS ON THE SAME DATE. FURTHER A LOAN OF RS. 30 LAKH WAS INTRODUCED ON 25.01.2005 BY THE SAME PARTNER WHICH HAS GOT MATCHING DEPOSITS OF RS. 27 10 360/- & RS. 4 29 060/- AS HOUSING LOAN TAKEN FROM HSBC BANK AND AM OUNT RETURNED BY BUILDER VIZ. PANCHAVATI ASSOCIATE RESPECTIVELY. EVIDENCE TO THIS EFFECT OF THE HOME LOAN AVAILED BY THE PARTNERS VIZ. J.H. JIVANI AT RS. 27 10 360/- IS AVAILABLE ON RECORD. THIS SHOWS A TO TAL NON-APPLICATION OF MIND BY THE AO THAT EVEN THE LOA N TAKEN FROM HSBC BANK WHICH HAS ULTIMATELY SURFACED INTO THE CAPITAL INTRODUCTION IN THE APPELLANT FIRM HAS ALSO BEEN TREATED AS UNEXPLAINED CREDIT. FURTHER A CAPITAL HAS BEEN INTRODUCED ON 31.3.2005 OF RS. 8 L AKH WHICH HAS GOT SOURCE FROM THE LOAN REFUND FROM SMT. VARSHABEN J. JIVANI. SIMILAR KINDS OF TRANSACTIONS HAVE ALSO BEEN FOUND IN RESPECT OF CAPITAL INTRODUCED BY SHRI M.G. JIVAN I. TO BE MORE PRECISE A CAPITAL OF RS. 33 LAKH WAS INTRO DUCED BY SHRI M.G. JIVANI ON 01.09.2004 WHICH HAS ITS ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 14 IMMEDIATE SOURCE FROM THE LOAN FROM SHRI B.G. JIVAN I ON 30.08.2004 AND WHICH FINDS HAS THE RELEVANT ENTR IES IN THE BANK ACCOUNT OF THE APPELLANT IN MERCANTILE COOPERATIVE BANK LTD. SHASTRINAGAR BRANCH BHAVNAG AR. THE AMOUNT OF RS. 33 LAKH GOT RETURNED BACK ON 03.11.2005 & 20.11.2005 BY CHEQUE AT RS. 9 LAKH & 2 4 LAKH RESPECTIVELY. FINALLY M.G. JIVANI HAS INTROD UCED LOAN OF RS. 24 LAKH ON 28.12.2004 WHICH FINDS THE IMMEDIATE SOURCES IN THE BANK ACCOUNT FROM GIFT RECEIVED FROM BROTHER SHRI B.G. JIVANI ON 06.12.20 04. EVIDENCE REGARDING THE RECEIPT OF GIFT OF RS. 22 LA KH FROM HIS BROTHER IS ALSO ON RECORD. A GIFT DEED T O THIS EFFECT HAS BEEN MADE IN THIS REGARD ON 20.12.2004 WHICH MENTIONS ABOUT THE CHEQUE ISSUED OF RS. 22 LA KH ON 08.12.2004 REGARDING THE GIFT. I ALSO FIND THAT THE BANK ACCOUNTS OF FAMILY MEMBERS SUCH AS B.G. JIVANI H.G. JIVANI VARSHABEN J. JIVANI ARE ALSO AVAILABLE ON RECORD EXHIBITING THE ENTRIES REGARDING THE FLOWS F OUND THEM TO THE PARTNERS WHICH EXPLAIN THE SOURCES SO URCE TO A LARGE EXTENT. THE APPELLANT CLAIMED TO HAVE PRODUCED ALL THESE EVIDENCES BEFORE AO ALSO IN COUR SE OF ASSESSMENT PROCEEDING. IN THIS WAY I FIND THAT A NATURE & SOURCE OF ALL THE CREDITS INTRODUCED BY THE PARTNERS HAVE BEEN EXPLAINED BEYOND DOUBT. AS FAR AS APPELLANT IS CONCERNED THE PRIMARY ONUS HAS VERY MUCH HAS BEEN DISCHARGED IN TERM OF PROVIDING THE IDENTITY OF CREDITORS GENUINENESS OF TRANSACTIONS & ESTABLISHING THE CREDITWORTHINESS OF THE CREDITORS. BOTH THE PARTNERS ARE ASSESSED TO INCOME TAX AND EVIDENCE TO THIS REGARD IS ALSO AVAILABLE ON RECORD . HERE IT IS IMPORTANT TO MENTION THAT THE APPELLANT FIRM IS NOT UNDER LEGAL OBLIGATION TO EXPLAIN THE SOURCE S SOURCE SATISFACTORILY AS HELD IN THE CASE OF CIT VS . DAULATRAM RAWAT MILL 87 ITR 349 BY THE SUPREME COURT AS IT IS NOT IN THEIR CONTROL THOUGH IN THE PRESENT CASE SOME EVIDENCES IN THIS REGARD HAVE AL SO BEEN FILED. IT IS QUITE INTERESTING TO NOTE THAT T HE NATURE OF TRANSACTIONS APPEARING IN RESPECT OF CAPI TAL INTRODUCTION BY THE PARTNERS VIZ. SHRI J.H. JIVANI M.G. JIVANI & D.G. JIVANI ARE MORE OR LESS SIMILAR TYPE BUT THE CAPITAL INTRODUCTION BY THE TWO PARTNERS VIZ. SHRI J.H. JIANI & M.G. JIVANI HAVE NOT BEEN ACCEPTED ON A VERY TECHNICAL REASON ON NON-PRODUCTION OF BALANCE SHEETS WHEREAS THE CAPITAL INTRODUCTION BY D.G. J IVANI HAS BEEN ACCEPTED. THE AO SINCE HE HAS GOT DETAILS OF RETURN FILED BY THE J.H. JIVANI & M.G. JIVANI HE C OULD HAVE LOOKED INTO THE INCOME TAX DETAILS IF HE HAS PARTICULAR ABOUT THE BALANCE SHEETS OF THOSE PARTNE RS. IN MY CONSIDERED VIEW THE EVIDENCE AVAILABLE ON RE CORD WERE ENOUGH AND COMPLETE TO EXPLAIN THE NATURE & ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 15 SOURCE OF CAPITAL INTRODUCTION AND NO ADDITION ON T HIS ACCOUNT WAS WARRANTED. THE CIT() FINALLY HELD AS UNDER:- 6.10 FURTHER WHEN A CONCLUSION HAS BEEN REACHED ON AN APPRECIATION OF A NUMBER OF FACTS WHETHER THAT IS SOUND OR NOT MUST BE DETERMINED NO T BY CONSIDERING THE WEIGHT TO BE ATTACHED TO EACH SI NGLE FACT IN ISOLATION BUT BY ASSESSING THE CUMULATIVE EFFECT OF ALL THE FACTS IN THEIR SETTING ASIDE AS A WHOLE. (SREE MEENAKSHI MILLS LTD. VS. CIT (1957) 31 ITR 28 (SC) (CIT V. DAULT RAM RAWATMULL [1973] 87 ITR 349 (SC). IN THE CASE OF APPELLANT THE AO HAS NECESSAR ILY ATTACHED TOO MUCH IMPORTANCE AND WEIGHT THAT THE PERSONAL BALANCE SHEET OF PARTNERS WERE NOT SUBSTANTIAL TO DRAW ADVERSE INFERENCE ON CREDITWORTHINESS IGNORING OTHER SURROUNDING RELEVAN T FACTS WHICH CANNOT BE CONSIDERED CORRECT IN LEGAL PARLANCE. 6.11 IF WE LOOK AT THE FACT OF THE APPELLANTS CASE IN LIGHT OF THE DECISIONS REFERRED ABOVE I FI ND THAT THE APPELLANT HAS FULLY DISCHARGED ITS ONUS RESTING ON IT AND THE AO HAS NOT BROUGHT ANY MATER IAL ON RECORD TO REBUT THE EVIDENCE AND EXPLANATION GIV EN BY THE APPELLANT. HENCE I DELETE THE ADDITION OF R S. 1.27 CRORE ON ACCOUNT OF CAPITAL INTRODUCTION BY TH E PARTNERS VIX. SHRI J.G. JIVANI & M.G. JIVANI. 20. AGGRIEVED BY THE ORDER OF CIT (A) THE REVENUE IS IN APPEAL BEFORE US. 21. THE LEARNED DR HAS STRONGLY PLACED RELIANCE ON THE ORDER OF AO WHEREAS THE LEARNED COUNSEL HAS RELIED ON THE ORDER OF CIT(A). 22. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THE CIT(A) BEFORE DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF CAPITAL INTRO DUCTION BY PARTNERS THOROUGHLY EXAMINED THE ENTIRE FACTS OF THE CASE AND CONSIDERED SUBMISSIONS MADE BY THE ASSESSEE AND ALSO CALLED ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 16 REMAND REPORT FROM THE AO AND THE AO HAS NOT COMMEN TED ANYTHING IN THE REMAND REPORT. IN THIS CASE THE PARTNERS OF THE ASSESSEE INTRODUCED THE CAPITAL TO THE ASSESSEES FIRM AND A O HAS ASKED THE ASSESSEE TO FURNISH CONFIRMATION LETTERS FROM THE P ARTNERS IN RESPECT OF INTRODUCTION OF CAPITAL ALONG WITH THEIR DETAILE D RETURNS BALANCE SHEET ETC. FOR A.Y. 2005-06. ACCORDINGLY THE ASS ESSEE HAS FILED CONFIRMATION FROM THE PARTNERS RETURN OF INCOME & BANK ACCOUNTS. THE AO WITHOUT EXAMINING THE DETAILS FILED BY THE A SSESSEE INVOKED SEC.68 OF THE IT ACT ON THE GROUND THAT PERSONAL BA LANCE SHEET OF TWO PARTNERS WAS NOT FILED. THE LD. CIT (A) AFTER EXAM INING ALL THE FACTS AND DETAILS FILED BY THE ASSESSEE AFTER CALLING TH E REMAND REPORT FROM THE AO AND ALSO RELYING ON VARIOUS CASE LAWS REASON ABLY CAME TO THE CONCLUSION THAT ASSESSEE HAS DISCHARGED HIS INITIAL BURDEN AND AO WITHOUT EXAMINING THE DETAILS INVOKED SEC.68 AND DE LETED THE ADDITION. THE LD. CIT (A) AFTER EXAMINING ALL THE F ACTUAL MATRIX OF THE CASE AND ALSO VARIOUS CASE LAWS ADDITION WAS DELETE D. WE FIND THAT THE ASSESSEE HAS DISCHARGED HIS ONUS BY PRODUCING C ONFIRMATION LETTERS BANK ACCOUNTS IN RESPECT OF INTRODUCTION O F CAPITAL RETURN OF INCOME OF THE PARTNERS. WE FIND NO REASON TO INTER FERE WITH THE ORDER PASSED BY THE LD. CIT (A) WE THEREFORE UPHOLD THE ORDER OF THE LD. CIT (A) AND THIS GROUND OF APPEAL RAISED BY THE ASS ESSEE IS DISMISSED. 23. IN THE RESULT BOTH THE APPEALS FILED BY THE AS SESSEE AS WELL AS THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 29 TH JULY 2011 SD/- SD/- (PRAMOD KUMAR) (V. DURG A RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED: 29 TH JULY 2011 KV ITA NOS.4911 & 5940 /M/08 M/S SRUSTI DIAM 17 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE E BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. KV