THE ITO, WARD-1,, NA vs. ARIVS.SHRI ANILKUMAR AMRUTLAL CHAHWALA, NAVSARI

आयकरअपीलीयअिधकरण, सुरत�ायपीठ, सुरत INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, Hon'ble JUDICIAL MEMBER AND Dr. ARJUN LAL SAINI, Hon'ble ACCOUNTANT MEMBER (Virtual Hearing) आ.अ.सं./I.T.A No.2078/AHD/2010 िनधा�रणवष�/Assessment Year: 2006-07 आ.अ.सं./I.T.A No.1003/AHD/2011 िनधा�रणवष�/Assessment Year: 2007-08 The Income Tax Officer, Vs. Shri Anil Kumar Amrutlal Chahwala, Ward-(1), Navsari. 102, Trimurti Complex, Vijalpore, Navsari. [PAN: ABNPC 6308 F] अपीलाथ� / Appellant ��थ�/Respondent

िनधा�रतीकीओरसे /Assessee by Shri Manish J. Shah Advocate राज�कीओरसे /Revenue by Shri O.P. Vaishnav – CIT-DR सुनवाई की तारीख/ Date of hearing: 11.03.2021 & 16.06.2021 उद्घोषणाकीतारीख/Pronouncement on: 16.06.2021 आदेश /O R D E R PER PAWAN SINGH, JUDICIAL MEMEBER: 1. These two appeals by the Revenue are directed against the order of ld. Commissioner of Income Tax (Appeals), Valsad, hereinafter referred as “Ld. CIT(A)” dated 27.02.2010 and 31.12.2010 for the assessment year (AY) 2006-07 and 2007-08 respectively. In both the appeals the Revenue has raised certain common grounds of appeal, therefore, with the consent of the parties, both the appeals were clubbed, heard together and are decided by common order. With the consent of the parties, the appeal for AY 2006-07 was treated as lead case. The

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) revenue in appeal for AY 2006-07 has raised following grounds of appeal: (1) The Ld. CIT (A) has erred in law and on facts in directing to estimates the GP @ 1.5% which caused the deleting of addition of Rs. 11,42,37,661/- which was made on account of disallowance of bogus purchase. (2) The CIT (A) also erred in law and facts in directing to delete the addition of Rs. 1,30,48,816/- by restricting the additions on account of disallowance of labour expenses. (3) The CIT (A) also erred in law and facts in directing to delete the addition of Rs. 7,00,330/- made on account of unexplained investment in advances. (4) On the facts and circumstances of the case and in law, the CIT(A) ought to have upheld the addition and order of assessing officer. (5) It is therefore prayed that the order of the Ld. CIT (A) be set aside and the assessing officer ‘s order be restored to the above extent 2. Brief facts of the case are that assessee is an individual and having two proprietary concerns namely Padmavati Gems and Parth Corporation. Padmavati Gems was in trading of rough, cut & polished diamonds. Parth Corporation was doing labour work. The assessee at the time of filing his return of income for AY 2006-07 offered taxable income of Rs.5,95,450/-.Along with the return of income the assessee furnished profit and loss account of both of his proprietary business and audited accounts. Initially the return of income was processed under section 143(1) on 20.03.2007.

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) Thereafter, the case was selected for scrutiny and assessment was completed under section 143(3) on 31.12.2008 assessing total income of Rs. 18,25,11,340/-. The assessing officer during the assessment from the trading account of Padmavati Gems noted that the assessee has shown receipt of Rs. 1,78,47,208/- on account of labour job work. The assessee has shown payment of Rs. 1,76,51,180/- as labour charges to 263 local contractor. The assessee has executed work of labour of three following parties namely; Sr. Name of the party Amount in No. Rs. 75,55,217/- 1 Antrix Diamonds Pvt Ltd, 407, Panchtara Mama Parmanad Marg, Opera House Mumabi-04 2 Virat J Choksi 93,34,585/- B-C, Malabar Apartment, Neapensea Road Mumbai 3 Shubh Export, 407, Panchtara Mama 9,57,406/- Parmanad Marg, Opera House Mumabi-04 1,78,47,208/- Total 3. Further, in the trading account of Padmawati Gems, the assessee have shown purchases of rough as well as finished diamonds from local parties for a total sum of Rs. 11,48,80,540/- and sold out for total sales proceeds of Rs. 11,60,50,053/- to following 31 parties; Sr.No. Name of purchase party Amount Rs. 1 Colors India 728846 2 Goldi India 148931 3 Goel Jewellers 2571655 4 Goel Jewellers Corporation 2380530 3

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) 5 Jewel Traders 1030695 6 Khodiyar Traders 916992 7 Manish Diamonds 1224842 8 Nitin Enterprises 255958 9 Rajrash Gems 409141 10 R.V Jewelers 205200 11 Swan Gems 830700 12 Tri Gems 694470 13 Ambica Coporation 127408 14 Antix Diamonds Exprts Pvt Ltd 32424567 15 Anand J Shah HUF 107600 16 Amit J Shah 86850 17 Jayesh P Parekh 107280 18 Kapla Sachin Shah 153460 19 Designer Jwell Craft 203840 20 Jem Craft 71729 21 Paras Gems 875000 22 Mehul B Parekh 108540 23 S.K.Traders 1514470 24 N. W. Samsett Jewelers 77520 25 Osia Gems 23225817 26 Peacock Jewelry (P) Ltd 82772 27 Ramesh Kumar H Rathod 3348625 28 Shukra Bullions Ltd 34671875 29 Krit A Doshi 219720 30 Balaji Diamonds 5862875 31 Designer Gems 308425 Total 11,60,50,053 4. From the trading account of Parth Corporation, the assessing officer noted that the assessee has shown receipt of labour charges of Rs. 4,88,90,197/- from five Mumbai based parties and the assessee has paid total labour work expenses of Rs.4,82,83,842/- to 299 local labour contractor. The assessee has shown receipt of labour charges from the following five parties; –

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) Name of party Amount- Rs. 1 Virat J Choksi 2,09,17,756/- 2 Osia Gems 59,88,389/- 3 Antriksha Diamonds Exports Pvt Ltd. 1,53,95,913/- 4 Bhakti Impex 22,35,616/- 5 Shubh Export 43,525,23/- Total 4,88,,90,197/- 5. During the assessment, the assessing officer doubted the genuineness of transactions of trading as well as labour work. The assessing officer examined the banks accounts of the assessee at Mahalakshmi Mumbai as well as Opera House Mumbai and noted that soon after clearance of cheque the amount was withdrawn in cash. The assessee was asked to produce the labour contractor though which the labour work was executed. The assessing officer recorded that the assessee failed to produce even a single person. Even the names of the most of the persons were not remembered to him. The assessee could not disclose their addresses. The assessee was not having any place or space to work. The assessee has no plant or machinery to execute such large scale work. The assessing officer recorded the statement of the assessee on 24/12/2008. In the statement the assessee admitted that he has not executed any labour work as well as not done purchase and sale. All his transactions are paper transaction and he has received commission which is declared in his return of income.

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) However, the statement was retracted by the assessee by filing affidavit dated 27.12.2008. The assessing officer also examined the parties who have availed the services of the assessee. The Director of Antrix Diamonds in his statement confirmed that they availed the services of the assessee. The assessing officer also reconciled the TDS certificate with return of income on account of labour payments receipts. On such reconciliation the assessing officer noted that labour payments to local contractor exceeding of Rs. 50,000/- without TDS (tax deduction at source) as required under section 194C was of Rs. 5,28,86,206/-, which consist of Rs. 1,68,29,000/- by Padmavati Gems to 187 Labour Contractor and Rs. 3,60,57,206/- by Parth Corporation to 258 Labour Contractor. Thus, the assessing officer disallowed Rs. 5,28,86,206/-on account of labour expenses. The assessing officer rejected the books of accounts of the assessee under section 145(3) of Act 6. With regard to sale and purchases (trading) of diamonds the assessing officer noted that the assessee has shown purchases from 429 parties in cash. There were discrepancies in the purchases bills; there was no serial number or CST no. Though, all the sales proceeds were received by cheque. No evidence of receipt of rough diamonds or policing was provided. No Jangad slips, no

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) lot wise register and polished diamonds was shown to have received from labour contractor. No voucher for payments to labour contractors was maintained. The assessing officer made additions of entire purchases by Padmavati Gems of Rs. 11,48,80,540/- and labour Expenses of Rs.1,76,51,180/- by Padmavati gems and Rs.4,82,83,842/- by Parth Corporation and taxed in the hands of assessee on protective basis and substantively in the hands of respective parties who claimed labour expenses. 7. During the assessment the assessing officer further noted that the assessee has shown loan and advances of Rs. 11,00,330/- to five following parties; 1 Chetan Parivahan 2,50,000/- 2 Chetan Transport Company 3,50,000/- 3 D.A. Adani 1,00,000/- 4 Mukesh Daftary 3,00,000/- 5 Pradeep M Shah 1,00,000/- total 11,00330/- 8. The assessee was show caused and directed to provide the source of advances. The assessing officer recorded that the assessee failed to provide the source of the advances. The assessing officer on the basis of the statement of assessee recorded on 24.12.2008 that all the transaction reflected in his books of accounts are nothing but paper transaction. Therefore, the assessing officer added the entire

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) amount of Rs. 11,00,330/- as unexplained investment within the meaning of section 69 of the Act. 9. Aggrieved by the additions in the assessment order the assessee carried the matter in appeal before ld. CIT(A). Before the CIT(A) the assessee filed detailed written submissions. The submissions of the assessee are duly recorded in para 8 and 9 of the impugned order. In the written submissions the assessee stated that disallowance of the entire expenses is unlawful and to defy the logic of ‘concept of income’. For the statement recorded on 24.08.2008, the assessee stated that his statement was recorded under coercive pressure and was not on the basis of free will. Thus, the assessee immediately filed affidavit dated 27.12.2008 retracting the statement. 10. On merit of the case the assessee explained that the assessee is mainly doing two kind of business; firstly cutting and polishing of diamonds on behalf of third parties on commission basis, and secondly buying and selling of polished diamonds. With regard to labour charges, the assessee submitted that he had no manufacturing facilities but in the stage he gets the diamond polished through outside laborers / karigars located in Navsari. Since the responsibility of assessee was of labour work lies upon

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) him, he is paid commission which is included in the bills of labour charges raised by him upon various parties. The modus operandi in the business of assessee is that assessee himself or through his authorised agent would collect the rough diamonds from various parties located in Bombay and bring it to Navasari from where the assessee carries his business. The diamonds are collected from a particular party, received in the form of Jangad, containing the quantitative details of rough diamonds received for manufacturing. On receipt of rough diamonds the assessee get the same cut and polished through various labour contractors located in Navsari and in close vicinity. Once the diamonds are received back from the labour contractors after cutting and polishing with the rejected material which would not yield any cut diamonds of good quality be sold in the market, the assessee would then return the said polished diamond to the third party from where assessee received these diamonds for cutting and polishing. The assessee also returns the rejected lot of rough diamonds, which is also evidenced in a Jangad receipt. It was also explained that the assessee made an application to the Income Tax Department for deducting TDS at the lower rate than the applicable rate for labour contract charges to be received by the assessee from various contracting parties. It

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) was primarily done for the reasons that there is a very low profit or commission margin in such job work of cutting and polishing business due to the intense competition. The assessee further explained that he is very small businessmen working on a very thin business margin. Even though, the assessee has not maintained all record due to his limited infrastructure, the third parties which were mainly a big Private Limited Companies, having sufficient manpower and resources at their disposal, have maintained all documents with reference to each transaction of labour charges made with the assessee. The assessee also maintained a stock register wherein all the transaction has been recorded appropriately. In some cases the assessee exported diamond out of India by third parties. The assessee also furnished certain documentary evidence relating with the transaction entered with Antrix Diamonds Export Private Limited, being one of the parties on whose behalf the assessee has carried out labour work and also showed polished diamonds along with other supporting documents maintained by them. The assessee further explained that the accounts of Antrix Diamonds Export Private limited are fully in reconciliation with the assessee. The assessee maintains his bank accounts in Mumbai, mainly for the reasons that most of

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) its customer are located in Mumbai, so that the assessee could receive the credit immediately without any bank charges which are otherwise payable on outstation cheque clearing. The assessee would, then withdraw the cash and when payments are required to be made for various business expenses such as labour charges and other business-related expenses. The assessee further explained that he has closed down its business due to recession and he is out of business for more than two years due to which he has lost contact with most of the labour contractors, with whom he has worked in the past. Some of the person, who is traceable, has refused to cooperate and accept the genuine transaction especially due to the fact that they do not expect any future business relationship with the assessee. The assessee explained that he is facing hardship to produce the persons who are recruited labour works for verification due to genuine reasons beyond his control. 11. For trading operations, the assessee explained that during the relevant year, he carried out his activity of buying and selling of cut and polished diamonds. For relevant year under consideration the assessee bought diamond worth ₹ 11.48 crore and sold the same for ₹11.60 crore to about 31 different parties located a difference place including Mumbai and Navsari. The assessee

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) purchased from a number of different parties and also produced some of the purchases bills of the parties with reference to the purchase. The assessing officer made addition of entire purchases of ₹ 11.48 crore, without appreciating the fact that if the purchase is to be disallowed, then even the sale has to be proportionately reduced. The assessing officer accepted the sales figure of the assessee and disallowed only purchases. No sell is possible in absence of purchases. The addition made by assessing officer is absolutely without application of mind. All the payments were received through account payee cheques. The assessee also produced the trading operation figure, gross profit (GP) ratio and net profit (NP) ratio from assessment year 2002-03 up to assessment year 2006-07. The assessee pleaded that he is showing GP and NP on consistent basis in last five years in trading business which has been accepted in the past. 12. The assessee in his alternative and without prejudice submission further stated that at the most, there could be an addition of GP, as the assessee could not produce the various labour contractor for genuine reasons, which were beyond his control. 13. On the addition on account of advance loan given to various party, which was added/ treated as unexplained expenditure under

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) section 69. The assessee explained that out of total addition of Rs.11,00,330/-, the opening balance of earlier year was ₹ 7,00,330/-and the assessee is entitled to a reduction of opening balance of earlier years. The assessee finally before ld. CIT(A) prayed that all the additions made by assessing officer are totally bad and is made without application of mind, which is absolutely disproportionate to the income earned by the assessee. 14. The learned CIT(A) after considering the submission of the assessee restricted the various addition in the following manner; (i) The assessing officer made the additions of entire purchases without considering the sales of the assessee. The assessing officer has not collected evidences. The assessee is carrying his business from AY 2002-03. The turnover of the assessee is gradually increased. The assessing officer has not elaborated under which circumstances the protective addition were made at the hand of the assessee. The sale of the assessee was not disputed. No evidence about the non- genuine purchases was gathered by the assessing officer. The entire transaction cannot be treated as bogus in absence of cogent reasons. The assessing officer first made disallowance

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) of entire labour contract payment and second on application of section 40(a)(ia). (ii) The assessee undertook the labour contract job for cutting and polishing and trading of diamonds. Though, the assessee failed to produce the contractor but the parties for whom the assessee carried work has confirmed. It was also held that it is not acceptable that the assessee has not actually carried out any business. It was also held that assessee had done labour contract job on commission basis and trading of diamonds are reflected in the books of accounts. The entire payment of labour contract cannot be disallowed. On the first limb the ld. CIT(A) by taking in to consideration of GP /NP ratio from trading operation as well as labour charges held the even if the assessee is acting commissions agent the GP must be in the range of 1.50 to 2.00 %. Therefore, taking in to the account the trading and labour contract the GP of AY 2006-07 was estimated @ 1.5% and directed the assessing officer to work out the income. (iii) On second limb with regard to payment of the labour contractors, it was held that the assessee has not deducted tax at source under section 194C even on the payments in

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) excess of Rs. 50,000/-, which attract disallowance under section 40(a)(ia). The assessing officer worked out disallowance of Rs. 5.28 Crore out of total payment of Rs 6.05 Crore. Accordingly the ld. CIT(A) confirmed the disallowance to that extant. (iv) On the additions of Rs. 11.48 Crore made on protective basis in Padmavati gems, the ld CIT(A) held that the protective additions at the hand of the assessee suffer from cogent reasons. Thus, the ld CIT(A) on the basis of his direction to apply GP rate at 1.5% on labour charges and on trading account also directed to restrict the addition @ 1.5% on the purchase of diamonds included in the profit and loss account. (v) On the addition on account of unexplained investment of Rs. 11,00,330/- the ld CIT(A) directed that opening balance of earlier year was of Rs. 7,00,330/-, thereby the unexplained infusion was of Rs. 4,00,000/- which could not be satisfactory explained by the assessee. Accordingly, the addition was restricted to Rs. 4,00,000/- only. 15. Aggrieved by the order of the ld. CIT(A), the revenue has filed present appeal before this Tribunal.

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) 16. We have heard the submissions of Sh. O.P. Vaishnav learned Commissioner of Income Tax –departmental representative (ld. CIT-DR) for the revenue and Sh. Manish J Shah Advocate/ authorized representative (ld.AR) for the assessee and have gone through the order of lower authority carefully. Initially this appeal was heard on 11.03.2021 at length, however, at the time of finalizing the order, we required certain clarification of ground No.2. Therefore, on 07.06.2021, we fixed both the appeals for clarification on 16.06.2021. On 16.06.2021, the learned representative clarified the facts on ground no.2. 17. Ground No. 1 relates to estimation of GP @ 1.5% of protective addition on account of bogus purchases. The ld CIT-DR for the revenue supported the order of the assessing officer. The ld. CIT- DR for the revenue further submits that during the assessment the assessee failed to substantiate the purchases. During the assessment the assessing officer noted that the assessee has shown purchases from 429 parties in cash. There were discrepancies in the purchases bills; there was no serial number or CST no. Though, all the sales proceeds were received by cheques. During the assessment the assessee himself admitted that his transactions are no genuine. Even otherwise the modus operandi

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) of operation of bank accounts shows that the assessee sued to withdraw the entire amount on clearing of cheque. The assessing officer rejected books of accounts with valid reasons. No evidence of receipt of rough diamonds or policing was provided, thus the assessing officer was justified in making the additions of entire purchases by Padmavati Gems of Rs. 11,48,80,540/-. The ld CIT(A) restricted it to the extent of 1.5%, despite the fact the assessee failed to substantiate the purchases. The ld CIT-DR submits that the order of the ld CIT(A) may be reverse and the order of assessing officer be restored. In alternative submissions the Ld. CIT-DR submits that in case of bogus purchases the Jurisdictional High Court sustained the GP addition of 5%. In support of his submissions the Ld. CIT-DR relied on the decision of Gujarat High Court in Mayank Diamonds. 18. On the other hand the ld. AR for the assessee submits that that during the relevant year, the assessee carried out his activity of buying and selling of cut and polished diamonds, the assessee purchased the diamonds worth ₹ 11.48 crore and sold the same for ₹11.60 crore to about 31 different parties located a difference place including Mumbai and Navasari. The assessee produced some of the purchases bills of the parties with reference to the purchase,

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) the assessing officer made addition of entire purchases of ₹ 11.48 crore, without appreciating the fact that if the purchase is to be disallowed, then even the sale has to be proportionately reduced. Once sales of the assessee are accepted no disallowance is warranted. The assessing officer surprisingly disallowed only purchases. No sell is possible in absence of purchases. The addition made by assessing officer is absolutely without application of mind. The assessee made all the payments through account payee cheques. The assessee also produced the trading operation figure, gross profit (GP) ratio and net profit (NP) ratio from assessment year 2002-03 up to assessment year 2006-07. The ld. CIT(A) on the basis of GP and NP on consistent basis in last five years in trading business, which has been accepted in the past, restricted the disallowance at @ 1.5%. The ld. AR for the assessee prayed for dismissal of this ground of appeal. The Ld. AR for the assessee submits that case of Mayank Diamond was not a case of commissions agent. The said case relates to unverifiable/ bogus purchase and cannot be compared with the facts of this case. 19. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. We have also

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) gone through the various documents filed on record. The Assessing Officer made the addition of entire purchases of Rs. 11.48 Crore in Padmavati Gems by relying on the statement of the assessee recorded on 24th December 2008, wherein the assessee admitted that his entire transaction are paper transaction and he has received commission only. The assessing officer made addition on protective basis and substantially at the hand of the respective parties who have claimed labour expenses. We find that the assessing officer has not given any reasons as to why the additions are made on protective basis. The Ld. CIT(A) restricted the addition to the extent of 1.5% of the transaction by holding that no sale is possible in absence of the purchases. The Ld. CIT(A) further held the additions of entire purchases is made without considering the sales of the assessee. No evidence is collected by the assessing officer. The assessee is carrying his business from AY 2002-03. The turnover of the assessee is gradually increased and that the assessing officer has not elaborated under which circumstances the protective addition were made at the hand of the assessee. The entire transaction cannot be treated as bogus in absence of cogent reasons. It was also held that first the assessing made disallowance of entire labour contract payment and second

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) on application of section 40(a)(ia). The assessee undertook the labour contract job for cutting and polishing and trading of diamonds and the parties for whom the assessee carried work has confirmed, though, the assessee failed to produce the sub- contractor. It was also held that it is not acceptable that the assessee has not actually carried out any business. The Ld. CIT(A) further held that GP /NP ratio from trading operation as well as labour charges, even if the assessee is acting commissions agent must be in the range of 1.50 to 2.00 %. Therefore, taking in to the account the trading and labour contract the GP of AY 2006-07 was estimated @ 1.5% and directed the assessing officer to work out the income. In our view the Ld. CIT(A) after taking care of the earlier years GP/NP ratio came to the fair conclusion that a fair estimation @ 1.5% would meet the end of justice. In our view the disallowance restricted by Ld. CIT(A) @ 1.5% in on the lower side. Before the lower authorities the assessee has taken inconsistent stand, one he made the statement on 24.12.2008 that he has shown only paper transaction. Immediately the statement was retracted by filing affidavit and again he reiterate his stand about the business transactions. Though he could not substantiate all his transaction either in trading activity or in labour work. The Ld.

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) CIT(A) ultimately treated him a commission agent and estimated his income in trading as well as in labour work. As noted above the estimating of income after so many discrepancies @ 1.5% seems to be on lower side, therefore, in our view the estimation of GP @ 2.00% would meet the end of justice to fulfill the chance of revenue leakage. 20. In the result this ground of appeal is partly allowed. 21. Ground No.2 relates to deleting the addition of Rs.1.30 crore and by restricting the addition made on account of disallowance of labour expenses. The ld. CIT-DR for the Revenue submits that in Padmavati Gems, the assessee has shown trading in rough cut and polish diamonds. The assessee has also shown labour work for three parties at Mumbai as reflected from the TDS Certificate. The labour work for Padmavati Gems was executed through 263 Labour Contract Act in Navasari. The assessee has shown labour work in another proprietary concern of Part Corporation on commission basis. The assessee executed work for five parties at Mumbai as shown in the TDS Certificate. The assessee got done the polish of rough diamonds through 299 local labour contractor in Navasari. During the assessment, the assessing officer recorded the statement of assessee on 22.12.2008, wherein the assessee

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) stated that he deposited cheques of labour receipts in his bank account and on clearance of cheques the amounts were withdrawn in cash and after keeping this commission payment majority of amount was returned back to the parties for whom the assessee has shown labour work. The assessee has no factory, plant or machinery or essential tools for cutting and polishing of diamond. The assessee resides in a very small flat in Navasari. The assessee could not produce the labour contractor work verification nor was their complete address furnished by the assessee. No Jangad slips for lot of register of rough and polished diamond was maintained. The Assessing Officer while making the addition identified the labour contractor for whom the payment exceeding Rs.50,000/- without TDS was made, thus, the Assessing Officer made addition of Rs.1.60 crore in Padmavati Gems and Rs.3.60 crore in Parth Corporation. The ld. CIT-DR prayed for restoring the order of assessing officer by reversing the order of Ld.CIT(A). 22. On the other hand, the ld.AR of the assessee supported the order of Assessing Officer. The ld.AR submits that the statement recorded by assessing officer 24.12.2008 was retracted by assessee immediately by filing affidavit on 27.12.2008. As stated earlier the statement of assessee was recorded under coercion. The

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) statement was not made at free will. The assessee was doing cutting and polish of diamonds on behalf of third party on commission basis. Though, the assessee do not have his own manufacturing facility rather he used to get the diamond polished through outsider labour contractor/karigar located in Navasari. The assessee used to authorize his agent to collect the diamonds from various parties in Mumbai and carry out the same and returned back either at Mumbai or Navasari. When diamonds were collected from a particular party, a receipt in the form of Jangad recording the quantity details was entered by assessee and the third party. The assessee after taking the rough diamonds and get the same cut and polished in a close area on his responsibility. Once the diamonds were received from the labour contractor in a polished form and also rough diamonds which are rejected. The assessee would return the said polished diamond to third party from he had received. The assessee made application to Income Tax Department for deduction of TDS as lower rate than the applicable rate for labour contract charges to be received by the assessee from various parties. This was primarily applied for the reasons that there was very low profit or commission or margin in job of cutting and polishing due to intense competition. The

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) assessee was working on very thin business margin. The Department made addition at the hand of various parties for which the assessee undertook the labour work. Those parties filed appeal before the Tribunal and in their case, the additions were deleted by Ld. CIT(A) and on further appeal before the Tribunal, the order of Ld. CIT(A)in all cases were upheld. The copy of decision in Shubh Exports in ITA No.1420/MuM/2011 dated 12.10.2015, Virat Joramalbhai Chokshi in ITA No.734 & 735/Ahd/2011 dated 29.11.2019 and in Osia Gems in ITA No.3754/Mum/2013 dated 11.03.2016 are placed on record. 23. In alternative submissions the Ld. AR for the assessee submits that once the books of the accounts are rejected and the income of the assessee is estimated no further addition is sustainable. To support his contention the Ld. AR for the assessee relied on the following decisions;  Teja Construction Vs ACIT (2010) 129 TTJ 57 Hyd (URO),  CIT Vs Santosh Jain (2008) 266 ITR 324 ( P& H),  CIT Vs Banwari Lal Banshidhar (1998) 229 ITR 229 (All),  CIT Vs Bahubali N Muttin (2016) 388 ITR 608 (Kar),  Malpani House of stone Vs CIT (2017) 395 ITR 385 (Raj) and  Bipinchandra Hiralal Thakkar Vs ITO (2021) 187 ITD 477 (Surat-Trib)

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) 24. We have considered the rival submissions of the parties and gone through the orders of Lower Authorities. We have also deliberated on various decisions, copies of which are placed on record. The Assessing Officer during the assessment noted that assessee has made a total labour payment of Rs.6,59,35,022/-. Out of which, the Assessing Officer made disallowance of Rs.5,28,86,206/- under section 40(a)(ia), as the A.O. has made addition of entire labour expenses in the assessment order, so he has not made separately disallowed the amount under section 40(a)(ia). The Assessing Officer disallowed the payment to labour contractor exceeding Rs.50,000/- without remitting TDS. The assessing officer identified 187 labour contractors in Padmavati Gems 258 labour contractor in Parth Corporation, thereby disallowed Rs.1.68 crore in Padmavati Gems and Rs.3.60 crore in Parth Corporation. Before the Ld. CIT(A) the assessee made detailed written submission as we have noted above. The Ld. CIT(A) confirmed the disallowance of payment of labour work on which no TDS was made. The Ld. CIT(A) sustained the addition of Rs. 5,28,86,206/-of labour expenses resultantly deleted the addition of Rs. 1,30,48,816/-. We find that the assessee has not filed any appeal / cross objection for challenging the sustaining of addition of Rs.

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) 5,28,86,206/-, which have become final. Considering the overall facts of the case and keeping in view that substantial part of the labour expense has already been sustained by Ld. CIT(A), more over the income of the assessee is estimated of GP additions, which we have increased to 2%, therefore, this ground of appeal is dismissed as infructuous. 25. In the result this ground of appeal is dismissed. 26. Ground No.3 relates to restricting the addition of unexplained investment to Rs.4,00,000/-. The ld. CIT-DR for the Revenue supported the order of Assessing Officer. The ld. CIT-DR submits that during the assessment the assessee could not substantiate source of investment. And the assessing officer in absence of proper explanation made addition of aggregate investment loan of Rs.11,00,330/-, shown by the assessee. 27. On the other hand, the ld.AR of the assessee submits that while making disallowance/addition of unexplained investment the Assessing Officer failed to consider the opening balance of earlier years which was Rs.7,00,330/-. The investment/infusion in loan during the current year was only Rs.4,00,000/-, for which the assessee could not sufficiently explained. The Ld. CIT(A) on

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) appreciation of facts, find merit in the submission of assessee and restricted the addition to the extent of Rs.4,00,000/- only. 28. We have considered the rival submission of both the parties and gone through the orders of Lower Authorities. The Assessing Officer made addition on account of unexplained investment without verifying the investment in earlier years and not given due credit to the opening balance. The Ld. CIT(A) on verification of facts, find that the Assessing Officer has not considered the opening balance of earlier years thereby, restricted the addition to the extent of Rs.4,00,000/-. In our view, the order of Ld. CIT(A) needs no variation as the Ld. CIT(A) has just given the credit of earlier year opening balance. In the result, this ground of appeal is rejected. 29. In the result, appeal of the Revenue is Partly Allowed. ITA No.1003/Ahd/2011 for A.Y.2007-08 30. Ground No.1 relates to deleting the addition on account of bogus purchases. We find that this ground of appeal is identical to the Ground No.1 of appeal for A.Y.2006-07, wherein we have partly allowed, thus, this ground of appeal is partly allowed with similar observation.

ITA No. 2078/Ahd/2010 & 1003/Ahd/2011 Anil Kumar A.Chahwala (AY 2006-07 & 2007-08) 31. Ground No.2 relates to labour expenses of Rs.4.99 crore. We find that this ground of appeal is identical to the Ground No.2 in appeal for A.Y.2006-07, which we have dismissed. Considering our finding in appeal for A.Y.2006-07, this ground of appeal is also dismissed with similar direction. 32. In the result, appeal for A.Y.2007-08 is partly allowed. Order announced on 16th June 2021 by placing the result on notice board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 16/06/2021 Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR 6. Guard File True copy/ By order

Assistant Registrar, ITAT, Surat True copy/