THE ITO, WARD-1,, PALANPUR vs. SHRI VIRAT JORMALBHAI CHOKSHI, PALANPUR

PER Ms. MADHUMITA ROY – JUDICIAL MEMBER:

Both the cross appeals are directed against the order dated 25.11.2010 passed by the CIT-XX, Ahmedabad arising out of the order dated 21.12.2009 passed by the AO under section 143(3) r.w.s. 147 of the Income Tax Act ITA Nos.734&735/Ahd/2011 and CO Nos.94&95/Ahd/2011 Asst. Years – 2006-07& 2007-08 (hereinafter referred as to “the Act”) for A.Y. 2006-07 and against the order dated 25.11.2010 passed by the CIT-XX, Ahmedabad arising out of the order dated 21.12.2009 passed by the AO under section 143(3) of the Income Tax Act (hereinafter referred as to “the Act”) for A.Y. 2007-08 respectively. Since both the appeals relate to the same assessee and the issues are identical, those are heard analogously and are being disposed of by a common order.

ITA No.734/Ahd/2011 for A.Y. 2006-07 :

The case of the Revenue before us is this that the addition made primarily by the AO on the basis of the statement made by Shri Chahwala himself stated that such transaction is not a genuine one but a paper transaction meaning thereby no labour work was done by him for the assessee. Thus, addition is sustainable.

The case of the assessee is this that the affidavit filed by Shri Chahwala dated 27.12.2008 and 14.12.2009 whereby and whereunder he has retracted from his earlier statement has not been taken into consideration by the Ld. AO in its proper perspective.

The fact remains that the assessee received job work receipt of Rs. 8,46,32,013/- for polishing of rough diamonds out of which the majority of receipts of Rs. 8,20,25,372/- has been received from one Rosy Blue (India) Pvt. Ltd. All the payment was made by A/c Payee cheques, that too after deduction of due amount of TDS. During the course of assessment proceeding the Ld. AO relied upon the statement of Shri Anil Chahwala has already discussed in the foregoing paragraph but has not considered the affidavit dated 27.12.2008 and dated 14.12.2009 of the said Shri Chahwala where he has stated that the entire statement given earlier by him was under mental pressure and was a force statement. It is further contended that the earlier statement were totally wrong and in fact he has done business of polishing of rough diamonds with the appellant and other parties. His accounts were also audited for which return of income was duly filed. Neither ITA Nos.734&735/Ahd/2011 and CO Nos.94&95/Ahd/2011 Asst. Years – 2006-07& 2007-08 he has returned any part of payment receipt by him towards polishing charges from the appellant or from any other parties. However, no such discussion, as we found not recorded in the order passed by the Ld. AO. It also appears from the records that the CIT-A Valsad by and under its order dated 27.02.2010 while dealing with the tax appeal preferred by the said Shri Anil Chahwala held that Shri Chahwala had, in fact, done labour work of diamond polishing with the appellant and other parties and his business was held to be genuine and not a paper transaction. This particular fact further emanates from the order passed by the CIT(A) which is impugned before us. It was also mentioned by the first appellate authority that in the case of Anil Chahwala, the Ld. CIT(A) has been pleased to direct the AO to work out the gross profit at 1.5% on estimate basis.

However, we find that similar addition made in respect of the labour charges in the case of the assessee was deleted by the Ld. CIT(A) for A.Y. 2004-05 which was further confirmed by the Co-ordinate Bench in ITA No. 1586/Ahd/2012 for A.Y. 2004-05 in department’s appeal which is also placed on record.

More so, when the Revenue has already given a clean chit on the genuineness of the business of Shri Chahwala of polishing of diamonds, the said cannot be questioned and held otherwise by Revenue in the instant case. We have further gone through the entire set of documents placed before us wherefrom it appears that on the basis of the evidences produced by Ld. CIT(A) the business of Anil Chahwala has been held to be genuine of getting diamond polished by labours by the concerned CIT(A). The said fact though brought to the notice to the Ld. AO he has not exceeded to the same. But this particular fact was duly taken care by ITA Nos.734&735/Ahd/2011 and CO Nos.94&95/Ahd/2011 Asst. Years – 2006-07& 2007-08 the Ld. CIT(A) as it appears from order impugned before us. Finally he observed as follows:-

“4.3(ix)

In view of the above facts and circumstances and evidence on record, the disallowance of entire labour payment of Rs. 8,35,74,244/- is not justified. It is however seen that the assessment in the case of Shri Anil Chahwala has been done by estimating the gross profit in his case. In view of the fact that the entire payment made by the appellant to Shri Anil chahwala and Shri Atul Daftari was made by cheques proves that the payment were not bogus as there is no evidence available with the AO other than the retracted statement of Shri Anil Chahwala. 4.3(x) When the gross profit of the appellant are examined it is seen that the gross profit declared for the current year is 1.25% which is same as in the earlier assessment year. The comparable chart showing the percentage of gross profit from assessment years 2003-04 to 2008-09 was filed by the appellant on page 28 of the Paper Book dated 20.10.2010. From the same it could be seen that the gross profit declared for the current year is 1.25% which is same as in the earlier assessment year and in fact higher than what is shown in the earlier and subsequent assessment years. These facts also indicate that the income shown by the appellant in not low. Hence, looked at this angle also the disallowance of the entire expenditure of labour payment is uncalled for. Therefore, the addition made by the Assessing Officer on account of labour payment amounting to Rs. 8,35,74,244/- is deleted.”

Thus, it evident from the aforesaid paragraph that while deleting the addition made by the AO towards the labour payment to the tune of Rs. 8,35,74,244/- the Ld. CIT(A) analysed the issue in depth and compared the same with that of the order passed by the Ld. CIT(A) in the case of Anil Chahwala where his business was held to be genuine so far it relates to the assessee, which according to us, suffers from no ambiguity so as to warrant interference. Hence the order is passed in the affirmative i.e. in favour of the assessee and against the Revenue.

The second ground of admitting additional evidence is violation of Rule 46A needs no further consideration since we find no force on it . The same is thus dismissed. Revenue’s appeal is thus dismissed. ITA Nos.734&735/Ahd/2011 and CO Nos.94&95/Ahd/2011 Asst. Years – 2006-07& 2007-08 Cross Objection 94/Ahd/2011(in ITA No. 734/Ahd/2011) for A.Y. 2006-07:-

ITA No.735/Ahd/2011 for A.Y. 2007-08 :-

CO No.94/Ahd/2011 (in ITA No.735/Ahd/2011) for A.Y. 2007-08 :-

आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant

आदेशानुसार/ BY ORDER, स"या"पत ""त //// उप सहायक पंजीकार (Dy./Asstt.