IDEAL JEWELS INDIA PVT LTD ,MUMBAI vs. DCIT, CIRCLE 2(1)(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH MUMBAI BEFORE MS. KAVITHA RAJAGOPAL, JUDICIAL MEMBER & SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No. 1176/Mum/2026 (Assessment Year: 2021-22) Ideal Jewels (India) DCIT Circle 2(1)(1), Pvt. Ltd. Room No. 575, 301, Block I, Seepz, Vs. Aayakar Bhavan, SEZ, Andheri (East), Maharashi Karve Mumbai-400 096 Marg, Churchgate, Mumbai-400 020 PAN/GIR No. AABFI3459A (Applicant) (Respondent) Assessee by Shri Saket Jain, Ld. AR Revenue by Shri Virabhadra Mahajan, Ld. DR Date of Hearing 27.04.2026 Date of Pronouncement 20.05.2026 आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM: This appeal has been preferred by the assessee against the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi[hereinafter referred to as "CIT(A)"], dated 06/11/2025, arising out of the assessment order passed by the Assessing Officer under section 143(3) read with section 144B of the Income Tax Act,

2 ITA No. 1176/Mum/2026 Ideal Jewels (India) Pvt. Ltd. 1961[hereinafter referred to as "the Act"], dated 30/12/2022, for the Assessment Year 2021–22. Facts of the Case 2. The assessee filed its return of income on 02/03/2022 declaring total income of Rs. 1,71,23,710/-. The case was selected for scrutiny and assessment was completed determining the total income at Rs. 6,01,92,289/- after making an addition of Rs. 4,30,68,579/- on account of partial disallowance of labour charges. 3. The assessee is engaged in the business of manufacturing of gems and jewellery. The case was selected for scrutiny on the ground that the assessee had reported large turnover with comparatively low income. During the course of assessment proceedings, the Assessing Officer examined the claim of labour charges amounting to Rs. 12,04,24,700/-, out of which a substantial payment of Rs. 8,61,37,157/- was made to M/s Samarth Krupa Enterprises. The Assessing Officer issued notices under sections 143(2) and 142(1) and called for details including bills, vouchers, agreements, and evidences to establish the genuineness of the expenses. The assessee furnished partial details. The assessee submitted that the labour charges are a major component of manufacturing cost in the jewellery business and payments were made through banking channels and subjected to TDS. Bills, vouchers, ledger accounts and bank statements were furnished. It was also explained that the services

3 ITA No. 1176/Mum/2026 Ideal Jewels (India) Pvt. Ltd. were availed from M/s Samarth Krupa Enterprises, which is a manpower supplier and the payments were genuine and incurred wholly for business purposes. 4. The Assessing Officer observed that the assessee failed to furnish complete documentary evidence such as contract agreements, transport details, delivery challans e-way bills, etc. It was also concluded that there was no proper evidence to establish the actual rendering of services and mere payment through banking channel and deduction of TDS does not prove genuineness. The Assessing Officer also observed that the details were furnished at the fag end of the assessment proceedings, limiting verification. The Assessing Officer further relied upon judicial precedents and concluded that the genuineness of labour charges was not fully established. However, considering the nature of business, the Assessing Officer disallowed 50% of the labour charges paid to M/s Samarth Krupa Enterprises, amounting to Rs. 4,30,68,579/-, and added the same to the income of the assessee. 5. Aggrieved, the assessee preferred an appeal before the Learned CIT(A).The assessee contended that the Assessing Officer has made an ad-hoc disallowance of 50% of the labour charges without identifying any specific defect in the books of account or supporting evidences. It was submitted that the assessee had duly furnished invoices, ledger accounts and bank statements evidencing the payments made, and therefore the genuineness of

4 ITA No. 1176/Mum/2026 Ideal Jewels (India) Pvt. Ltd. the expenditure stood established. The assessee further submitted that M/s Samarth Krupa Enterprises is a manpower service provider and the invoices raised by the said party clearly classify the services under SAC 998519 relating to labour supply services. It was contended that since the services were rendered on-site at the assessee’s premises, there was no requirement of e- way bills or delivery challans, and therefore the adverse inference drawn by the Assessing Officer on this count was misplaced. It was also emphasized that the books of account of the assessee were duly audited and had not been rejected under section 145(3) of the Act, and in absence thereof, the impugned disallowance was arbitrary and without any statutory basis. In support of its claim, assessee furnished additional evidences in the form of the contract agreement entered into with M/s Samarth Krupa Enterprises and confirmation of account from the said party. 6. The Learned CIT(A) observed that the assessee failed to produce complete evidences during the course of assessment proceedings so as to substantiate the claim of labour charges. It was further noted that the additional evidence furnished during the appellate proceedings was not admissible under Rule 46A, as the assessee had failed to demonstrate sufficient cause for non- production of such evidence before the Assessing Officer. The Learned CIT(A) also recorded that, even otherwise, the additional evidence filed by the assessee did not conclusively establish the genuineness of the impugned transactions. The appellate authority further observed that there was a lack of supporting

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documentary evidence to prove the actual rendering of services, and the explanations furnished by the assessee were found to be inconsistent with the terms of the contractual arrangement.In view of the above observations, the Learned CIT(A) held that the assessee had failed to discharge the onus cast upon it to prove the genuineness of the expenditure and, accordingly, confirmed the addition of Rs. 4,30,68,579/- made by the Assessing Officer.

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2.3 The Ld. CIT(A) failed to appreciate that no ad-hoc disallowance is permissible under the Act without rejecting the books of accounts u/s 145(3), specifically when the accounts are audited and supported by banking payments and third-party GST compliance. 3. Ground regarding Improper Rejection of Additional Evidence (Rule 46A) 3.1 The Ld. CIT(A) erred in law in rejecting the additional evidence (Contractual Agreement) filed under Rule 46A, even though the Ld. CIT(A) called for a remand report from the Ld. AO and the Appellant furnished all supporting material, including the contract between the parties, employee in/out attendance records, and salary computation. 3.2 The Ld. CIT(A) failed to appreciate that the Appellant had "sufficient cause" for non-production before the AO due to the extremely short notice given in December 2022 (as detailed in Ground 3), thereby satisfying the conditions of Rule 46A. 3.3 The Ld. CIT(A) failed to follow the binding precedent of the jurisdictional Tribunal in Shahrukh Khan v. DCIT, which holds that calling for a Remand Report precludes the subsequent rejection of evidence. 4. Ground regarding Misappreciation of Nature of Services 4.1 The Ld. CIT(A) and the AO completely misdirected themselves by treating the services rendered by M/s. Samarth Krupa Enterprises as "Job Work" requiring the movement of goods, whereas the invoices on record clearly classify the service under SAC 998519 ("Other employment & labour supply services"). 4.2 The lower authorities erred in drawing an adverse inference from the absence of "E-way bills" and "Delivery Challans," failing to appreciate that the services were performed on-site at the Appellant’s SEZ premises by the contractor’s personnel, involving no movement of goods outside the factory, thereby rendering the requirement of transport documentation legally impossible and factually irrelevant. 5. Ground regarding Violation of Consistency

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5.1 The Ld. CIT(A) failed to appreciate that the Department itself has accepted the genuineness of identical labour charges paid to the same vendor in the Scrutiny Assessment Order for the immediately succeeding Assessment Year 2022-23 (Order dated 29/03/2024 passed u/s 143(3)). 5.2 In the absence of any material change in facts or law, the Revenue is precluded from taking a divergent and adverse view in the year under consideration, in violation of the principle of consistency as laid down by the Hon’ble Supreme Court in Radhasoami Satsang v. CIT (193 ITR 321). 6. Ground regarding Violation of Principles of Natural Justice (Denial of Video Conference) 6.1 The Ld. CIT(A) erred in upholding the Assessment Order which is bad in law and void ab initio as the Ld. AO failed to grant a personal hearing through Video Conferencing (VC) despite a specific request made by the Appellant in its submission dated 16/12/2022. 6.2 The lower authorities failed to appreciate that the grant of personal hearing via VC is mandatory under the Faceless Assessment Scheme (Section 144B) when requested, and the denial thereof amounts to a gross violation of the principles of natural justice. 7. Ground regarding Lack of Adequate Opportunity (Short Notice) 7.1 The Ld. CIT(A) failed to appreciate that the specific query regarding the "Contract Agreement" was raised by the AO for the first time only in the Show Cause Notice dated 09/12/2022, merely days before the time-barring date. 7.2 The Ld. CIT(A) erred in not appreciating that the Appellant replied on 16/12/2022 but was not granted sufficient time to collate the 10- year-old agreement records, and the Assessment Order was passed without any further query or opportunity, violating Rule 46A(1)(d). 8. Ground regarding Levy of Interest and Penalty Proceedings 8.1 The Ld. CIT(A) erred in confirming the levy of interest u/s 234B and 234C, which is consequential in nature.

8 ITA No. 1176/Mum/2026 Ideal Jewels (India) Pvt. Ltd. 8.2 The Ld. CIT(A) erred in upholding the initiation of penalty proceedings u/s 270A, as there is no misreporting or underreporting of income, the claim being fully substantiated by documentary evidence. 9. Prayer The Appellant prays that the order of the CIT(A) be set aside, and the addition of Rs. 4,30,68,579/- be deleted in full. 8. During the course of hearing before us, the learned Authorised Representative (AR) submitted that the Learned CIT(A), though having called for a remand report from the Assessing Officer, has not dealt with or discussed the contents thereof in the appellate order and has proceeded to confirm the disallowance made by the Assessing Officer without proper consideration of the remand findings. 9. The learned AR further submitted that both the Assessing Officer as well as the Learned CIT(A) have misconstrued the nature of the assessee’s business model by treating the payments towards manpower supply services as labour charges in the nature of job work. It was contended that the manpower supplied by M/s Samarth Krupa Enterprises was deployed at the premises of the assessee itself and, therefore, there was no movement of goods involved. Consequently, the requirement of furnishing documents such as e-way bills, delivery challans or transportation details, as emphasized by the Assessing Officer in para 4.10 of the assessment order, was wholly misplaced and not relevant to the facts of the case.

9 ITA No. 1176/Mum/2026 Ideal Jewels (India) Pvt. Ltd. 10. The learned AR further submitted that in the immediately succeeding assessment year, namely A.Y. 2022–23, the Assessing Officer has accepted the very same nature of expenditure in full without making any disallowance. It was contended that in absence of any change in facts or circumstances, the action of the lower authorities in the year under consideration in making and sustaining the impugned disallowance is not justified. 11. The learned Departmental Representative, on the other hand, relied upon the orders of the Assessing Officer as well as the Learned CIT(A). 12. We have carefully considered the rival submissions and perused the material available on record. The undisputed factual position emerging from the record is that the Assessing Officer has made an ad-hoc disallowance of 50% of the labour charges paid to M/s Samarth Krupa Enterprises primarily on the ground that the assessee failed to substantiate the genuineness of the expenditure with complete supporting evidences. It is also observed that certain documents and evidences, including the contract agreement and confirmations, were furnished by the assessee during the appellate proceedings before the Learned CIT(A). 13. From the order of the Learned CIT(A), it is noted that though a remand report was called for from the Assessing Officer, the contents thereof have not been meaningfully discussed or examined while adjudicating the issue. The Learned CIT(A) has

10 ITA No. 1176/Mum/2026 Ideal Jewels (India) Pvt. Ltd. proceeded to confirm the addition primarily on the ground of non- admissibility of additional evidence under Rule 46A and lack of substantiation, without undertaking a proper appreciation of the remand report and the evidences placed on record during the appellate proceedings. 14. Further, it is evident that certain material evidences, as now relied upon by the assessee, were not before the Assessing Officer at the time of completion of assessment. In such circumstances, in our considered view, the matter requires a fresh examination at the level of the Assessing Officer so as to verify the evidences and ascertain the true nature and genuineness of the expenditure in accordance with law. 15. We also take note of the fact that the learned Departmental Representative has not raised any objection to the prayer of the assessee for restoration of the issue to the file of the Assessing Officer. 16. Considering the totality of facts and in the interest of substantial justice, we deem it appropriate to set aside the impugned order of the Learned CIT(A) on this issue and restore the matter to the file of the Assessing Officer for fresh adjudication. The Assessing Officer shall examine the claim of the assessee afresh after taking into consideration all evidences and submissions that may be furnished by the assessee, including those placed during the appellate proceedings, and decide the issue in accordance with law after affording reasonable

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opportunity of being heard to the assessee. Accordingly, the grounds raised by the assessee on this issue are allowed for statistical purposes.

Order pronounced in the open court on 20.05.2026.

Sd/- Sd/- (KAVITHA RAJAGOPAL) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 20/05/2026 Dhananjay, Sr.PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : अपीलाथी / The Appellant 1. प्रत्यथी / The Respondent. 2. 3. संबंधधत आयकर आयुक्त / The CIT(A) आयकर आयुक्त(अपील) / Concerned CIT 4. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai