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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI SANJAY GARG & SHRI RAJESH KUMAR
O R D E R Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 05.02.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2007-08.
The Revenue has taken the following grounds of appeal: “i) On the facts and in the circumstances of the case and in law, the learned C.l.T.(A) erred in confirming the addition of Rs.17,46,662/- being Duty Draw Back export incentive claimed U/s. 80lB(4).
ii) On the facts and in the circumstances of the case and in law, the learned C.l.T.(A) erred in relying the judgment of the Supreme Court in the case of Liberty India reported in 317 ITR Pg. 218 ignoring the judgment of the Supreme Court in the case of Topman Exports reported in 342 ITR Pg. 49. iii) The appellant craves leave to add, alter, amend or delete any ground(s) of appeal either before or during the course of hearing of the appeal.”
The brief facts of the case are that the assessee is a partnership firm engaged in the business of purchase of rough diamonds, getting them cut and 2 M/s. Osia Gems polished on payment of labour charges to outside karigars and exporting the manufactured polished diamonds. For the year under consideration, the assessee was assessed under section 143(3) of the Act for an income of Rs.2,28,80,190/- vide order dated 08.12.09. Thereafter, the assessment was reopened under section 147 of the Act on account of information received from ITO Ward No.1, Navsari that the labour charges paid by the assessee to Mr. Atul Nandalal Daftary and Mr. Mukhesh N Daftary were bogus. The Assessing Officer (hereinafter referred to as the AO) in the reopened assessment proceedings treated the labour charges of Rs.49,19,612/- paid to these parties as bogus expenses and added the same to the income of the assessee.
The Ld. CIT(A), however, considering the submissions of the assessee deleted the additions so made by the AO observing as under: “5.2 In this regard, I note that the copies of the jangads in respect of rough diamonds given for manufacturing duly mentioning the requisite details in the form of rough diamonds given, rejection rough retruned, quantity manufactured, polished received from manufacturing, rate of labour charges per carat of manufactured rough and total labour charges payable etc., were produced before the AO. The payments were made by account payee cheques and copies of the bank statements highlighting the said payments were also produced before the AO. It is also a fact that Mr. Atul Nandalal Daftary and Mr. Mukhesh N Daftary are not related to the appellant within the meaning of section 40(A)(2) of the Act. It is further noted that the appellant deducted tax on the payments made to the said parties from time to time and paid the same to the Government account and issued form 16A. The appellant also placed on record the certificate issued by ITO Navasari u/s 197 of the Act, authorizing the appellant to deduct tax at lower rate on payments made to Mr. Mukhesh N Daftary. Further, the quantitative effect of the labour bills was also reflected in the stock register. Therefore, the expenditure on labour charges coupled with outward delivery of rough diamonds and inward delivery of polished diamonds and the consequent exports will go to show that the labour payments are made in the normal course of the appellant's business. Further, the CIT(A) Valsad, who examined the issues in detail also held that the aforesaid two parties have been carrying on labour contract/job work business regularly. In view of the above discussion, there appears to be no ground to consider the labour payments made by appellant to Mr. Atul Nandalal Daftary and Mr. Mukesh N Daftary as bogus.
5.3 Now, coming to the assessment proceedings in the cases of Mr. Atul Nandalal Daftary and Mr. Mukhesh N Daftary the ITO Navsari, in his assessment order, noted that the office inspector who conducted the enquiry at the given
3 M/s. Osia Gems address reported that the said assessees were not available therein and there appeared to be no business activity carried there from as learnt from the neighbors. Secondly. the ITO Navasari referred in his order to the assessment order of DCIT Navasari in the case of one Mr. Anilkumar Chahwala, without establishing any connection between the said Mr. AtuI Nandalal Daftary & Mr. Mukhesh N Daftary and Mr. Anilkumar Chahwala. The ITO Navasari concluded that all labour receipts/payments claimed by way the aforesaid two parties in their books were bogus transactions and entered only with a view to accommodate different traders in this line of business, including the appellant. Thereafter, the ITO in his assessment order disallowed the entire labour charges paid by the aforesaid two parties on a protective basis. The matter was carried in appeal before CIT(A) Valsad, who has examined the facts in detail in his orders in Appeal Nos.CIT(A)VLS/478 and 479/09-10 dated 26.9.2011. The CIT(A) has taken note that the AO did not establish any connection between the impugned two parties and Mr. Anilkumar Chahwala and therefore, assessment made by ITO Navasari on protective basis by substantially drawing from the assessment order of Mr. Anilkumar Chahwala was not tenable. Secondly, the same CIT(A) has also given relief in the case of Mr. Anilkumar Chahwala and held that the transactions conducted in the said case were also substantive.
5.4 That apart, the CIT(A) Valsad also noted various relevant facts and finally held as under:
Extract from Para 7.4 of Valsad CIT(A)'s order:
After perusal of submissions, remand report submitted by the AO and the materials on records the following facts emerged: i) The assessee has carried out the business of trading of diamonds and labour contract job. ii) The appellant has maintained books of accounts which were duly audited by the qualified Chartered Accountants. iii) Maximum amounts are received by cheques for the labour contract job done. Similarly, major portion of the sale consideration of diamonds are received in cheques. iv) The facts remain clear that the appellant has been acting more as a commission agent for big diamond traders/manufacturers providing labour and supply of diamond in small quantity. V) The appellant has not deducted tax at source from the payments made to the sub-contractors in violation of provision of Sec. 194C. vi) The appellant has been filing R0I since A. Y. 2003-04 onwards. As submitted by the Ld. AR of the appellant the income of the appellant has been in the range of 1.0 to 1.5% GP. vii) It is untenable to conclude that the assessee has not actually carried out any labour work and all the transactions were fictitious transactions. viii) Considering the fact and circumstances I am incline to hold that the the appellant has done labour contract job on commission basis and traded diamonds which bears from the assessment records and books of accounts."
5.5 In the end, the CIT(A) Valsad deleted the addition made by the AO in the aforesaid two cases and directed the AO to consider the default u/s 40(a)(ia) only for any disallowance of labour charges claimed.
6. Thus the findings given by CIT(A) Valsad coupled with the facts on record discussed at para 5.2 will go to show that the transactions between the appellant and Mr. Atul Nandalal Daftary & Mr. Mukhesh N Daftary were genuine and there is no reason to consider the said transactions as bogus and accommodative in nature. In view of the above discussion, the addition made by the AO for Rs.49,19,612/- in this regard is hereby deleted.”
The Revenue, thus, has come in appeal before us agitating the action of the Ld. CIT(A) in deleting the additions. At the outset, the Ld. A.R. of the assessee has brought our attention to the order of the Tribunal for earlier assessment year 2006-07 in dated 07.02.2014 wherein similar additions have been made in the case of the assessee on account of bogus labour charges on identical facts. The Tribunal, after considering the fact and circumstances of the case, upheld the order of the Ld. CIT(A) deleting the additions made by the AO on identical facts and circumstances observing as under: “11. We have considered the submissions of both the parties and have carefully gone through the material on record. (In this instant case it is an admitted fact that the AO did not invoked the provisions of section 145(3) of the Act. He has also accepted the opening stock, closing stock, sales and gross profit shown by the assessee and if all other constituents of trading account were accepted then there was no occasion to doubt the purchases. Moreover, the addition was made by the AO merely on the basis of statement of Mr. Anilkumar Chahwalla who is a proprietor of M/s Padmavati Gems from whom the assessee purchased the goods and M/s Parth Corporation to whom the assessee made the labour payrnents. The assessment framed in the case of said person Mr. Anilkumar Chahwalla was a subject matter of appeal before the Ld. CIT(A), Vakad, vide order dated 27.12.2008, accepted the contention of the said assessee, Mr. Anilkumar Chahwalla. That statement on 24.12.2008 obtained by threatening the assessee of police action and under coercive pressure and the said statement was not given by free will. Therefore, it was retracted immediately by way of an affidavit dated 27.12.2008. It is well settled proposition that any statement obtained by coercive measures or under any pressure cannot be admitted as an evidence because it is not by free will. Therefore, the addition made by the AO on the basis of statement of Mr. Anilkumar Chahwalla which was retracted later on was not justified. Moreover the CIT(A) Vatsad, while deciding the appeal of Mr.
5 M/s. Osia Gems Anilkurnar Chahwalla considered the transactions between the assessee and Mr. Anilkumar Chahwalla, proprietor of M/s Padmavati Gems and M/s. Parth Corporation as genuine. Therefore, the AO is not justified in taking a divergent view. Similarly for the labour charges paid to M/s Parth Corporation, the assessee furnished before the AO, copy of certificate dated 15.07.2005 issue by ITO Ward-1, Navsari, addressed to assessee, permitting deduction of TDS at a lower rate u/s 197 of the IT Act on the labour charges paid by the assessee to M/s Parth Corporation. Therefore, the transactions relating to the labour charges between the assessee and Mr. Anil Kumar Chahwalla, proprietor of M/s Parth Corporation, cannot be doubted particularly when the quantitative effect of the labour bills was also reflected in the stock register. We, therefore, considering the totality of the case as discussed herein above are of the view that Ld. CIT(A) was fully justified in deleting the impugned additions made by AO. Accordingly we do not find any merit in the appeal of the Department and the same is dismissed.”
The Ld. D.R. has fairly agreed that though the parties to whom the labour charges paid by the assessee during the year under consideration are different, however the facts and circumstances of the year under consideration are identical to that of A.Y. 2006-07.
In view of the above, respectfully following the finding of the Tribunal on identical facts in earlier assessment year 2006-07, we do not find any merit in the appeal of the Revenue and the same is accordingly dismissed. Order pronounced in the open court on 11.03.2016.