TMI Blog2012 (12) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... the contractors. The contention of the appellant in respect of the said amount is not acceptable in view of the noting found in seized material. Delete the balance addition made by AO as confirmed by ITAT, Pune. Appeal partly allowed in favour of assessee - ITA NO. 700 to 705/PN/2010 - - - Dated:- 25-7-2012 - Shri Shailendra Kumar Yadav and Shri R.K. Panda, JJ. Assessee by : Ms. Deepa Khare Department by : Ms. Ann Kapthuama ORDER PER BENCH : ITA Nos. 700/PN/2010 to 704/PN/2010 filed by the Revenue are directed against the common order dated 23-02-2010 of the CIT (A)-I, Nashik relating to assessment year 1997-1998 to 2001-02. ITA No. 705/PN/2010 filed by the Revenue is directed against the order dated 23-02-2010 of the CIT(A)-I, Nashik relating to assessment year 2002-03. Since common grounds are involved in all these appeals, therefore, these were heard together and are being disposed of by this common order for the sake of convenience. ITA No. 700/PN/2010 (Assessment year 1997-98) : 2. M/s. Aerosys, a partnership firm with a unit at Silvassa, is engaged in the business of manufacturing of PCB boards and connected looms for the use in fighte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue to the file of the AO by holding as under : 8. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. We have taken particular note of the fact that the entire basis of disallowance is findings of the survey proceedings which took place in the period relevant to the assessment year 2004-05. We have also noted that the survey took place at the point of time when Diwali vacations were on, and when Supervisor was not even present. In the entire assessment proceedings, the assessee was not given any opportunity to cross examine Umesh Patel, on whose statement the Assessing Officer has primarily relied upon. The statement given by Umesh Patel was later retracted, though the Assessing Officer has brushed aside this retraction as under pressure . Even as the Assessing Officer used the statement given by Umesh Patel, he declined opportunity to cross examine him on the ground that Umesh Patel was not an outsider but an employee of the assessee. It is well settled in law that a statement taken at the back of the assessee cannot be used as an evidence against him unless he is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that diary of Manoj Saulenke does not reflect payments to more than 3-4 persons and that the books of accounts are unreliable. None of these reasons impress us. The statement given by Umesh patel was not only later retracted but was also found to be inconsistent in the cross examination, the payments having been made by Manoj to 3-4 persons is not really conclusive about the number of workers not only because his diary was nothing more than a petty cash book which took into account the payments made by the supervisor but also because it did not taken into account the workers engaged through the labout contractors and to whom payments were made by others, and, finally, the books of accounts and salary registers have been rejected based on subjective perceptions of the Assessing Officer. In the course of the assessment proceedings, the Assessing Officer had recorded the statements of the partner and another worker, both of whom confirmed that the number of persons actually working at the unit were more than 10. The payment vouchers are books of accounts showing payments to these workers were produced before the Assessing Officer, and the payments to many of them were made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds the Assessing Officer s observations about unreasonably highly profits in this unit, we have noted that the product in question is said to be high technology import substitute product and that entire production is sold to a sister concern. It is not really unusual to have higher profit in such high technology products, and, in any event, in case the price of the product is excessive or unreasonable, the remedy lies in invoking section 40A(2) in the hands of the sister conceren which is buyer of entire production. No doubt, a high profit rate does raise doubts about bonafides of the entire arrangements but the remedy does not lie in declining the deduction under section 80IB(2). We have also noted that right from the initial stages when the Assessing Officer noticed this high profit rate, he had strong doubts about the admissibility of deduction under section 80IA and even he found nothing wrong in the statements of the labour contractors, he brushed aside the statements as tutored . The suspicion, howsoever strong and understandable, should not be allowed to affect objectivity of the Assessing Officer, because, in the ultimate analysis, it is his objective analysis which matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the following grounds : 1. The PCBs found at the business premises during the course of the survey proceedings were the stock of PCBs transferred from the old partnership firm of Sri Vijay Patil and Sri Sanjay Patil manufactured by the said erstwhile firm. 2. The above facts were confirmed by Sri Umesh Patel, the assessee s employee, in his statement recorded during the survey/enquiry proceedings. He also confirmed that only the work of stitching of sleeves etc. are carried out at the Silvassa Unit and all other items are purchased from outside agencies. 3. The above facts are corroborated by the findings that only 4 to 5 workers are working at the Silvassa Unit and no electric power is used in the Unit. 4. The fact that Sri Umesh Patel retracted his statement is an afterthought as his statement was recorded without any coercion or influence as certified by himself during the proceedings. Further the muster and salary register submitted during the proceedings is an afterthought only done to accommodate bogus employees. Further the cash vouchers produced are not reflected in the cash book impounded. 5. During the survey proceedings it was seen that the Silvassa U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the equipments. (ii) The price at which electricity is supplied at Silvassa is very low being industrial zone in backward area. (iii) The 3 phase power connection as well as single phase connection is available in the factory at Silvassa. It is pertinent to note here that considering the load of consumption of electricity for soldering and for testing the equipments the 3 phase meter does not move. Even bill for single phase is also very less considering the power required at 25 voltage or less. (iv) There are 35 power points under the tables found in action u/s.133A at Silvassa factory, which are required for soldering and testing equipments. (v) Though the consumption and electricity requirement is less the manufacturing activity cannot be carried out without the aid of power . While deciding the said issue, my predecessor in order dated 29-09-2005 held as under. The AO in his Assessment Order has not disallowed the appellant s claim of expenditure on account of power. So the claim of appellant s process being driven by power could not be refuted by the AO and hence, on this account the appellant succeeds . This finding of my predecessor was not contested by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 30-06-2008 held that the claim of the appellant about employment of workers is correct and accordingly the disallowance out of salary to workers was deleted. In view of the above decision of the Hon ble ITAT and also various findings given by the Hon ble ITAT in its orders, I hold that the appellant firm has employed 10 or more workers of its own in the manufacturing activity. 6.5 In respect of the issue of employment of workers in the manufacturing process, it is also noticed that the Hon ble ITAT, Pune in Para 5 Page No. 7 of its order dated 30- 06-2008 for the A.Y. 2001-2002 has given the finding that it is now well settled in law that even the workers employed through the labour contractors are to be included in the definition of the employee as is held by Hon ble Gujarat High Court in the case of CIT Vs. Prithviraj Bhoorchand (280 ITA 94) . Further, the Hon ble ITAT, Pune, vide its orders dated 30-06-2008 for the A.Ys. 1997-1998 to 2001-2002 deleted the disallowance of payments to the labour contractors. On perusal of the relevant records, it is noticed that the appellant has claimed to have employed 15 to 30 workers during the years under appeal through lab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activity of stitching of sleeves and assembling of cable looms and (c) assessee has not utilised any power for the activity carried out by it, therefore, the assessee is required to employ 20 or more persons to be eligible for the deduction u/s.80IA. We find the AO in the original assessment had disallowed labour charges, wages etc. on the ground that the same is bogus and the assessee has not employed more than 3 to 4 persons. The finding of the AO was upheld by the learned CIT(A) and on further appeal the Tribunal had deleted the disallowance. We find on appeal by the revenue, the Hon ble High Court in ITA No. 4672/2010 order dated 01-03-2011 dismissed the appeal by the revenue by holding as under : 1. The basic question raised in this appeal is as under : Whether the Tribunal was justified in deleting the additions made by the Assessing Officer towards the assessee s claim of payment to labour contractor and salary and wages paid to the workers/supervisors 2. The additions were made by the Assessing Officer in the light of the statement of a worker/supervisor recorded during the survey proceedings. The Tribunal in Para-5 of its order has recorded a finding of fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he grounds raised by the revenue are dismissed. ITA No. 701/PN/2010 to 704/PN/2010 (Assessment Years 1998-99 to 2001-02) : 8. After hearing both the sides we find the grounds raised by the revenue in the above appeals are identical to Grounds of appeal in ITA No. 700/PN/2010 for assessment year 1997-98. We have already adjudicated the issue and the grounds raised by the revenue have been dismissed. Following the same ratio, the grounds raised by the revenue for the above years are also dismissed. ITA No. 705/PN/2010 (Assessment Year 2002-03) : 9. Facts of the case, in brief, are that the assessee is a partnership firm engaged in manufacturing activity at Silvassa. The assessee firm has claimed deduction u/s. 80IB at 25% of the manufacturing profit. The AO however held that the assessee has not employed 10 or more workers in the manufacturing activity and disallowed the deduction claimed by the assessee firm at Rs. 24,46,191/-. The AO has also disallowed part of the salary to workers and payments to labour contractors claimed by the assessee. 9.1 In appeal, the CIT(A) vide order dated 29-09-2005 directed the AO to verify the claim of deduction of Rs. 24,46,191/- of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to CIT(Appeal) s order. b. The Hon ble ITAT has confirmed the relief granted by the AO as per the directions of CIT(Appeals)/relilef granted by CIT(Appeals) in respect of deduction u/s.80IB(4) of the Act. c. In view of submission in respect of A.Ys 1997-98 to 2001-2002 and various findings given by Hon ble ITAT, Pune, in its orders dated 30-06-2008 in respect of above mentioned years, the disallowance u/s.80IB(4), holding that required number of workers were not employed, is not justified. 6. I have carefully considered the assessment order of the AO and his predecessor, the order of Hon ble ITAT and the submissions of the appellant. The relevant portion of the order of the Hon ble ITAT supporting the claim of the appellant that the relief granted by CIT(Appeals) was confirmed by Hon ble ITAT is reproduced below : As regards the payments of stitching of sleeves etc, as the CIT(A) rightly notes, the statement relied upon by the Assessing Officer himself shows bonafides of the expenditure and the CIT(A) has rightly deleted that disallowance. As regards deduction under section 80IB @25% on the ground that the number of workers in Silvassa were less than 10 but overall workers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oj Salunke and the appellant is not concerned with the same. The contention of the appellant in respect of the amount of Rs. 3,60,000/- is not acceptable in view of the noting found in seized material. The addition of Rs. 3,60,000/- on account of payment to labour contractors is therefore confirmed. 7.2 As regards remaining amount of Rs. 9,25,634/-, aid to other labour contractors the appellants contention that in respect of this amount no notings were found in seized material is found to be acceptable. No such mention is there in original order u/s.143(3) of the Act passed by the then AO in respect of the amount of Rs. 9,25,634/- paid to labour contractors whreas there is mention of the other amounts received back by the appellant from labour contractors of Rs. 44,05,741/- and Rs. 3,60,000/-. It is also noticed that similar payments to labour contractors in earlier years which were not found to be received back by the appellant are held to be genuine and allowable by Hon ble ITAT, Pune vide its orders dated 30-06-2008 for the A.Ys 1997-98 to 2001-2002. In view of the above facts and discussion, the disallowance of payment to labour contractors amounting to Rs. 9,25,634/- is de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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