TMI Blog2015 (12) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITAT AHMEDABAD ] we are of the view that Assessing Officer was not correct in invoking the provisions of section 145(3) of the Act and accordingly, we uphold the order of CIT(A) and reject this ground of Revenue. - Decided in favour of assessee. Addition on account of disallowance of excess labour expenses - CIT(A) deleted the addition - Held that:- The Assessing Officer has tried to compare the business style of the assessee with other assessees engaged in similar type of business, wherein in some cases he may have observed that other assessees paid to the labourers on the basis of their bills and the labour charges vary on the basis of quality of goods whereas in the case of assessee they have been paid on the basis of quantity. The assessee has been paying job charges @ of ₹ 375 per carat of roof diamond consistently since last three years whereas the Assessing Officer on the basis of his experience of assessing another unit has come to an average rate of ₹ 236 per carat of job work charges. This comparison and imposing of rates charged by other units can be justified only if the Assessing Officer proves that assessee had paid less amount than the amount actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er business style of each assessee has its own unique way of working and all cannot be examined with a similar bench mark else there always be the similar percentage of profit earned by every assessee. Business is controlled by the owner or the management and the level of yield, GP/NP achieved will vary from case to case depending on the application of strategic mind by the businessman. In view of above discussions, we find no infirmity in the order of ld. CIT(A) and uphold the same.- Decided in favour of assessee. - ITA No.3257/Ahd/2011 - - - Dated:- 30-11-2015 - Shri Kul Bharat, JM, and Manish Borad, AM. For The Appellant : Shri Albinus Tirkey, Sr.DR For The Respondent : Shri M. R. Shah, AR ORDER PER Manish Borad, Accountant Member. This appeal of Revenue is directed against the order of CIT(A)-V, Surat, dated 30.08.2011. The assessment was framed u/s 143(3) of the I.T. Act, 1961 (in short the Act) by the Dy.CIT, Circle-9, Surat , for AY 2008-09, vide order dated 24.12.2010. 2. The following grounds have been raised by the Revenue :- (1) On the facts and in the circumstances of the case and in law the CIT(A) has erred in allowing the appeal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit to the labour contractors which were countersigned by the labour contractors. Due to these very reasons the Assessing Officer made a finding that it is impossible to verify closing stock value submitted by assessee as well as the production, quality and yield of the manufacturing activities because the assessee has only maintained quantity-wise details and not maintained quality-wise and piece-wise details of the polished diamonds and observed that method of keeping books of account by the assessee is faulty and, therefore, rejected the same u/s 145(3) of the Act. 6. Aggrieved, assessee went in appeal before the CIT(A) who held the action of Assessing Officer in invoking the provisions of section 145(3) of the Act to be not valid by, observing as under :- 4.3 I have considered the reasons given by the Assessing Officer and also the submissions of appellant. After carefully going through the facts of the case, it is seen that book results has been rejected only on the ground that qualitywise and piecewise details have not been maintained. However, book results cannot be rejected on this ground as held by Hon ble ITAT Ahmedabad Bench in the case of M/s Dhami Brothers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the assessee. The assessee who is engaged in the business of manufacturing of polished diamonds has maintained regular books of accounts, financial statements, are duly audited under section 44AB of the Act, complete quantity details have been maintained and have been reported by the auditors in the Tax Audit report, no specific mistake has been reported in the purchase and sales of the assessee, GP rate for the year under appeal shown at 6.38% which is higher than the GP rate of 2.67% declared by assessee in the immediately preceding year. The only reason for which the Assessing Officer has rejected the books of accounts is for nonmaintenance of qualitywise and piecewise detail of polished diamonds and has prepared vouchers for payment of labour charges. We find that similar issue came up before the Tribunal in the case of in the case of M/s Dhami Brothers vs. ACIT, in in ITA No.2309/Ahd/2008, wherein the Tribunal has decided the issue vide its order dated 6.8.2010 by observing as under :- 7. We have considered the arguments of both the sides and perused the material placed before us. The AO has rejected the assessee s books of accounts and estimated the value of closing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. In this context, reliance is also placed upon the Mumbai ITAT s decision in the case of DCIT Vs. Samir Diamonds Export Pvt. Ltd. reported in 71 ITD 75. 5.10 I, therefore, in view of the above defects in the system of method of accounting, reject the book results of the assessee under section 145(3) of the I.T. Act and proceed to estimate the value of closing stock and stimate the Gross profit as under: It was explained by the learned counsel that the assessee has maintained regular books of accounts, which were duly audited. Each items of sale/purchase is verifiable. The only dispute is with regard to maintenance of qualitative details for the processing of the diamond by the assessee. The assessee maintained complete date-wise details of quantity of each lot of the diamond given for the processing as well as polished diamonds received after the processing. Such date wise details of the processing of the diamonds were furnished before the AO and copy of which is also enclosed from page no.63 to 149 of the assessee s paper book. The AO has stated that in these details quality of the diamond is not mentioned. It is submitted by the learned counsel that it is not prac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the person carrying on business. Thus, the assessees carrying on business are required maintain such books of accounts as will enable the AO to compute the income of the assessee. The present assessee has maintained the regular books of accounts which were duly audited. The sale and purchase of the assessee is vouched and verifiable.The assessee has also maintained quantitative details in respect of diamonds purchased and sold by it as well as for processing of diamond. There is no adverse comment from the auditor that the profit cannot be computed from the books of accounts maintained by the assessee. In our opinion, the qualitative details of each piece of diamond is not necessary for computation of the income of the assessee. Income of the assessee can be very well computed on the basis of accounts already maintained by the assessee. In view of the above, we are unable to agree with the AO that there is defect in the system of method of accounting of the assessee which requires rejection of the book results under Section 145(3) of the Act and estimation of the GP. 10. The facts discussed above in the above referred decision of the co-ordinate Bench are almost identica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the glut in labour market due to depression. It is also seen that the assessee had been claiming inflated labour payment per carat at ₹ 375 since AY 2006-07 when comparable cases of M/s Fine Manufacturing exists which claims a mere ₹ 236 per carat this year and had been claiming only ₹ 206 per carat for AY 2006-07 and 2007-08. The assessee was issued a show cause notice dated 16.12.2010. The assessee has failed to give any satisfactory explanation to the same. 8.3 Thus the excess payment per carat is found to be at ₹ 139 per carat. Considering the total makeable rough consumed during the year the excess labour charge found unsubstantiated is held to be ₹ 32,24,477/- and disallowed. The excess payment considering the total diamonds polished is at ₹ 32,24,477/-. Therefore, the excess payment of labour charges is hereby disallowed. 12. Aggrieved, the assessee went in appeal before the CIT(A) who deleted the disallowance/addition made by Assessing Officer by observing as under :- 5.3 I have considered the reasons give by assessing officer also the submissions of appellant. After going through the facts of the case, it is seen th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur charges as excessive to the extent of ₹ 139 per carat. Hence, addition made by assessing officer is hereby deleted and the ground of appeal is allowed. 13. Aggrieved, the Revenue is now in appeal before the Tribunal. The ld. DR supported the order of Assessing Officer. 14. The ld. AR of the assessee submitted that that the assessee has maintained sufficient details and supporting for the labour charges paid including quantity issued to labour contractors and the quantity of polished diamonds received back from them and the same were produced before the Assessing Officer at the time of assessment proceedings. The ld. AR submitted that it is apparent that Assessing Officer has made disallowance merely on the ground that other units are making payment at lower rates. In this regard, it is submitted that Assessing Officer has not given any details of comparable cases cited by him. It is a settled law that if Assessing Officer wants to place reliance on certain materials which he has collected on his own, it is imperative on his part to supply details relating to alleged comparable cases. It is also settled principles of law that whatever is apparent is real unless the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er called a few labour contractors for cross examining as to what is actual amount they have received, those labour contractors have confirmed that they have received the same amount of labour charges as mentioned in the supporting vouchers which have been countersigned by them. Similar issue was also dealt by the Tribunal in the case of ACIT vs. Veer Gems in ITA Nos.4136/Ahd/2008 for Asst. Year 2005-06 wherein vide order dated 11.6.2010 the co-ordinate Bench has held as under :- 12. We have heard the rival submissions and considered the material available on record. The A.O. disallowed ₹ 10 per carat labour expenses would prove that substantial explanation of the assessee has been accepted by the AO. The assessee produced all the details of the expenditure and books of account before the AO. The books of account of the assessee are audited. The GP rate is admittedly better in the assessment year under appeal as compared with the last year. The assessee is engaged in the business of purchase/import of rough diamonds and manufacturing of it and sale/export of polished diamonds. The labour charges expenses are the main component for earning the substantial income. The rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered view, the yield of polished diamond suppressed by the assessee is estimated at 2% percent over and above, the percentage of yield of polished diamond shown by the assessee during the year. The value of 1% of suppressed yields of the polished diamond comes to the suppressed production of polished diamonds at 231.97 carats (1% of 23197.68 makeable roughts) which results in an unaccounted sale at ₹ 23,08,633/- (sale per carat of ₹ 9952/-) is hereby worked out as under and the same is added to the total income of the assessee. 19. Aggrieved, assessee went in appeal before CIT(A) who after going through the assessment order and considering the submissions of assessee, held the action of Assessing Officer in rejecting the books of account and invoking the provisions of section 145(3) of the Act as invalid. Further, accepting the contentions of the assessee that the reason of rejection of diamonds was due to use of relatively inferior quality of rough diamonds as compared to preceding year which was duly supported by the fact that cost of rough diamonds fell down from 2792.92 per carat to ₹ 2337.02 per carat during the year. Ld. CIT(A) deleted the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h affect the percentage of yield. It is seen that the Hon ble ITAT Ahmedabad bench in case of ACIT vs. Lathiya Brothers cited supra deleted similar addition made on account of low yield. Hence, in view of above facts and decision of Hon ble ITAT, I am of the opinion that addition cannot be made merely on the basis of presumption that yield is high by 1%. Hence, the addition made by the Assessing Officer is hereby deleted and the ground of appeal is allowed. 20. Aggrieved, the Revenue is now in appeal before the Tribunal. The ld. DR supported the order of Assessing Officer. 21. The ld. AR of the assessee submitted that it is pertinent to point out that yield for the year under consideration is higher as compared to preceding year as the same is 29.25% for the year under consideration as against 29.12% for the immediately preceding year. The assessing officer has made erroneous observation that assessee has shown higher yield on the basis of window dressing. The assessing officer computed yield on the total quantity of rough diamond including rejection diamonds which is absolutely incorrect as rejection occurs at the stage of cleaving, sawing etc. said quantity is not capa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erse inference as there is increase in GP ratio for the year under consideration as compared to preceding year even the yield is better as compared to preceding year. The contention of assessing officer that rejection is a grey area it is the most common way of suppression of production is grossly incorrect as stock of rejection diamond is separately shown in audited accounts when the same is sold in market the payment is received through account payee cheques only and the transaction is duly supported by relevant sales bills making it capable of complete verification. There is no basis in the action of assessing officer in making addition on account of alleged low yield at the rate of 1% as unaccounted sales as there is not even an iota of evidence on record. 25. Reliance is placed on Hon ble ITAT Ahmedabad Bench in case of ACIT vs. M/s Lathiya Bros. Co. ITA No.3387/Ahd/2008 dated 13/01/2011 wherein similar addition made on account of low yield has been deleted. Reliance can also be placed on ITAT Ahmedabad Bench decision in case of M/s Ladhiya Bros. Co. for AY 2001-02 wherein addition on account of low yield was deleted by Hon ble ITAT vide its rder dated 29.4.2005. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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