Joint Commissioner Of Income Tax v. Samir Diamond Mfg. Pvt. Ltd.....opponent(S

O/TAXAP/675/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 675 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ JOINT COMMISSIONER OF INCOME TAX....Appellant(s) Versus SAMIR DIAMOND MFG. PVT. LTD.....Opponent(s) ================================================================ Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1MRS SWATI SOPARKAR, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIand HONOURABLE MR.JUSTICE K.J.THAKER Date : 27/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.The revenue has filed this appeal being aggrieved by the decision of the Income Tax Appellate Tribunal dated 24.10.2005. By this decision, the Tribunal has reversed the judgment rendered by the Joint Commissioner of Income Tax, Special Range-2, Surat. 2.The facts of the present case are that the assessee is a private company, engaged in job-work of cutting and polishing diamonds. The assessee filed its return of income on 30.11.1997 declaring total loss of Rs.23,16,400/- for the Assessment Year 1997-98. The said return was revised by the assessee on 14.09.1998 reducing the loss to Rs.15,94,082/-. The Assessing Officer determined total income at Rs.12,90,160/- by an order dated 07.03.2000 and in the said order some additions, as mentioned in the memo of appeal, were made. Feeling aggrieved and O/TAXAP/675/2006 JUDGMENT dissatisfied with the said order dated 07.03.2000, the assessee preferred an appeal before the CIT(A-II), Surat. The same was dismissed vide order dated 03.11.2000 of the assessee. Then after the assessee preferred appeal against the said order before the Income Tax Appellate Tribunal. The appellate Tribunal by order dated 24.10.2005, partly allowed the appeal filed by the assessee by deleting additions made by the Assessing Officer, except partly confirming the addition made on account of bogus wages and bonus to the extent of Rs.10 lakhs out of the addition made by the Assessing Officer to the tune of Rs.30,40,281/-. 3.The assessee has raised following grounds while preferring appeal numbered as ITA No.163 of 2001 for Assessment Year 1997-98 before the Tribunal. “[1]Onthefactsandinthe circumstances of the case as well as law on the subject, learned CIT(A) has erred in confirming the action of the Assessing Officer in making addition of O/TAXAP/675/2006 JUDGMENT Rs.1,50,805/- for alleged unaccounted sale of diamond dust/powder. [2] Onthefactsandinthe circumstances of the case as well as law on the subject, learned CIT(A) has erred in confirming the action of the Assessing Officer in making addition of Rs.30,40,280/- for alleged bonus wage and bonus. 3.The assessee has raised following grounds while preferring appeal numbered as ITA No.163 of 2001 for Assessment Year 1997-98 before the Tribunal. “[1]Onthefactsandinthe circumstances of the case as well as law on the subject, learned CIT(A) has erred in confirming the action of the Assessing Officer in making addition of O/TAXAP/675/2006 JUDGMENT Rs.1,50,805/- for alleged unaccounted sale of diamond dust/powder. [2] Onthefactsandinthe circumstances of the case as well as law on the subject, learned CIT(A) has erred in confirming the action of the Assessing Officer in making addition of Rs.30,40,280/- for alleged bonus wage and bonus. [3] Onthefactsandinthe circumstances of the case as well as law on the subject, learned CIT(A) has erred in confirming the action of the Assessing Officer in making addition of Rs.1,66,044/- for alleged telephone expenses incurred on phone owned by other person. [4] Onthefactsandinthe circumstances of the case as well as law on the subject, learned CIT(A) has erred in confirming the action of the Assessing Officer in making addition of Rs.1,76,328 for alleged inflated power and electricity expenses. [5] Onthefactsandinthe circumstances of the case as well as law on the subject, learned assessing officer has erred in charging interest u/s. 234B of Rs.2,21,811/- on assessed income. There was no liability to pay interest on returned income in view of loss. [6] It is therefore prayed that the above addition confirmed by CIT(A) may please be deleted. [7] It is also prayed that the interest u/s.234B may please be deleted.” 4.While admitting Tax Appeal No.675/2006, following substantial questions of law arose for the determination of this Hon'ble Court; “(i) Whether on the facts and in the circumstances of the case, and in law, the Income Tax Appellate Tribunal is rightindeletingadditionof Rs.1,50,805/- made by the Assessing Officerandconfirmedbythe Commissioner of Income-tax (Appeals-II), Surat, on account of unaccounted sale of diamond dust (powder)? (ii) Whether on the facts and in the circumstances of the case, and in law, the Income Tax Appellate Tribunal is right in restricting addition of Rs.30,40,581/- made by the Assessing Officerandconfirmedbythe Commissioner of Income-tax (Appeals-II), Surat, to Rs.10 lakhs only, in spite of the fact that the Appellate Tribunal has arrived at a finding that the wages and bonus paid to 372 workers could not be verified and the said amount comes to Rs.24,34,937/-?” 5.It is submitted by the respondent that the findings of facts by CIT(A) has not been accepted by the Assessing Officer for the subsequent assessment years and orders in favour of assessee are passed. The Assessing Officer computed the cost of alleged left over dust to the tune of Rs.16756.176 carats [27926.96-11170.784 (40% 27926.96)] at Rs.1,50,805/- adopting a rate of Rs.9/- per carat. The assessee went in appeal before the CIT(Appeals) and reiterated the submissions as were made before the Assessing Officer, but failed. The order of the CIT(Appeals) as contained in paragraph No.2.2 of his order reads as under:- “2.2 I have considered the submissions of the appellant, the appellant does not maintain necessary record regarding the generation of dust powder as pointed out by the Assessing Officer. The Assessing Officer has worked out the generation of diamond dust by giving elaborate reasons with which I fully agree. The submissions of the appellant are general in nature. Looking to the facts of the case, the addition made by the Assessing Officer is upheld.” 6.As against this, learned counsel for the Officer, but failed. The order of the CIT(Appeals) as contained in paragraph No.2.2 of his order reads as under:- “2.2 I have considered the submissions of the appellant, the appellant does not maintain necessary record regarding the generation of dust powder as pointed out by the Assessing Officer. The Assessing Officer has worked out the generation of diamond dust by giving elaborate reasons with which I fully agree. The submissions of the appellant are general in nature. Looking to the facts of the case, the addition made by the Assessing Officer is upheld.” 6.As against this, learned counsel for the respondent assessee relied on the findings of facts of the Tribunal. He has submitted that the assessee had been carrying on such jobwork since 1983-84 and all assessments were completed after scrutiny, but there had been no such addition. O/TAXAP/675/2006 JUDGMENT According to the ld. Counsel for the assessee, the books have been audited both under the Companies Act as well as the Income-tax Act and had been accepted and there was no qeustion for rejecting the same for this year. He further submitted that no diamond factory at Surat has shown any sale of diamond dust because whatever dust is produced is hardly sufficient for completing the polishing process and all persons carrying on job work have to procure more synthetic diamond dust from the market. 7.The Tribunal deleted the addition of said amount basing its judgment of Vinus Jewels Private Limited passed in ITA 844/Ahd/2001, rendered by Ahmedabad Tribunal, which has attained finality as the department seems to have accepted the said decision. The said finding reads as under: “9. After careful consideration of the rival submissions and facts and circumstances of the case, which were not disputed by the ld DR, we are of the opinion that the facts and circumstances of the presence case being similar to the facts and circumstances of M/s.Venus Jewels Pvt. Ltd. The addition in question is liable to the deleted in view of decision of Hon'ble ITAT Ahmedabad Bench 'SMC' in the case of M/s.VEnus Jewels Pvt. Ltd. For Asst. Year 1997-98 (ITA No.844/Ahd/2001) dated 29/04/2004 wherein the Hon'ble Tribunal has deleted similar addition as per its findings contained in paragraph No.6 of the order which reads as under: “6.I have heard the rival contentions and perused the materials available on record. The assessee is a processor of diamonds. It emerges from the record that no powder is generated in bruting, facet making whereas powder is required for these processes as well as Dasa process. It cannot be denied that part of the fine dust powder gets mixed with the oil and becomes useless, part of the dist has been utilized by the assessee. The assessee's plea that it had purchased dust from the market so to that extent the availibility of dust from self process was deficit. Assessee's books otherwise have no defects, no instances of clandenstine sales have been pointed and the same have been assumed. Under these circumstances, I am of the view that these additions are not called for in assessee's case and therefore, have to be deleted. Under these circumstances, assessee's appeal for A.Y. 1997-98 is allowed and ground no.2 of the revenue appeal for A.Y. 1998-99 is dismissed. 8.Hence, in view of the above findings of facts with which we concur question No.1 is required to be answered against the Revenue and in favour of the assessee. dist has been utilized by the assessee. The assessee's plea that it had purchased dust from the market so to that extent the availibility of dust from self process was deficit. Assessee's books otherwise have no defects, no instances of clandenstine sales have been pointed and the same have been assumed. Under these circumstances, I am of the view that these additions are not called for in assessee's case and therefore, have to be deleted. Under these circumstances, assessee's appeal for A.Y. 1997-98 is allowed and ground no.2 of the revenue appeal for A.Y. 1998-99 is dismissed. 8.Hence, in view of the above findings of facts with which we concur question No.1 is required to be answered against the Revenue and in favour of the assessee. 9.So far as the second question of law is concerned, the brief facts with respect to this question and as have been revealed from the records are that during the course of assessment proceedings, the Assessing Officer, proceeded to verify the justification of expenditure on account of wages and bonus because according to him, the expenditure incurred by the assessee on this account was on higher side as compared to the expenditure incurred by another assessee, named M/s. Venus Jewels Pvt. Ltd. When the assessee was called upon to explain and show as to why wages and bonus paid be not disallowed, the assessee had submitted as under:- “(i) That, the expenditure in question was genuine. (ii) That, the labourers in question were available, but by that time had left the assessee because of closure of assessee's business and assessee was not able to produce them, but had further submitted that so far as variation in signature was concerned, the labourers being less educated do not bother for consistency in their signature and sometimes some other labourers might have signed on behalf of some others.” 10. The Tribunal while threadbare discussing the difference in the signatures and certain discrepancies, while discussing on the finding of fact by the CIT(A) has held in favour of the assessee. The learned counsel for the respondent has sought reliance on the decision relied before the Tribunal and has supported the Tribunal's decision on the factual aspects also. The ratio of expenditure on account of wages to the job receipts was lower than the ratio of expenditure on account of wages to the job receipts in the case of M/s. Vinus Jewells and the method adopted by the Appellate Authority (CIT) for average gross profit provided found to be erroneous by the Tribunal giving elaborate reasons which we have perused from records. 11. As far as both the questions are concerned, they are decided together as they are supplementary to each other. The Tribunal while discussing the issues has seen that the Assessing Officer has passed orders in favour of the assessee and therefore, even in this year the Tribunal cannot be found fault with in holding in favour of the assessee as admittedly, both the authorities below have committed patent error on the facts and circumstances of the case. 12. In view of the above, we hold that the Income Tax Appellate Tribunal is right in deleting addition of Rs.1,50,805/- made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals-II), Surat, on account of unaccounted sale of diamond dust (powder) and the second question that on the facts and in the circumstances of the case, and in restricting addition of Rs.30,40,581/- made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals-II), Surat, to Rs.10 lakhs only, in spite of the fact that the Appellate Tribunal has arrived at a finding that the wages O/TAXAP/675/2006 JUDGMENT and bonus paid to 372 workers could not be verified and the said amount comes to O/TAXAP/675/2006 JUDGMENT and bonus paid to 372 workers could not be verified and the said amount comes to Rs.24,34,937/-. 13. In view of the above, we are of the view that the present appeal is devoid of any merits and the same requires to be dismissed. The same is hereby dismissed. The judgment of the Tribunal on the issue No.2 also is upheld and is held against the revenue and in favour of the assessee. (K.S.JHAVERI, J.) ANKIT (K.J.THAKER, J)