M/s. Mitesh Exports, Surat v. The ACIT.,Circle-6,, Surat

ITA 1134/AHD/2008 | 2005-2006
Pronouncement Date: 21-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 113420514 RSA 2008
Assessee PAN AAEFM1264E
Bench Ahmedabad
Appeal Number ITA 1134/AHD/2008
Duration Of Justice 2 year(s) 1 month(s) 20 day(s)
Appellant M/s. Mitesh Exports, Surat
Respondent The ACIT.,Circle-6,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 21-05-2010
Date Of Final Hearing 17-05-2010
Next Hearing Date 17-05-2010
Assessment Year 2005-2006
Appeal Filed On 31-03-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HONBLE SH RI D.C. AGRAWAL A.M.) I.T.A. NOS. 1057 & 1134/AHD./2008 ASSESSMENT YEARS : 2004-2005 & 2005-2006 M/S. MITESH EXPORTS SURAT -VS.- ASSISTA NT COMMISSIONER OF INCOME TAX (PAN : AAEFM 1264 E) CIRCLE-6 SURAT (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SAPNESH SHETH RESPONDENT BY : SMT. JYOTI LAXMI SR . D.R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THESE TWO APPEALS FILED BY THE ASSESSEE ARE AGAINS T THE ORDER DATED 19.11.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-IV SURAT FOR T HE ASSESSMENT YEARS 2004-05 AND 2005-06 RESPECTIVELY. BOTH THESE APPEALS WERE HEARD TOGETHE R ON THE SAME DATE ARGUED BY THE LD. COMMON REPRESENTATIVE THEREFORE THESE ARE DECIDED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. GROUNDS NO. 1 & 2 OF BOTH THE APPEALS ARE THAT T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF ASSESSI NG OFFICER IN MAKING THE ADDITIONS OF RS.29 18 542/- AND RS.5 22 427/- FOR ALLEGED ENHANC EMENT OF CLOSING STOCK OF POLISHED DIAMONDS FOR THE ASSESSMENT YEAR 2004-05 AND 2005-06 RESPECT IVELY. 3. BRIEFLY STATED THE ISSUE INVOLVED BEFORE US FOR ASSESSMENT YEAR 2004-05 AS WELL AS ASSESSMENT YEAR 2005-05 IS THAT THE ADDITION OF RS. 35 07 068/- (FOR AY 2004-05) WAS MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK OF POLISHED D IAMOND. THE AO OBSERVED THAT A VERIFICATION OF THE BASIS AND WORKING OF VALUATION OF CLOSING ST OCK REVEALED THAT ONLY QUANTITATIVE DETAILS OF ROUGH DIAMONDS RECEIVED AND ISSUED TO LABOURERS WAS MAINTAINED WITHOUT ANY QUALITATIVE DETAILS WHICH WAS A NECESSITY TO ARRIVE AT THE VALUE OF CLO SING STOCK. THE TOTAL CLOSING STOCK WAS 597.57 CARATS WHICH WAS VALUED AT RS.4 242.30 PER CART AT LOWER THAN THE COST PRICE I.E. THE SO-CALLED MARKET PRICE. THE AO ISSUED A SHOW CAUSE NOTICE THA T NET REALIZABLE VALUE OF POLISHED DIAMONDS ITA NO. 1057 & 1134/AH D/2008 COULD BE ARRIVED AT ONLY WHEN QUALITATIVE DETAILS W ERE AVAILABLE BUT NO SUCH RECORD WAS MAINTAINED BY THE ASSESSEE AND THE VALUE OF CLOSING STOCK WAS FAR LESS THAN THE EXPORT VALUE OF RS.10 251/- PER CARAT WHICH RESULTED IN UNDER VALUA TION OF CLOSING STOCK. THE AO PROPOSED AN ADDITION OF RS.29 18 542/- ON THIS ACCOUNT. IN RESP ONSE THE ASSESSEE STATED THAT THE VALUE OF DIAMOND DEPENDED ON A NUMBER OF FACTORS LIKE CUT C OLOUR CLARITY AND WEIGHT AND THE RATE WOULD VERY ENORMOUSLY IRRESPECTIVE OF DIAMONDS AND THEREF ORE THE AVERAGE METHOD OF VALUATION OF CLOSING STOCK WAS NOT CORRECT. THE AO REJECTED THE EXPLANATION AND HELD THAT THE COST OF CLOSING STOCK SHOULD BE BASED ON DIRECT COST OF MANUFACTURI NG WHICH WAS HIGHER THAN THE VALUE OF CLOSING STOCK ADOPTED BY THE ASSESSEE ON THE SUBJECTIVE VAL UATION BY THE PARTNERS OF THE FIRM. THE AO REJECTED THE BOOK RESULTS APPLYING THE PROVISIONS O F SECTION 145 OF THE ACT AND RECOMPUTED THE ACTUAL AVERAGE COST OF CLOSING STOCK AND MADE THE A DDITION ON THIS ACCOUNT. SIMILARLY FOR ASSESSMENT YEAR 2005-06 THE AO REJECTED THE BOOK R ESULTS APPLYING THE PROVISIONS OF SECTION 145 OF THE ACT AND MADE THE ADDITION ON THIS ACCOUNT. O N APPEAL THE LD. CIT(A) CONFIRMED THE ACTION OF A.O. FOR BOTH THE ASSESSMENT YEARS ON THIS GROUN D. BEING AGGRIEVED THE ASSESSEE IS IN APPEALS BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING ON BEHALF OF ASSESSEE SH RI SAPNESH SETH APPEARED AND CONTENDED THAT IN THE ASSESSMENT YEARS UNDER APPEAL THE ASSE SSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80HHC AT THE RATE OF 30%. HE THEREFORE STATED THA T HE HAS NO OBJECTION IN CASE THE ADDITION OF RS.29 18 542/- MADE BY THE ASSESSING OFFICER FOR AL LEGED DEMAND BE UPHELD. THE LD. COUNSEL CONTENDED THAT THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE BENEFIT OF OPENING STOCK OF THIS ADDITION IN THE ASSESSMENT YEAR 2004-05. HE FURTHER SUBMITTED THAT SIMILAR DIRECTION BE ISSUED IN RESPECT OF ADDITION OF RS.5 22 427/- MADE FOR ENHAN CING THE VALUE OF CLOSING STOCK FOR POLISHED DIAMOND FOR ASSESSMENT YEAR 2005-06. 5. ON THE OTHER HAND SMT. JYOTI LAXMI SR. D.R. AP PEARING ON BEHALF OF THE REVENUE COULD NOT CONTROVERT THE AFORESAID SUBMISSIONS MADE BY TH E LD. COUNSEL OF THE ASSESSEE. 6. AFTER HEARING BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND PERUSED THE MATERIAL PLACED BEFORE US. IT IS WELL SETTLED LAW THAT CLOSING STOCK OF CURRENT YEAR BECOMES THE OPENING STOCK OF SUBSEQUEN T YEAR. THEREFORE IF ANY ADDITION IS SUSTAINED TO THE VALUE OF CLOSING STOCK FOR BOTH TH E ASSESSMENT YEARS UNDER APPEAL THEN THE ITA NO. 1057 & 1134/AH D/2008 ASSESSEE IS ENTITLED TO CORRESPONDING DEDUCTION IN SUBSEQUENT YEAR BY ENHANCING THE VALUE OF OPENING STOCK OF THE NEXT YEAR. WE ACCORDINGLY DIRE CT THE ASSESSING OFFICER TO ALLOW THIS BENEFIT TO THE ASSESSEE IN RESPECT OF THE ADDITIONS MADE IN BOTH THE ASSESSMENT YEARS UNDER APPEAL. 7. GROUND NO. 3 OF ASSESSEES APPEAL FOR THE ASSESS MENT YEAR 2004-05 IS AGAINST CONFIRMING THE ACTION OF ASSESSING OFFICER IN MAKING THE ADDIT ION OF RS.1 89 555/- FOR ALLEGED LABOUR CHARGES. 8. BRIEFLY STATED THE FACTS RELATING TO CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL ARE THAT THE ASSESSING OFFICER DISALLOWED RS.1 89 555/- OUT OF LABOUR CHARGES ON THE GROUND THAT THE PARTY TO WHOM THIS PAYMENT WAS MADE NAMELY M/S. CRINA DIA MONDS WAS NOT EXISTING AT THE ADDRESS PROVIDED BY THE ASSESSEE. ON APPEAL BEFORE THE CIT( A) THE ASSESSEE CONTENDED THAT THE PARTY TO WHOM THE ASSESSEE MADE THE PAYMENT IS EXISTING AS I S EVIDENT FROM THE CERTIFICATE FOR LOWER DEDUCTION OF TDS UNDER SECTION 194C ISSUED BY THE A SSESSING OFFICER IN RESPECT OF JOB WORK CHARGES ACTUALLY UNDERTAKEN BY THE SAID PARTY. THE LD. CIT(A) ACCORDINGLY REJECTED THE CONTENTION OF THE ASSESSEE THAT THE PARTY TO WHOM THE ASSESSEE PAID LABOUR CHARGES IS A GENUINE PARTY. AGGRIEVED BY THE ORDER OF LD. CIT(A) THE ASSESEE I S IN APPEAL BEFORE US. 9. AT THE TIME OF HEARING BEFORE US ON BEHALF OF A SSESSEE SHRI SAPNESH SHETH APPEARED AND CONTENDED THAT THE INCOME TAX DEPARTMENT HAS ISSUED A CERTIFICATE FOR LOWER DEDUCTION OF TDS TO THE SAID PARTY NAMELY M/S. CRINA DIAMONDS. THERE FORE IT CANNOT BE SAID THAT THE SAID PARTY NAMELY M/S. CRINA DIAMONDS IS FICTITIOUS. THE SAID PARTY WAS IN EXISTENCE WHICH HAS BEEN PROVED BY THE ASSESSEE. THEREFORE THE ADDITION OF RS.1 89 555/- MADE BY THE ASSESSING OFFICER ON DOUBTS AND SUSPICION BE DELETED. 10. ON THE OTHER HAND SMT. JYOTI LAXMI SR. D.R. A PPEARING ON BEHALF OF REVENUE POINTED OUT THAT SINCE BEFORE THE ASSESSING OFFICER THE AS SESSEE COULD NOT PRODUCE THE PARTY THEREFORE THE DISALLOWANCE OF RS.1 89 555/- OUT OF LABOUR CHA RGES WAS RIGHTLY MADE BY THE A.O. AND THE LD. CIT(A) IS LEGALLY AND FACTUALLY CORRECT IN CONFIRMI NG THE SAID DISALLOWANCE. 11. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE ASSESSME NT ORDER THE ASSESSING OFFICER MADE THE ITA NO. 1057 & 1134/AH D/2008 DISALLOWANCE OF RS.1 89 555 /- ON THE GROUND THAT T HE ASSESSEE FAILED TO ESTABLISH THE IDENTITY OF THE RECIPIENT NAMELY M/S. CRINA DIAMONDS AND ALSO F AILED TO ESTABLISH THE GENUINENESS OF THE TRANSACTIONS BY WAY OF PROVIDING DETAILS OF PAYMENT S THROUGH BANK ETC. BEFORE US THE ASSESSEE HAS FAILED TO PRODUCE THE BANK STATEMENT FROM STATE BANK OF INDIA INDICATING THAT THE PAYMENT HAS BEEN MADE TO THE SAID PARTY AFTER THE END OF TH E ASSESSMENT YEAR. BY CONSIDERING THE TOTALITY OF THE FACTS WE SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION THAT THE ASSES SEE SHOULD FURNISH THE BANK STATEMENT INDICATING HOW THE LABOUR CHARGES OF RS.1 89 555/- PAID TO M/S. CRINA DIAMONDS. THE ASSESSING OFFICER MAY VERIFY THE SAME. IN THIS CONTEXT WE MA Y ADD THAT IF PAYMENT HAS BEEN MADE IN THE NEXT YEAR IN THAT EVENT ALSO THE ASSESSING OFFICE R MAY ALLOW THE EXPENDITURE OF RS.1 89 555/- INCURRED IN THE PREVIOUS YEAR RELEVANT TO THE ASSES SMENT YEAR UNDER APPEAL BECAUSE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. SUBJE CT TO THIS VERIFICATION OF ASSESSING OFFICER THE VIEW TAKEN BY THE LD. CIT(A) IS UPHELD. 12. GROUND NO. 4 FOR ASSESSMENT YEAR 2004-05 READS AS UNDER :- ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS W ELL AS LAW ON THE SUBJECT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF A. O. IN NOT ENHANCING THE DEDUCTION U/S. 80HHC CONSEQUENT UPON ADDITION OF AB OVE ADDITIONS. 13. AT THE TIME OF HEARING BEFORE US BOTH THE SIDE S CONCEDED THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80HHC ON ADDITIONS WHICH W AS CONFIRMED BY THE LD. CIT(A) IN THE IMPUGNED ORDER. WE THEREFORE DIRECT THE ASSESSING OFFICER TO CONSIDER THE ENHANCEMENT OF DEDUCTION UNDER SECTION 80HHC AND DISALLOWANCE OF L ABOUR CHARGES (SUPRA) WHILE WORKING OUT THE DEDUCTION UNDER SECTION 80HHC. 14. GROUND NO. 4 FOR THE ASSESSMENT YEAR 2005-06 RE ADS AS UNDER :- ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AS W ELL AS LAW ON THE SUBJECT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF AO IN MAKING ADDITION OF RS.89 080/- BEING 20% OF MOTOR CAR EXPENSES OF RS.2 9 705/- DEPRECIATION ON MOTOR CAR OF RS.1 38 313/- TELEPHONE EXPENSES OF R S.2 32 682/- AND MISCELLANEOUS EXPENSES OF RS.44 698/- FOR ALLEGED P ERSONAL USE. 15. THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THA T THE 1/5 TH DISALLOWANCE AMOUNTING TO RS.29 705/- RS.1 38 313/- RS.2 32 682/- & RS.44 6 98/- IN RESPECT OF MOTOR CAR EXPENSES ITA NO. 1057 & 1134/AH D/2008 DEPRECIATION ON MOTOR CAR TELEPHONE EXPENSES AND M ISCELLANEOUS EXPENSES RESPECTIVELY MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) IS EXCESSIVE THEREFORE IT MAY BE REDUCED TO 15%. 16. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESE NTATIVE POINTED OUT THAT 1/5 TH DISALLOWANCE IN RESPECT OF MOTOR CAR EXPENSES DEPR ECIATION ON MOTOR CAR TELEPHONE EXPENSES AND MISCELLANEOUS EXPENSES RESPECTIVELY MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS FAIR AND RE ASONABLE. 17. RIVAL SUBMISSIONS WERE CONSIDERED. IN OUR CONSI DERED OPINION DISALLOWANCE OF 1/5 TH IS EXCESSIVE LOOKING TO THE FACTS AND CIRCUMSTANCES. I T WILL MEET THE END OF JUSTICE IF DISALLOWANCE OF ALL THE AFORESAID FOUR ITEMS OF EXPENDITURE IS R ESTRICTED TO 15% INSTEAD OF 20%. WE DIRECT THE ASSESSING OFFICER ACCORDINGLY. 18. IN THE RESULT FOR STATISTICAL PURPOSES BOTH T HE APPEALS FILED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 21.05.2010 . SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 / 05 /2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT AHMEDABAD LAHA/SR.P.S.