Income Tax Appellate Tribunal - Ahmedabad
J.B. Brothers, Surat vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "B" AHMEDABAD
Before Shri N.S.SAINI, ACCOUNTANT MEMBER and
Shri MAHAVIR SINGH, JUDICIAL MEMBER
ITA No.2546/ Ahd/2008
& C.O. No.219/ Ahd/2008
Assessment Year: 2005-06
Date of hearing:23.12.10 Drafted:3.1.11
Asstt. Commissioner of V/s. M/s. J.B. Brothers,
Income-tax, Circle-5, Amber Palace, Nanpura,
room No.309 3 r d Floor, Timaliwad, Surat
Aayakar Bhavan, Majura
Gate, Surat
J.B. & Brothers, 2 n d V/s. Asstt. Commissioner of
Floor, amber Palace, Income-tax, Circle-5,
Opp. LIC Quarters, Aaykar Bhavan, Majura
Timaliawad, Nanpura, Gate, Surat
Surat
PAN No. AABFJ8700D
(Appellant) .. (Respondent)
Assessee by :- Shri K.K. Shah, AR
Revenue by:- Shri K.Madhusudan, SR-DR
ORDER
PER Mahavir Singh Judicial Member:-
This appeal by Revenue and Cross Objection (CO) by assessee are arising out of the order of Commissioner of Income-tax (Appeals)-III, Surat, appeal No CAS-III/278/07-08, dated 08-05-2008. The assessment was framed by ACIT, Circle-5, Surat u/s143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 12-03-2008 for assessment year 2005-06.ITA No.2546/Ahd/2008 & CO 219/Ahd/08 A.Y 2005-06
ACIT Cir-5, SRT v. M/s. JB Brother Page 2
2. The first common issue, in appeal of Revenue and assessee's CO, is against the order of CIT(A) in restricting the addition made by Assessing Officer on account of sawing labour expenses, postage, angadia expenses and factory expenses. For this, Revenue has raised the following ground No.1:-
"[1] On the facts and in the circumstances of the case and in Law, the Ld. CIT(A)-III, Surat has erred in restricting the addition of Rs.8,25,483/- to Rs.1,00,000/- made by the Assessing Officer on account of Sawing labour expenses, postage and Angadia Expenses and Factory Expenses."
And assessee has raised the following ground No.1 in CO against the order of CIT(A) in confirming the addition on account of showing labour expenses, postage and angadia expenses and factory expenses made by Assessing Officer.
"1) The learned CIT(A) grossly erred in confirming addition of Rs.1,00,000/- out of showing labour expenses, postage and angadia expenses and factory expenses."
3. The brief facts leading to the above issue are that assessee-company has carried out on two types of business activity i.e. manufacturing, trading and export of diamond and generating of power through wind mills. The assessee-firm has filed its return of income declaring total income of Rs.16,85,54,275/- on 30-10-2005 along with audit report in Form No.3CA and 3CD, profit and loss account, balance sheet and audited accounts. The case was selected for scrutiny and the notice u/s.143(2) and 142(1) were issued and served upon the assessee-firm. During the course of assessment proceedings, Assessing Officer noticed that disallowance of Rs.75,74,742/- being 50% of bogus labour charges paid to four parties, who in their statements, recorded u/s.131 admitted that they were merely name lenders and they had not done any job work for the assessee. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) restricted the disallowance at Rs.1 lakh by stating that the Assessing Officer failed to point out any defects and ITA No.2546/Ahd/2008 & CO 219/Ahd/08 A.Y 2005-06 ACIT Cir-5, SRT v. M/s. JB Brother Page 3 the disallowance was made only for the sake of making some addition. Aggrieved, now Revenue and assessee came in cross appeal before Tribunal.
4. At the outset Ld. Counsel for the assessee, Shri K.K.Shah stated that in earlier year in assessee's own case in ITA No.3687/Ahd/2007 dated 05-02- 2010 for assessment year 2004-05, wherein the Tribunal confirmed the order of CIT(A) in para-13:-
"13. The Assessing Officer has merely observed that personal use expenses cannot be ruled out and, hence, 10% of the expenses are disallowable. The assessee has been exporting diamond. In connection with export, the foreign travel was undertaken and complete details were find in this regard. Out of the total expenses incurred on account of sewing labour, postage and angadia, factory expenses and foreign traveling expenses, 10% expenses are disallowed on adhoc basis. The vouchers in this regard have been produced. When the major expenses is in relation to factory expenses, sit cannot be said that, they have any personal element. Similarly, for postage and angadia expense also, there cannot be any personal element. Foreign expenses are exclusively for the purpose of business. When the assessee filed the details, it is the duty of Assessing Officer to find out which expenses are not incurred for the purpose of business. In absence of any such finding, the disallowance was rightly deleted by the Learned CIT(Appeals) has also upheld disallowance of Rs.1 lac for the possible personal use out of all these expenses, the same being reasonable did not call for any interference."
5. We find that this issue is covered on facts by the decision of this tribunal in assessee's own case for Assessment Year 2004-05, wherein the tribunal has confirmed the order of CIT(A) in restricting the addition. Since the facts and circumstances are identical to earlier year, taking consistent view and respectfully following the same we dismiss the issue raised by both sides.
6. The next common issue in appeal of Revenue and assessee's CO is as regards to the order of CIT(A) in restricting the addition made by Assessing Officer on account of foreign travel expenses. For this, Revenue has raised the following ground No.2:-
ITA No.2546/Ahd/2008 & CO 219/Ahd/08 A.Y 2005-06ACIT Cir-5, SRT v. M/s. JB Brother Page 4 "[2] On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-III, Surat has erred in restricting the addition of Rs.8,63,314/- to the half i.e. Rs.4,32,600/- made on account of foreign raveling Expenses."
And assessee has raised in CO as under:-
"2) The learned CIT(A) grossly erred in confirming addition of Rs.4,32,600/- out of foreign travel expenses."
7. We have heard the rival contentions and gone through the facts and circumstances of case. We find that Tribunal in assessee's own case in ITA No.3952/Ahd/2007 (supra) has already confirmed the order of CIT(A) in para- 13, which has already been reproduced in this order in para-4. Accordingly, we are of the view that the CIT(A) has rightly confirmed the addition of Rs.4,32,600/- out of foreign travel expenses by stating that the person in respect of whom the expense has been claimed are neither the employee nor the partner of the assessee-firm but they have traveled to Belgium. In this likelihood, the CIT(A) has rightly restricted the disallowance of foreign traveling expenses at Rs.4,32,600/- and we confirm the same.
8. The next common issue in the appeal of Revenue and assessee's CO is as regards to the order of CIT(A) in restricting the addition on account of labour charge made by Assessing Officer. For this, Revenue has raised the following ground No.3:-
"[3] On the facts and in the circumstances of the case and in Law, the Ld. CIT(A)-III, Surat has erred in restricting the addition of Rs.75,74,742/- to the half i.e. Rs.37,87,371/- made on account of labour charges."
And assessee has raised in CO "The learned CIT(A) grossly erred in confirming addition of Rs.37,87,371/- out of labour charges.
9. We have heard the rival contentions and gone through the facts and circumstances of the case. Ld. counsel for the assessee has stated that ITA No.2546/Ahd/2008 & CO 219/Ahd/08 A.Y 2005-06 ACIT Cir-5, SRT v. M/s. JB Brother Page 5 Tribunal in earlier year in assessee's own case (supra) deleted the expenses in para-10-11, which reads as under:-
"We have heard the rival submissions and perused the orders of the lower authorities and the decisions cited above. The details of job-work charges paid for the year under appeal and for the immediately preceding year is tabulated below:-
Particulars A.Y. 2003-04 A.Y. 2004-05 Own Carat Amount Average Carat Amount Average Manufacturing 152,459.67 54,826,258 359.02 132,528.93 50,189,830 378.71 Outside 53,355,85 16,033,378 300.50 67,854.82 23,818,078 351.02 Manufacturing Total 205,812,52 70,859.636 344.29 200,383.75 74,007,908 369.33
11. From the above table, it is clear that in the immediately preceding previous year the assessee was processing itself by almost 75% of the total diamonds processed. In the year under appeal, the diamond processed within the premises has comedown to 66%. Thus, the assessee is relying more on the processes being carried out at outside place. It is also seen that the average cost per carat of diamonds processed at the premises of the assessee is Rs.378.71 but if done from outside is only Rs.351/- per carat. If we consider the labour charges in percentage of turnover, the manufacturing labour charges for Assessment Year 2003-04 were 2.22%, whereas in the year under appeal the same is only 1.30%. Thus, the labour charges paid for outside manufacturing are all within limits as compared to earlier assessment years. If the general trend of increase in expenses are also considered, the expenses during the year are not higher when compared with all manufacturing cost. Though in the statements recorded the previous have given adverse statement yet if it is seen that when the process is carried out the assessee could not manufacture and export diamonds, incurring of expenses at outside place is inevitable and, consequently, expenses in this regard. The assessee has maintained complete record for issue of rough diamonds for processing and receipt back of polished diamonds after processing. The fact has not been denied by any of the persons examined by the Assessing Officer. Thus, there cannot be denial of fact that the diamonds were processed by outside parties and in respect of which the assessee having paid "A/c payee cheques". The expenses being within reasonable limits as compared to earlier year and also within the industry norms are allowable as such. We, therefore, delete the disallowance upheld by the Learned CIT(Appeals) also. Therefore, this will result into total deletion of disallowance as made by the Assessing Officer.ITA No.2546/Ahd/2008 & CO 219/Ahd/08 A.Y 2005-06
ACIT Cir-5, SRT v. M/s. JB Brother Page 6
10. We find that the issue is covered in assessee's own case, wherein the Tribunal, as noted above, has already allowed in earlier year the claim of the assessee job charges paid to outsider parties. Respectfully following the same, we allow the claim of the assessee and this issue of Revenue's appeal is dismissed and that of assessee's CO is allowed.
11. In the result, Revenue's appeal is dismissed and that the CO of the assessee is partly allowed.
Order pronounced in Open Court on 13/01/2011
Sd/- Sd/-
(N.S.Saini) (Mahavir Singh)
Accountant Member Judicial Member
Ahmedabad,
Dated : 13/01/2011
*Dkp
Copy of the Order forwarded to :
1. The Assessee.
2. The Revenue.
3. The CIT(Appeals)- III, Surat
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad