Aglodiya Diamonds, Banaskantha vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL " A " BENCH, AHMEDABAD (BEFORE SHRI SHAILENDRA Kr. YADAV, J.M. & SHRI ANIL CHATURVEDI, A.M.)

I.T. A. No. 867 /AHD/2011 (Assessment Year: 2006-07)

M/s. Aglodiya Diamonds V/S I.T.O., Ward-1, Palanpur Shahibaug Shopping Centre Palanpur Banaskantha.

(Appellant) (Respondent)

PAN: AALFA0068M

Appellant by : Shri P.M. Mehta with G.M. Thakor, A.R Respondent by : Shri Dinesh Singh, Sr. D.R.

(आदेश )/ORDER

Date of hearing : 31-12-2014 Date of Pronouncement : 09 -01-2015

PER SHRI ANIL CHATURVEDI,A.M.

1. This appeal filed by the Assessee is against the order of CIT(A)-XX, Ahmedabad dated 26.11.2010 for A.Y. 2006-07.

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is a partnership firm stated to be engaged in the business of doing labour work of diamond. Assessee filed its return of income for A.Y. 06-07 on 30.12.2006 declaring total income of Rs. 65,630/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 22.12.2008 and the total income was determined at Rs. 5,72,620/-. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A) who 2 ITA No 867/AHD/2011 . A.Y. 2006-07 vide order dated 26.11.2010 dismissed the appeal of the Assessee. Aggrieved by the aforesaid order of CIT(A), Assessee is now in appeal before us and has raised the following grounds;-

1. On the facts and circumstances of the case, the learned CIT(A) erred in upholding the disallowance of Rs.5,07,286/- out of labour charges paid by the appellant.

2. The learned CIT(A) ought to have appreciated that the labour charges claimed were for processed diamonds numbering 310516 and not for processed diamonds returned to the parties.

3. Once it is admitted that the expenses had been actually incurred, the learned CIT(A) was not justified on facts of the case and in law in upholding the disallowance of Rs.5,07,816/- without there being a finding that the expenses were not for the purpose of appellant's business.

4. On facts and circumstances of the case and in law the learned CIT(A) was not justified in upholding the charging of interest u/s 234C and 234D of the Income Tax Act, 1961.

5. On the facts and circumstances of the case and in law the learned CIT(A) erred in not directing the Assessing Officer to drop the penalty proceeding initiated u/s 271 (1)(c).

4. At the outset, ld. A.R. submitted that though Assessee has raised several grounds but the only effective ground is ground no.1 with respect to disallowance of Rs. 5,07,286/- out of labour charges.

5. During the course of assessment proceedings, A.O noticed that Assessee has claimed expenses on job work charges. A.O noticed that Assessee had received 3,35,536 diamonds for job work of which Assessee had polished 3,10,637 diamonds (including opening stock) but had shown receipt for labour charges towards 2,99,131 diamonds only. The Assessee was therefore asked to show cause notice as to why no addition for 11,507 diamonds which have been polished not be made. The submission of the Assessee was not found acceptable to the A.O. He therefore concluded that Assessee has claimed excess labour charge to the tune of Rs. 5,07,286/- and accordingly disallowed the same. Aggrieved by the order of A.O., Assessee carried the matter before CIT(A) who confirmed the action of A.O by holding as under:-

2 I have gone through the assessment order and the submissions of the AR of the appellant carefully. It is seen that the only reason for the AO to have made the addition was because the appellant claimed that it had polished 310637 pieces whereas it had shown receipt of labour charges in respect of only 299131 pieces of diamonds.

4.2(i) The AR of the appellant was asked to reconcile the figure of diamond received for polishing and the diamond handed over after polishing with the pieces as mentioned in the assessment order. The AR vide order sheet entry dated 25/11/2010 stated that he could not reconcile the difference in the No. of pieces of diamonds sent for processing.

3 ITA No 867/AHD/2011 . A.Y. 2006-07

4.2(ii) In view of the above it is clear that the addition made by the AO is justified because the appellant has made excess claim of labour charges paid. This fact is established because the No. of pieces of diamond have not been reconciled.

The addition made by the A.O is hence confirmed.

6. Aggrieved by the order of CIT(A), Assessee is now in appeal before us.

7. Before us, ld. A.R. submitted written synopsis and further from the synopsis pointed out that Assessee is supplied rough diamonds by various parties for processing and Assessee gets the processing done by the Karigars to whom the payment is made on the basis of number of diamonds and nature of processing done. He further submitted that the parties who give rough diamonds, take delivery of polished diamonds in carats and not in pieces and as such the income of labour charges received by the Assessee is on the basis of per carat and not on the basis of pieces which are polished or processed by the Assessee. He further submitted that Assessee had processed 3.10,637 diamonds and its equivalent carats were 10216.03 carats and the income from processing has been disclosed as income of the Assessee. He also pointed to page 54 of the paper book wherein the monthly details of the diamonds polished in pieces and carats have been submitted. He also pointed to page 50 of the paper book wherein the details of polished carats from 3 different parties was received and that were reflected in the Profit and Loss account. He also pointed to the reconciliation of the diamonds received, processed and that remained in stock. The ld. A.R. further submitted that Assessee has been claiming labour charges paid year after year with reference to the number of diamonds got processed and not with reference to the number of cut and polished diamonds returned to the parties and the method of booking of expenses have been accepted by the Department in all earlier years. He further submitted that the books of accounts of the Assessee are audited and there is no qualification of the auditors. He therefore submitted that the addition has been wrongly made by the A.O and therefore the same be deleted. Ld. D.R. on the other hand supported the order of A.O and CIT(A).

4 ITA No 867/AHD/2011 . A.Y. 2006-07

8. We have heard the rival submissions and perused the material on record. Before us, ld. A.R. has submitted the month-wise details of the diamonds processed of 3,10,637 which is equivalent to 10.216.03 carats. It was further submitted that Assessee received labour charges on the basis of per carat of diamonds and not on the basis of pieces which are polished by the Assessee and the amount of income received has been reflected in the Profit and Loss account. Further the Assessee has been following the same method in the past and it has been accepted by the Department. Before us, Revenue has not placed any material on record to controvert the submissions made by the Assessee. In view of the aforesaid facts, we are of the view that no addition on account of labour charges can be made in the present case. We therefore delete the addition of Rs. 5,07,286/-. Thus this ground is allowed.

9. In the result, the appeal of Assessee is allowed.

Order pronounced in Open Court on 09 - 01 - 2015.

Sd/- Sd/- (SHILENDRA Kr. YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. TRUE COPY Rajesh

Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) - 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad