Three Star Gems, Surat vs Department Of Income Tax

ACIT, Circle-8, Surat ..... Appellant

Vs

M/s. Three Star Gems, 77/78, Patel Faliya, Opp. Hariom Bunglow, Katargam Road, Surat ..... Respondent PAN : AADFT 5628 G

Revenue by : Smt Soniakumar, Sr.DR Assessee(s) by : None सुनवाई क तार ख/Date of Hearing 27/04/2015 घोषणा क तार ख /Date of Pronouncement 30/04/2015

आदे श/O R D E R

PER SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER:

This appeal has been filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-V, Surat dated 23.05.2011 for Assessment Year 2005-06, on the following grounds:-

ITA No. 2142/Ahd/2011 ACIT v. Three Star Gems AY 2005-06

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1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in penalty levied u/s 271(1)(c) by the A.O. of Rs.17,42,370/- in respect of enhancement of net profit on account of unproved labour payment.

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2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the assessing officer especially so since the order was passed on addition confirmed in 2nd appeal and assessee had failed to offer any explanation to the show cause notice issued prior to levy of penalty.

3. It is, therefore, prayed that the appellate order of the Ld. CIT(A) be set-aside and that of the A.O. restored back.

2. The brief facts of the case are that the assessee is a partnership firm engaged in the business of diamonds cutting and polishing on job labour basis. During the year the assessee had shown Gross Profit of 1.74% on job labour receipt of Rs.19,45,65,313/-. The Assessing Officer issued letters u/s 133(6) of the Act on 7 persons for confirming the labour payment made by the assessee. Some letters were not served on the address given by the assessee. The assessee filed certain details but did not file the details of stage-wise processing of diamond, contract agreement and bank statement of job workers. In the absence of details of identity of contractors, stage-wise details of work done and inspection by labour department, reconciliation of labour registers, attendance registers and bills of job work, the Assessing Officer had rejected the books of accounts and applied the net profit rate of 5%of total labour receipts. On appeal, the CIT(A) ITA No. 2142/Ahd/2011 ACIT v. Three Star Gems AY 2005-06

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confirmed the finding of the Assessing Officer but applied the Gross Profit rate of 2% and accordingly reduced the addition confirmed by the Assessing Officer. In Second appeal, the ITAT held that since it is a case of payment of job work, it would be proper to apply Net Profit rate as this is a case of services rendered for labour work of diamond cutting and manufacturing. Accordingly, the ITAT confirmed the addition to the extent of 3% of Net Profit. The Assessing Officer levied the penalty u/s 271(1)(c) of the Act on the ground that the addition has been confirmed by the ITAT and that the assessee failed to offer any plausible explanation. The Assessing Officer levied the penalty of Rs.17,42,370/- for furnishing inaccurate particulars of income.

2.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) has granted relief to the assessee and the same has been opposed before us by the Revenue inter alia stating that the CIT(A) erred in deleting the penalty levied by the Assessing Officer u/s 271(1)(c) of Rs.17,42,370/- in respect of enhancement of net Profit on account of unproved labour payments. The ld. Departmental Representative also submitted that on the facts and in the circumstances of the case, the CIT(A) ought to have upheld the order of the Assessing Officer, especially so since the order was passed on addition confirmed in Second Appeal and the assessee had failed to offer any explanation to the show-cause ITA No. 2142/Ahd/2011 ACIT v. Three Star Gems AY 2005-06

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notice issue prior to levy of penalty. Therefore, he submitted that the order of the CIT(A) be set aside and that of the Assessing Officer be restored. On the other hand, none appeared on behalf of the assessee, so we are proceeding the case ex-parte qua the assessee and disposing the matter on the basis of arguments of ld. Departmental Representative and material available on record.

2.2 After going through the submissions of the ld. Departmental Representative and the material available on record, we find that as the notice u/s 271(1)(c) of the Act was not served on the assessee, the assessee could not be expected to offer any plausible explanation before the Assessing Officer. When he started investigation, it was noted by him that letters u/s 133(6) of the Act could not be served on the labourers. However, no disallowance of labour expenses claimed was made by the Assessing Officer despite the non-verification of labour expenses. Instead of disallowing labour expenses, the Assessing Officer preferred to estimate Net Profit rate of 5%. Apart from the discussion on labour expenses in the assessment order, there is no reference to detection of any concealment of facts or income. In appeal, the CIT(A) reduced the addition made by the Assessing Officer. In Second Appeal, ITAT also reduced the Net Profit rate to 3%. Reduction in the rate of profit itself shows the fact that nothing could be certain with regard to profit which ipsofacto could not tantamount to concealment of income. The assessee cannot be said to have ITA No. 2142/Ahd/2011 ACIT v. Three Star Gems AY 2005-06

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concealed the particulars of income merely because the books of accounts were rejected by the Assessing Officer and subsequently, the Assessing Officer and CIT(A) applied different Net Profit rate to estimate the income. In diamond job work, labourers keep on migrating one place to another and in most cases, they are not traceable as they normally do not have permanent establishment. In absence of details of labourers, it cannot be inferred that how much services have been rendered by them to the assessee. In the case before us, the assessee had submitted a party-wise list of sub-contractors with details of TDS. So, the expenses incurred cannot be said to be bogus; however, here in the case before us, the recourse of estimation of Net Profit was made because the assessee could not provide certain facts/details about labourers which cannot be a sound basis for levying penalty u/s 271(1)(c) of the Act. Accordingly, we uphold the order of the CIT(A).

3. In the result, the appeal of the Revenue is dismissed.

Order pronounced in the Court on 30th of April, 2015 at Ahmedabad.

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(ANIL CHATURVEDI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 30/04/2015 *BT ITA No. 2142/Ahd/2011 ACIT v. Three Star Gems AY 2005-06

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आदे श क ूितिल'प अमे'षत/Copy षत of the Order forwarded to :

1. अपीलाथ* / The Appellant 2. ू+यथ* / The Respondent. 3. संबंिधत आयकर आयु, / Concerned CIT 4. आयकर आयु,(अपील) / The CIT(A),

5. 'वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड फाईल / Guard file.

आदे शानुसार/ ार BY ORDER,

//TRUE COPY// उप/सहायक उप सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अिधकरण अहमदाबाद / ITAT, Ahmedabad