2015 (10) TMI 472 - AT - Income Tax

Appellate Tribunal Upholds CIT(A) Decision on Labor Charges & Depreciation; Rejects Revenue's Request

The DCIT, Circle-9, Surat Versus Shailesh R Dhamelia

The appellate tribunal upheld the CIT(A)'s decision to delete the addition of labor charges shown payable and the disallowance of depreciation, while ... Addition under the head “ labour charges shown payable” - CIT(A) deleted the addition - assessee’s audit report had shown this sum as provision on current liabilities - Held that:- Its P & L forming part of the case file reveals diamond cutting labour charges expenses of ₹ 28,01,793/- up to 31/03/2007 i.e. much more than ₹ 2 lacs stated in assessment order. There is no other material quoted either in assessment or during arguments before us so as to dispute genuineness of this expenditure claim of ₹ 17,30,383/-. - Decided against revenue. Depreciation disallowance - Held that:- Identical depreciation claim qua the very machines stands allowed in a scrutiny assessment framed for preceding assessment year 2006-07. The hon’ble jurisdictional high court in ACIT vs. S K Patel Family Trust [2012 (6) TMI 790 - GUJARAT HIGH COURT] holds that once a block of assets is put to sue, segregation of assets forming part thereof for the purpose of granting depreciation on the ground that the same had not been put to use; is not justifiable. This lordships quote earlier decision reported as CIT vs. Sonal Hem Industries (2009 (2) TMI 84 - GUJARAT HIGH COURT). The Revenue does not point out distinction on facts and law. Its corresponding ground is accordingly rejected.- Decided against revenue. Low household withdrawal addition - Held that:- It has come on record that assessee is a bachelor, and his father has already made withdrawal of ₹ 5,83,000/- sufficient for the family. - Decided against revenue. Issues:1. Addition of labor charges shown payable2. Disallowance of depreciation3. Low household withdrawal additionIssue 1: Addition of labor charges shown payableThe Revenue challenged the deletion of an addition of &8377; 17,30,383 under the head 'labor charges shown payable.' The Assessing Officer believed the payment to laborers was insufficient, leading to the addition. However, the CIT(A) reversed this decision based on the explanation provided by the appellant. The appellant clarified that the delay in payment was due to non-receipt of job-work receipts during a tough time for the diamond industry. The appellant argued that labor payments in the diamond industry typically remain outstanding for 2-3 months and are made based on fund availability. The CIT(A) found no defects in the labor payment records and rejected the AO's presumption that payments were made outside the books. The CIT(A) deleted the addition, emphasizing that the AO's reasoning was insufficient to justify the addition.Issue 2: Disallowance of depreciationThe Revenue sought to restore the disallowance of depreciation amounting to &8377; 9,24,475. The Assessing Officer disallowed a portion of the claimed depreciation, alleging that certain machines were not put to use. However, the appellant explained that the machines were essential for diamond cutting activities and were also used for importing and manufacturing polished diamonds. The lower appellate authority accepted the appellant's contentions, noting that the machines were integral to the business activities. The appellate authority deleted the disallowance, emphasizing that depreciation should be allowed on assets forming part of the block of assets, as established in previous assessments. The Revenue's challenge was rejected based on established legal principles and precedents.Issue 3: Low household withdrawal additionThe Revenue sought to increase the household withdrawal addition from &8377; 53,000 to &8377; 67,000. However, it was revealed that the appellant, a bachelor, had a father who had already withdrawn &8377; 5,83,000, which was deemed sufficient for the family. The Revenue's request for an additional withdrawal was rejected based on the existing withdrawal amount being considered adequate. The appellate tribunal dismissed the Revenue's appeal, upholding the decisions made in favor of the appellant.In conclusion, the appellate tribunal upheld the CIT(A)'s decision to delete the addition of labor charges shown payable and the disallowance of depreciation, while rejecting the Revenue's request for an increased household withdrawal addition. The judgment emphasized the importance of proper documentation, adherence to legal principles, and consistency in decision-making based on established precedents.