TaxTMI 
TaxTMI 
2010 (2) TMI 940
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....ment year 2004-05 : (1) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals)-III, Surat, has erred in deleting the addition of Rs. 9,72,279 on account of saving labour, postage, angadia and foreign expenses made by the Assessing Officer. (2) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals)-III, Surat, erred in restricting the addition of labour charges at 25 per cent. instead of 50 per cent. disallowed made by the Assessing Officer and allowing the relief of Rs. 38,54,740. (3) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals)-III, Surat, ought to have upheld the order of the Assessing Officer. (4) It is, therefore, prayed that the order of the learned Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officer restored. 2. The brief facts of the case are that the assessee-firm is engaged in the business of export of cut and polished diamonds. The assessee imports rough diamonds and after carrying out cutting and polishing either by its own st....
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....epted cheques and withdrew the money which was returned back to the assessee through the accountant of the firm and there could be no proof of returning the money to the assessee, since it was by way of cash. The Assessing Officer further observed that the quantity of diamond produced was never disputed but in the previous assessment year, the average manufacturing cost was Rs. 359.62 per carat against Rs. 378.71 in the current year and therefore there was n excess expenditure of Rs. 25,29,977 for manufacturing expenses pertaining to the assessee's own unit. Further, for diamond manufactured by outside parties, the average manufacturing cost was Rs. 351.02 per carat compared to Rs. 300.50 per carat last year which meant excess expenditure of Rs. 34,28,025. These figures indicated that excessive expenses were booked by the assessee compared to the last year which was evident from the statements of outside parties also. The Assessing Officer further observed that the rough diamonds purchased and sale of polished diamonds with value addition was duly reflected in the books of account and there was nothing adverse found in this respect. However, since the book results for sale and purc....
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....orded under oath by Shri Prakash Doshi also, who also stated that he issued only labour bills, without doing any job work and accepted cheques as per bill and after retaining part of the payment as his commission returned the same to the accountant of the appellant-firm. Further, Shri Nilesh Mehta also admitted to accepting the cheques without doing any job work and returning the money to the accountant of the firm. Similar is the position with M/s. Lakshmi Diamonds, Shri Manojkumar Shah, Shri Vipul Koradia and others. The appellant's contention that the jangads, copies of bills, etc. were signed by these job workers and this was evidence of their having done job work for the appellant is not acceptable, since in their sworn deposition before the Assessing Officer under section 131 of the Income-tax Act, they have clearly stated that they accepted cheques for the labour payment without doing any work for the appellant and returned the money in cash to the appellant after retaining a small amount as their commission. Subsequent filing of affidavits which is not a sworn statement and not notarised is apparently only an afterthought and was filed only after issue of show-cause notices....
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....ne but only bills were issued and after receipt of cheque, cash was returned. Therefore, the disallowance only after finding that the expenses incurred were excessive and, hence, needs to be upheld. The learned Commissioner of Income-tax (Appeals) has not given any reason as to why the disallowance shall be 25 per cent. only as against 50 per cent. of jobwork disallowed by the Assessing Officer. 8. Learned counsel for the assessee reiterated the submissions as were made before the learned Commissioner of Income-tax (Appeals). It was further submitted that there is complete quantitative tally in respect of issue of rough diamond for processing and receipt of finished diamonds thereafter. The labour charges are paid by "account payee cheque" and tax deducted at source as applicable. When the statements were recorded, the assessee sought re-examination and in re-examination it is found- (1) that, the jangad, copy of bills, ledger account, etc., on which they had signed time to time and the same is confirmed in the cross-examination statement, (2) that, the bank account wherein the cheques were deposited, is operated by them, (3) that, when they were asked about t....
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....lso 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 the assessment year 2003-04 were 2.22 per cent., whereas in the year under appeal the same is only 1.30 per cent. Thus, the labour charges paid for outside manufacturing are all within limits as compared to the earlier assessment years. If the general trend of increase in expenses is also considered, the expenses during the year are not higher when compared with all manufacturing cost. Though in the statements recorded the persons have given adverse statements 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 a 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 the ....