TaxTMI 
TaxTMI 
2021 (8) TMI 64
X X X X Extracts X X X X
X X X X Extracts X X X X
....d, heard and are decided by common order. For appreciation of facts, the appeal for AY 2012-13 is treated as lead case. The Revenue has raised the following grounds of appeal:- "[1] On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in law as well as facts and circumstances of the case by restricting the disallowances to 15% instead of 100%, in spite of the fact that the transactions between the job work parties and the assessee were a structured arrangement to serve the needs of the assessee and lend legitimacy to the siphoning off funds from the assessee to reduce its tax liability. [2] On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in law by relying on the judgment of the Hon'ble ITAT Ahmedabad in the case of M/s Ashwin Diamonds in ITA No. 1145/Ahd/2009 since the facts mentioned in the case of M/s Ashvin Diamonds is not identical with the present case i.e. M/s Rijiya Brothers. [3] On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. [4] It, is, therefore, prayed that the order of the CIT(A) may be set aside and that of A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ugh diamonds). The Assessing Officer in order to verify the genuineness of the said expenses issued notice under section 131 of the Act to all the parties through registered letters. The Assessing Officer recorded by most of the notices was returned back unserved. The assessee was asked to provide fresh addresses of all the parties. The assessee furnished the name of following nine parties; (i) Shantibhai B Bhatia, (ii) Hareshbhai M Chopadia, (iii) Ishwarbhai B Bhatia, (iv) Sanjay Bhai Narola, (v) Vinodbhai Paladia, (vi) Himmatbahi Dolakia, (vii) Nareshbhai Narola, (viii) Dhirubhai Chandpara and (ix) Narayanbhai M Magtarpa 4. On furnishing fresh addresses of all parties, the Assessing Officer again issued notice under section 131 of the Act. The Assessing Officer recorded that only one party, out of nine parties, involved as job works has maintained job resister, salary register. However, no details are maintained in respect of job work executed related to the assessee-firm. 5. The Assessing Officer also examined modus operandi of job works of rough diamonds. It was noted by Assessing Offic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2004-05 and 2005-06, after examining the job works it was accepted in both the years. The assessee further explained that the diamonds are given to various job works for cutting and polishing diamonds manufacturing and further administrative expenses are borne by job works parties. The Jangads are affixed with the packets of rough diamonds so that during the movement in manufacturing stage, the evidence of ownership as well as proof of accounted diamondsis maintained. The assessee maintaining cash book, labour expenses register, stock register of polished diamonds, general register, manufacturing / production register, stock of polishing diamond and manufacturing Jangad. The assessee further stated that all job works parties are available and their jobs of work was verified by Assessing Officer they are assessed to tax on filing return of income, the job works applied to them with details were provided to the Assessing Officer. Work premises and residential premises were verified and books of account were provided. The expenses are within the industry norms. All the payments were made through cheques and there is no evidences that any part of the wage was return back to the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6% and NP 3.46% and K. N. Diamonds who have shown GP at 6.56% and NP at 3.22%, whereas the assessee shown its GP at 8.49% and NP at 4.27%, which is higher to the other comparable concern. On the basis of aforesaid figures the assessee claimedthat the assessee has shown higher GP and NP ratio amongst comparable. Accordingly, the assessee shown higher profit margin. The assessee has also shown comparative figure of turnover labour expenses disallowed and expenses disallowed in terms of percentage in the following manner: M/s Rijiya Brothers Details of total labour expenses and expenses disallowed Year Turnover Labour & job work charges Expenses disallowed Expenses disallowed in percent terms 2007-08 50,47,20,562 5,26,09,020 46,64,353 8.87 2008-09 65,32,53,844 7,41,23,310 71,24,748 9.61 2009-10 62,75,89,520 6,43,53,246 72,82,860 11.32 2010-11 75,17,79,217 9,35,07,614 77,27,652 8.26 2011-12 1,32,22,17,565 20,49,75,673 2,36,94,581 11.56 2012-13 1,49,15,95,949 22,38,76,237 1,86,84,477 8.35 8. The assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ought sufficient material on record that out of nine job work parties, the expense works of seven parties were absolutely fictitious. The Assessing Officer examined the bank account of the job works parties. No doubt, the amounts were paid to the workers by cheque. However, the amounts were immediately withdrawn after clearance of cheques. The Assessing Officer has brought on record that the amount was withdrawn by accountant of the assessee-firm from the job works parties. The assessee failed to substantiate that the expenses were genuine. The assessing Officer after discussing in detailed disallowed the expense to the extent of Rs. 2.36 crore. The Ld. CIT(A) restricted the disallowance to the extent of 15% only. Though the Assessing Officer in a detailed discussion on examined the job work parties and came to definite conclusion that the expense claimed by the assessee was fictitious. Ld. CIT-DR prayed for reversing the order of Ld. CIT(A) and to restore the order of Assessing Officer. 11. On the other hand, Ld. AR for the assessee submits that the books of account of the assessee were not rejected by Assessing Officer and no defects in the books of accounts were pointed out b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessment order. The Assessing Officer after detailed discussion held that out of nine parties except two Himmatbhai and Dhirubhai, all expenses for remaining seven job works parties are not genuine. The Assessing Officer disallowed the entire (100%) of job works expenses to all seven parties by taking view that payments to seven parties remained unsubstantiated. As noted above before the Ld. CIT(A), the assessee filed detailed written submission. The Ld. CIT (A) after considering the detailed submission of the GP & NP of assessee-firm comparative to other comparable companies in the similar business and trade and relying upon the decision of Tribunal in Ashwin Diamonds Vs Income Tax Officer (supra) restricted the disallowance to the extent of 15% of the job works parties.The ld CIT(A) while restricting the disallowance to the extent of 15% of total disallowance observed that all the payments to labour job work was paid through cheques. The assessee deducted tax at source while making payment to the job works parties. It was also held that the entire claims are not verifiable. The role of the accountant who had allegedly prepared bills of the job workers and withdrawn the amount fro....