Case Law Details
Brief of the case:
Books of account cannot be rejected only on the basis that qualitative and piece wise records of diamonds have not been maintained;
ITAT held in Dy CIT Vs Ms Nevil Gems that if the assessee had maintained quantitative details of diamonds but had not qualitative and piece-wise details then in that case books of account could not be rejected because it was not necessary to maintain qualitative records or piece wise details as per act what was necessary was to maintain such quantum of books of accounts through which AO could calculate the total income of the assessee.
Labour expenses cannot be disallowed if the self-generated voucher by the assessee has been counter signed by the labour;
ITAT held in Dy CIT Vs Ms Nevil Gems that as the AO had not any cogent proof by which AO could prove that the labour rate claimed by assessee was excess then AO could not disallow the rate of assessee claimed by him though the assessee had not produced any bill of the labour contractor but had produced the self-generated bill by the assessee which was countersigned by the labour. Moreover as the AO had called the labour contractor who confirmed the amount received by them which was shown by the assessee in its books of account. So the labour expenses could not be disallowed.
Yield to be considered on net quantity of rough diamonds not on gross quantity.
ITAT held in Dy CIT Vs Ms Nevil Gems that as the AO had calculated yield on rough diamonds considering the gross quantity but the assessee had calculated the yield on net quantity which comes to be more than the preceding year because rejected diamonds could not be used for manufacturing polished diamonds. So yield should be calculated on net rough diamonds. So, the addition on the basis of lower yield could not be made.
Facts of the case:
The assessee firm is engaged in the business of manufacturing of polished diamonds. Return of income for Asst. Year was filed on 22.09.2008 declaring loss of (-) Rs.3,31,547/-. During the course of assessment proceedings Assessing Officer observed that assessee was not able to provide quality-wise and piece-wise details of goods, labour expenses were not properly supported as well as there was suppressed yield as the assessee has shown more wastage during the year and accordingly made additions to the income of the assessee and assessed the income at Rs.52,01,560/-. The assessee filed an appeal with CIT(A) who upheld the appeal of the assessee, then revenue filed an appeal with ITAT.
Contention of the assessee:
Assessee was of the view that as the assessee’s books of accounts was audited by Chartered Accountant where complete quantity-wise details were certified by the auditors and even the GP % was higher in comparison to preceding years. As the value of closing stock could be very easily computed so the books of account could not be rejected on the basis of non-maintenance of quality wise and piece wise stock details.
Assessee was of the view that as some of the labour parties had been produced before the Assessing Officer and they have accepted to have received the payments for the labour charges as per the supporting vouchers prepared by the assessee and countersigned by the labour contractors. Moreover assessee had maintained sufficient details and supporting for the labour charges paid including quantity issued to labour contractors and the quantity of polished diamonds received back from them and the same were produced before the Assessing Officer at the time of assessment proceedings. Assessing Officer had made disallowance merely on the ground that other units are making payment at lower rates but had not produced any cogent evidence affirming that. So, labour charges should not be disallowed.
As the AO had calculated the yield considering the gross rough diamonds but actually yield should had been calculated on the net rough diamonds because the wastage could not be used for manufacturing So after calculating the yield on net rough diamonds it come to be more than the yield shown in the preceding year. So addition made by the AO should not be allowed.
Contention of the revenue:
Revenue was of the view that it was impossible to verify closing stock value submitted by assessee as well as the production, quality and yield of the manufacturing activities because the assessee had only
maintained quantity-wise details and not maintained quality-wise and piece-wise details of the polished diamonds and observed that method of keeping books of account by the assessee was faulty so the books of accouts should be rejected.
The assessee failed to produce basic books of accounts like proper labour register, or the labour contractors with their registers. The only support of labour expenses were the self-made vouchers by the assessee itself which were then countersigned by the labour contractors. This leads one to believe that the labour expenses could not be proved in absence of quality wise details of production and
piecewise details. In the diamond market it is a common practice to pay the labourer on piecewise basis.
The revenue was of the view that as the assessee had shown lower yield as compared to the last year by less than 1% so addition should be made on the gross rough diamond of 1% which comes out to be Rs23,08,633/- so addition should be made of Rs 23,08,633.
Held by ITAT:
ITAT held that as there was no specific provision in the income tax which defines the books to be maintained by the businessman. Its only mentioned that the sufficient books of accounts should be mentioned through which AO could calculate the total income of the assessee. So, as the accounts were audited by Chartered Accountant and no qualified audit report was given by the auditor so books of accounts could not be rejected.
ITAT held that as the labour register was not maintained by the assessee and the bill was self-was by the assessee which was counter signed by labour. Moreover as the AO had called some of the labour who had confirmed the amount received by them which was claimed by the assessee. So AO could not say that the amount claimed by the assessee was high or fake until and unless he had cogent evidence in its hand. So, labour amount could not be denied.
ITAT held that as the AO had calculated the yield on the gross rough diamond instead of net rough diamond. So as after calculating the yield on net rough diamonds it comes to be more than the last year Moreover the yield varies from year to year and quality to quality of rough diamonds. In the year under consideration assessee had bought lower quality rough diamonds as evidence from the lower cost of rough diamonds in the books of account. So addition of lower yield could not be made.
Appeal of the revenue stood dismissed.
