2014 (2) TMI 1296 - AT - Income Tax

Addition of labour charges and purchases - invoking the provisions of section 145(3) - Held that - Addition was made by the AO merely on the basis of statement of Mr. Anilkumar Chahwalla who is a proprietor of M/s Padmavati Gems from whom the assessee purchased the goods and M/s Parth Corporation to whom the assessee made the lab our payments. The assessment framed in the case of said person Mr. Anilkumar Chahwalla was a subject matter of appeal before the Ld. CIT(A ) Valsad vide order dated 27.12.2008 accepted the contention of the said assessee Mr. Anilkumar Chahwalla. That statement on 24.12.2008 o btained by threatening the assessee of police action and under coercive pressure and the said statement was not given by free will. Therefore it was retracted immediately by way of an affidavit dated 27.12.2008 . It is well settled proposition that any statement obtained by coercive measures or under any pressure cannot be admitted as an evidence because it is not by free will. Therefore the addition made by the AO on the basis of statement of Mr. Anilkumar Chahwalla which was retracted later on was not justified. Moreover the CIT(A) Valsad while deciding the appeal of Mr. Anilkumar Chahwalla considered the transactions between the assessee and Mr. Anilkumar Chahwalla proprietor of M/s Padmavati Ge ms and M/s Parth Corporation as genuine. Therefore the AO is not justified in taking a divergent view. Similarly for the labour charges pa id to M/s Parth Corporation the assessee furnished before the AO copy of certificate dated 15.07.2005 issue by ITO Ward-1 Navsari addressed to assessee permitting deduction of TDS at a lower rate u/s 197 of the IT Act on the labour charges paid by the assessee to M/s Parth Corporation. Therefore the transactions relating to the labour charges between the assessee and Mr. Anil Kumar Chahwalla proprietor of M/s Parth Corporation cannot be doubted particularly when the quantitative effect of the labour bills was also reflected in the stock register. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made by the AO in respect of labour charges.
2. Deletion of addition made by the AO in respect of purchases.
3. Reliance on the decision of CIT(A), Valsad.
4. Retraction of statements by Shri Anil Chahwalla.
5. Violation of Rule 46A of the I.T. Rules by CIT(A).

Detailed Analysis:

1. Deletion of Addition Made by the AO in Respect of Labour Charges:
The AO disallowed Rs. 59,88,389/- claimed as labour charges to M/s Parth Corporation, citing that the proprietor, Shri Anilkumar Chahwalla, admitted under oath that no actual labour work was conducted, and the transactions were merely on paper. The CIT(A) observed that the payments were made via cheques, TDS was deducted and paid, and the quantitative effect of the labour bills was reflected in the stock register. The CIT(A) concluded that the transactions were genuine and carried out in the normal course of business, thus justifying the deletion of the addition.

2. Deletion of Addition Made by the AO in Respect of Purchases:
The AO disallowed Rs. 2,32,25,817/- claimed as purchases from M/s Padmavati Gems, based on the same admission by Shri Anilkumar Chahwalla. The CIT(A) noted that the purchases were recorded in the books of accounts, payments were made by cheques, and the goods were delivered and included in the stocks, which were then exported. The CIT(A) also pointed out that the purchases were supported by confirmations and invoices, and the bank had granted packing credit facilities on these purchases. Therefore, the CIT(A) held that the transactions were genuine and deleted the addition.

3. Reliance on the Decision of CIT(A), Valsad:
The CIT(A) relied on the decision of CIT(A), Valsad, where it was determined that the transactions with Shri Anilkumar Chahwalla were genuine, and the additions made in his case were deleted. The CIT(A), Valsad, found that the statement obtained from Shri Anilkumar Chahwalla was under coercion and was retracted immediately. The CIT(A) in the present case adopted this finding to conclude that the transactions with the assessee were genuine.

4. Retraction of Statements by Shri Anil Chahwalla:
Shri Anilkumar Chahwalla retracted his statement given under oath, claiming it was made under coercion and threat of police action. The CIT(A) noted that affidavits detailing the retraction were submitted, and no opportunity was given to the assessee to cross-examine Shri Anilkumar Chahwalla. The CIT(A) held that a statement obtained under coercion cannot be used as evidence, thus supporting the deletion of the additions.

5. Violation of Rule 46A of the I.T. Rules by CIT(A):
The Department argued that the CIT(A) violated Rule 46A by admitting additional evidence without providing the AO an opportunity to be heard. The CIT(A) justified the admission of additional evidence, stating it was clinching and left no room for doubt. The Tribunal upheld this view, noting that the evidence presented was sufficient to establish the genuineness of the transactions.

Conclusion:
The Tribunal confirmed the CIT(A)'s decision to delete the additions made by the AO, emphasizing that the AO did not independently verify the transactions and relied solely on a retracted statement obtained under coercion. The Tribunal dismissed the Department's appeal, affirming that the transactions were genuine and conducted in the normal course of business.