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TMI Blog2010 (2) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that personal use expenses cannot be ruled out and, hence, 10 per cent. of the expenses are disallowable. The assessee has been exporting diamond. In connection with export, foreign travel was undertaken and complete details were filed in this regard. Out of the total expenses incurred on account of saving labour, postage and angadia, factory expenses and foreign travelling expenses, 10 per cent. expenses are disallowed on ad hoc basis. The vouchers in this regard have been produced. When the major expenses is in relation to factory expenses, it cannot be said that they have any personal element. postage and angadia expenses also, there cannot be any personal element. Foreign expenses are exclusively for the purpose of business. Disallowance was rightly deleted by the learned Commissioner of Income-tax (Appeals). appeal of the assessee is allowed and that of the Revenue is dismissed - IT APPEAL NOS. 3687 AND 3952 (AHD.) OF 2007 - - - Dated:- 5-2-2010 - DEEPAK R. SHAH, D.T. GARASIA, JJ. K.K. Shah for the Appellant. Siddhart R. Mukherjee for the Respondent. ORDER Deepak R. Shah, Accountant Member. These are cross appeals ; one by the assessee and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of process carried out by outside manufacturers. 4. The Assessing Officer observed that for verification of claim of the assessee in respect of labour charges, notices under section 133(6) of the Income-tax Act, 1961 were issued and in respect of eight persons to whom labour charges were allegedly paid totalling Rs. 1,54,18,974, the payment did not appear to be genuine. The Assessing Officer recorded the statement of these eight persons mentioned on the page 4 of the assessment order, who confirmed that they were only name lenders and did not have any factory for any manufacturing process and were doing the job work through outsiders on commission basis and the amount withdrawn against payment made to them by cheque was returned to the assessee through the accountant or the employees. The Assessing Officer issued a show-cause notice to the assessee to explain the infirmities found in the labour charges payment. In response the assessee stated that as per the Assessing Officer the labour charges paid to certain parties were not genuine as the said parties claimed to have given back the amount in cash against cheques issued for labour charges. However, on cross examining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere purchased from the same vendor and since all primary evidence are supported by sworn statements under section 131 of the Income-tax Act, 1961, the secondary evidence by way of affidavit had no evidentiary value. 5. Before the learned Commissioner of Income-tax (Appeals), it was submitted that payment of labour charges to outsiders was genuine since it was supported by vouchers and bills and quantity of rough diamonds issued and receipt of finished diamonds therefrom. The payments were made by account payee cheques and tax was also deducted at source. It was submitted that the statement had no evidentiary value since persons whose statements were recorded were under pressure and in the cross-examination all of them confirmed that they had signed the jangads, copies of bills, ledger accounts, etc., from time to time and that the cheques were deposited in their bank accounts and they have no proof of returning cash to the assessees. In the affidavits filed by the parties subsequent to statement recorded, they accepted having done job work for the assessee. Further, the increase in wages year after year was natural and comparison with job charges in the earlier year was not fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only the claim of excessive job work charges that the Assessing Officer has reservations about and has proved the fact that the charges claimed to have been paid to the eight parties were bogus. He has also been reasonable in not disallowing 100 per cent. of the claim of job charges paid to these parties. However, I have no doubt in my mind that the claim of wages made to these eight parties is not genuine. Since the Assessing Officer has accepted the quantitative and cost details of rough diamonds purchased and polished diamonds sold, it is without doubt that the appellant had got that much of rough diamonds polished which means that even if the charges paid to the said eight parties were found to be bogus, some amount would have been paid to get the diamonds polished which were claimed to have been polished by these eight parties. Obviously, when bogus bills are raised by the said parties and the payments made to them is returned back to the appellant in cash, the processing of that much quantity of diamonds would have been got done from the third parties at a cheaper rate. This is a case which would be covered by the decision of the hon'ble Income-tax Appellate Tribunal, Ahm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work was done the expenses are fully allowable. If the defects were found, still the Assessing Officer has disallowed 50 per cent. of the expenditure without pointing out as to how much expenses paid to outside parties is not proved. The statements of those persons are not found to be acceptable, as they firstly admitted of having not done the work but later on admitted that the rough diamonds were received by them which were duly entered and the polished diamonds were returned also. Thus, there is complete evidence that the diamonds were processed by outside parties, the payments were made them by "account payee cheques" and the polished diamonds received after processing were exported. Hence, no part of the expenses can be disallowed. Reliance was placed on the following decisions: (1) CIT v. M.K. Bros. [1987] 163 ITR 249/30 Taxman 547 (Guj). (2) Dy. CIT v. Adinath Industries [2001] 252 ITR 476/[2002] 120 Taxman 822 (Guj). 10. We have heard the rival submissions and perused the orders of the lower authorities and the decisions cited above. The details of job-work charges paid for the year under appeal and for the immediately preceding year is tabulated below : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance upheld by the learned Commissioner of Income-tax (Appeals) also. Therefore, this will result in total deletion of the disallowance as made by the Assessing Officer. 12. Ground No. 1 in the Revenue's appeal is against deletion of disallowance out of various expenses. 13. The Assessing Officer has merely observed that personal use expenses cannot be ruled out and, hence, 10 per cent. of the expenses are disallowable. The assessee has been exporting diamond. In connection with export, foreign travel was undertaken and complete details were filed in this regard. Out of the total expenses incurred on account of saving labour, postage and angadia, factory expenses and foreign travelling expenses, 10 per cent. expenses are disallowed on ad hoc basis. The vouchers in this regard have been produced. When the major expenses is in relation to factory expenses, it cannot be said that they have any personal element. Similarly, for postage and angadia expenses also, there cannot be any personal element. Foreign expenses are exclusively for the purpose of business. When the assessee filed the details, it is the duty of the Assessing Officer to find out which expenses are not incur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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