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TMI Blog2011 (11) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... a, be taken up first. 3. Brief facts, as brought out in the impugned order dated 15th October 2010, passed by the Commissioner (Appeals)-I, Mumbai, vide Paras-3.1, 3.2 and 3.3, are reproduced below for ready reference:- 13.1 The facts relevant to the issue are that , during the search seizure action at the residence of Shri Kantilal Gada , ceratin documents with incriminating entries were found. Shri Kalpesh Gada , one of the partners admitted the seized documents to contain details of unrecorded sales. This fact was confirmed by one another partner , Shri Bhagwan Gada, whose son Shri Vipul Gada , is one of the main persons in this group. 3.2 The entries in seized documents such as p v j and Saibaba were stated to represent unaccounted trading. However , no income from this unaccounted trading was found to be admitted in the return of the appellant, whereas Shri Kalpesh Gada and Shri Vipul Gada , in their respective returns , had admitted certain additional income on account of the said unaccounted trading activity. The AO, however , issued a show cause notice requesting the appellant to explain as to why the unaccounted sales could not be treated as unacc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis. The same income are assessed in the hands of Shri Kalpesh Gada and Shri Vipul Gada on protective basis. 4. Before the Commissioner (Appeals), the assessee reiterated the contentions that the unaccounted sales were part of trading activity. That the surplus arising from unaccounted trading activity has been offered as income in the individual hands of Mr. Kalpesh B. Gada, and Mr. Vipul Gada, as the unaccounted trading activity had been done by the said two individuals only. The assessee contended that the material seized, the statement recorded and the returns of income filed, clearly show that the income belongs to Mr. Kalpesh B. Gada and Mr. Vipul Gada, and not to the assessee Mr. Alpesh B. Gada and M/s. K.K. Tex Enterprises. That the material seized during the course of search, evidenced purchases outside the books and this fact is corelated with the bank accounts maintained in the name of Saibaba Textiles. The Commissioner (Appeals), on the ground that no evidence was found during the course of search, which proves unaccounted purchases and on the ground that the fabrics sold outside the books were actually produced by using the machinery and raw material, rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 6.50 per meter as labour expenses whereas the actual expenditure was of the order of ₹ 1.5 to ₹ 2 per meter. In this connection , a show cause notice was issued calling upon the appellant to show cause as to why labour charges should not be restricted. The reply of the appellant was that , the statement of Shri Kalpesh Gada admitting inflation of labour expenses was wrong. Shri Bhagwaji Gada, the main person has strongly objected to it. It is stated that, only a few persons out of 80 labourers had given adverse statements and the further reply was that , in order to buy peace of mind , the appellant disclosed ₹ 50.50 Lacs as additional income during search. Through another show cause notice , the appellant was asked to explain as to why labour charges claimed beyond ₹ 1.50 per meter should not be disallowed. The appellant replied that , ₹ 4 to ₹ 4.5 per meter was paid during the AY 04-05 and 05-06 and ₹ 4 and ₹ 6 were paid during the years relevant to the AY 07-08 and 08-09. Considering the argument of the appellant that, he did incur certain expenses other than the expenses recorded in books, the AD chose to allow ₹ 3 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnish stock register for verification. In view of this, the quantitative details available in the tax audit report have to be compulsorily relied upon. Thus, from the quantitative details, the total quantity manufactured during the year is determined and the quantum of inflated expenses recorded in the books of accounts after allowing a margin of ₹ 3 per meter (Rs 1.5 for labor + ₹ 1.5 for other incidental expenses like transport power, beam drawing etc) is worked out as below: Closing stock of grey cloth = 12162 meters, ₹ 310673 Average price = ₹ 310673 / 12162 ₹ 25 Sales shown is ₹ 11543622/- @ ₹ 25 per meter, quantity of grey cloth manufactured = 11543622 / 25 = 461744 meters Labour charges claimed ₹ 1514278/- Labour charges allowable ₹ 3 per meter = 461744 meters x 3 = ₹ 1385232/- Disallowance ₹ 1514278 - ₹ 1385232 = ₹ 129046/-. 4.3 That is, the AO worked out the number of meters woven at 4,61,744 meter by dividing the total sales by the average sale price @ 25 per meter and allowed ₹ 3 per meter for labour charges , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unted. Similarly, he submitted that in reply to Question no.10, Mr. Bhagwan K. Gada, submitted that trading transaction contained in the register are unaccounted. Similarly, he pointed out to the answer to Question no.15, and also other to replies in the statement. He contended that the addition is based on the statement but the Revenue is relying only on one part of the statement and ignoring the second part. He took us through the search materials and the statement of Mr. Kalpesh K. Gada, in support of this contention that the unaccounted sales in question is from trading and not for manufacturing and that it belongs to Mr. Kalpesh K. Gada. We would be referring to each of these materials in our findings. 9. He also drew the attention of the Bench to various purchase bills of Saibaba Textiles, and co-related the bills to the payments recorded in the copy of bank account which were found during the course of search in support of his contentions that unaccounted purchases were evidenced by the material found during the course of search as well as entries in unofficial bank account maintained for this unaccounted trading. He strongly disputed the findings of the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was available in the seized material on the actual amount of labour charges paid. He submitted that no such evidence was available in the case of Mr. Bhagwan Gada. He further submitted that what was applied for assessment year 2003-04, was applied even for assessment year 2008-09. His case is that there is an increase in labour charges over the years and that this fact has not been considered. He prayed that the issue may be restored to the file of Assessing Officer for verification as to whether the material found during the course of search and also considering the increase in rates from year-to-year and then deciding the issue afresh. Referring to the statement recorded from Mr. Bhagwan Gada, he submitted that the period during which the amount was paid as labour charges, was not stated. 12. Learned Counsel submitted that these issues are common for all the assessment years in both the assessees cases before the Tribunal with some exceptions which were argued as follows:- 13. ITA no.896/Mum./2011, in the case of Mr. Alpesh B. Gada, assessment year 2008-09, an additional ground in respect of telescoping of addition of inflated labour charges against excess stock found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the issue of labour charges, the learned Departmental Representative, agreed that the issue may be restored to the file of Assessing Officer for verification of the seized material. She submitted that a specific direction be given that the order of the bench in the case of B.K. Tex Corp., ITA no.371/Mum./2011, order dated 29th July 2011, as well as order in the case of Bhagwan Gada, in ITA no.376/Mum./2011, order dated 29th July 2011, be followed in the cases in hand. 19. On the issue of telescoping, the learned Departmental Representative submitted that the assessee should demonstrate nexus before making the claim. 20. On section 40(a)(ia), she relied on the order passed by the Commissioner (Appeals). 21. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record, as well as the case laws cited before us, we hold as follows:- 22. The issue before us is whether the unaccounted sales in question are from trading transactions or from manufacturing transactions. This decision has to be arrived based on the statement recorded during the course of search and the material seized at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mn is no of folds, 9th column is either bill no. or challan no. On page no.7, the 9th column is cash received. All the trading transactions contained in this register are unaccounted. The notings in the last column under the head p , v , j , Sai Baba are representing unaccounted trading. However, all the other entries have been duly reflected in the books of account. Pg.27 : It contains notings by Kalpesh gada regarding details of third party cheques received against unaccounted trading. Pg.27 to 26 : Purchase bill of Sai Baba Textiles. 25. Throughout the statement, Mr. Bhagwan Gada, stated that all these transactions in question are unaccounted trading transactions and that certain evidences found are purchase bills of Saibaba Textiles. Mr. Kalpesh Gada, in a statement recorded on 12th July 2007, i.e., on the date of search has, in reply to a question, stated as follows:- Q.22 During the course of the search proceedings, books of account / documents as per annexure AR-1, have been seized. I am showing you each item of such seizer. Please identity the same and explain the contents in detail? Ans. A/9 This register is related to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing and production were separately maintained and no defect has been pointed out on the same. The addition is made on a surmise that production is suppressed. No investigation is done by the Assessing Officer on the production register, etc. Thus, on this factual matrix, we hold that the trading transactions in question do not belong to either the assessee Mr. Alpesh G. Gada or M/s. K.K. Tex Enterprises. These unaccounted trading transactions belong to Mr. Kalpesh G. Gada and Mr. Vipul Gada. The Assessing Officer is not sure as to what is the so called suppression of production in each case. He assumes that the suppression is equal and made ad-hoc addition. No evidence is found to link the assessee with these sales. Thus, the addition made and sustained by the Commissioner (Appeals) on account of unaccounted sales is hereby deleted. 27. Even otherwise, the entire turnover could not have been brought to tax. At best, only profits arising out of an activity can be brought to tax. Additions are sought to be made on the basis of gross receipts in a bank account. At best, the peak credit could have been added. In the case on hand, gross receipts have been added as income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2007-08, respectively. 33. Ground no.1, in all these appeals pertains to addition on account of unaccounted sales. This ground is identical to the ground no.1 raised in ITA no.893/Mum./2011, for assessment year 2003-04. Consistent with the view taken by us in this order vide Paras-21 to 27 above, we hold that the unaccounted trading transaction do not belong to the assessee. Consequently, the ground raised by the assessee is allowed and the addition is deleted. 34. Ground no.2, in all these appeals, is on the issue of disallowance of labour charges. This ground is also identical to the ground no.2, raised in ITA no.893/Mum./ 2011, for assessment year 2003-04. Consistent with the view taken by us in this order vide Para-28 above, we set aside the impugned orders passed by the Commissioner (Appeals) and restore the issue back to the file of Assessing Officer for denove adjudication in accordance with law. Thus, ground no.2, in all the three years are allowed for statistical purposes. 35. In ITA no.896/Mum./2011, the assessee has raised an additional ground in respect of telescoping of addition of inflated labour charges against excess stock found. 36. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed . 44. Ground no.4, in ITA no.1489/Mum./2011, for assessment year 2007- 08, is on the issue of disallowance of 40A(ia) r/w section 194H of the Act. 45. The Assessing Officer disallowed the amount on the ground that the assessee was required to deduct tax at source @ 10% from commission and brokerage. As rightly pointed out by the assessee, the tax rate applicable is 5% for the relevant assessment year. The rate of 10% came into effect from 1st June 2007. Thus, this disallowance on the ground that TDS has been deducted at a lower rate than prescribed, is hereby deleted. Ground no.5 is, thus, allowed. 46. ITA no.898/Mum./2011, for assessment year 2008-09, the assessee has raised an additional ground in respect of telescoping of addition of inflation labour charges against the excess stock found. 47. This ground is also identical to the ground no.2, raised in ITA no.893/Mum./2011, for assessment year 2003-04. Consistent with the view taken by us in this order vide Para-28 above, we set aside the impugned orders passed by the Commissioner (Appeals) and restore the issue back to the file of Assessing Officer for denove adjudication in accordance with law. This ..... X X X X Extracts X X X X X X X X Extracts X X X X
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