ITAT Upholds Deletion of ₹1.73 Cr Labour Income Addition as Assessee Had Already Disclosed Income in Return and Form 26AS [Read Order]
Labour income reflected in audited accounts, return of income and Form 26AS cannot be treated as unexplained credits
The Income Tax Appellate Tribunal(ITAT), Ahmedabad Bench, upheld the deletion of ₹1,73,94,080 addition towards labour income after observing that the appellant had already disclosed the income in the return of income and it was reflected in Form 26AS.
The appellant, Revenue Department, filed an appeal challenging the relief granted by the Commissioner of Income Tax (Appeal) (CIT(A)).
The Respondent, Raghavbhai Gordhanbhai Narola, engaged in the business of diamond cutting and polishing job work, had filed the return of income declaring total income as ₹3,72,570 for the Assessment Year (AY) 2013-14. The return was processed under Section 143(1) of the Income Tax Act, 1961.
Upon information received from the Investigation Wing regarding suspicious transactions linked to entities associated with Kiran Gems Pvt. Ltd., the Assessing Officer (AO) reopened the assessment under Sections 147 and 148 of the Income Tax Act alleging that the appellant had undertaken unexplained credits amounting to ₹1,73,94,080.
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During the reassessment proceedings, the AO treated the job-work receipts as non-genuine and made an addition of ₹1,73,94,080 to the appellant income, holding that the transactions were sham and not supported by adequate evidence.
The respondent approached the CIT(A), contending that the impugned amount represented genuine labour income received from Kiran Gems Pvt Ltd. for diamond cutting and polishing work and that the income was duly recorded in the audited financial statements, reflected in the return of income, and also appeared in Form 26AS as tax had been deducted at source.
The CIT(A) accepted the explanation of the appellant and deleted the addition made by the AO. Challenging the relief granted by the CIT(A), the Revenue department filed an appeal before the Tribunal.
Hargovind Sinh, appearing for the Revenue, contended that the respondent had shown job-work expenses which were not supported by evidence. It was submitted that the transactions were linked to suspicious financial activities identified by the Investigation Wing and therefore the AO had rightly treated the receipts as non-genuine and added the amount as unexplained credits.
Biren Shah, counsel for the respondent contended that the impugned amount represented genuine labour income received for diamond cutting and polishing job work carried out for Kiran Gems Pvt. Ltd.
It was submitted by the respondent counsel that the receipts were duly recorded in the audited financial statements and disclosed in the return of income. It was further submitted that the payments were made through banking channels and was also reflected in Form 26AS.
Sanjay Garg, Judicial Member and Makarand V. Mahadeokar, Accountant Member noted that the receipts in question were already disclosed by the appellant in the return of income and were also reflected in Form 26AS.
The Tribunal further observed that the AO had relied on information received from the Investigation Wing without properly verifying the records already available with the department.
The Tribunal relied on Jigneshkumar Jivrajbhai Patel v. ITO, where identical facts were involved, wherein the Tribunal held that reopening of assessment based merely on information received from the Investigation Wing, without verifying the records already available with the department, is unsustainable in law.
Accordingly, the Tribunal dismissed the Revenue’s appeal and upheld the order of the CIT(A) deleting the addition of ₹1.73 crore made towards labour income.
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