RAVESHA PIGMENTS LIMITED ,MUMBAI vs. CIT (A) NATIONAL FACELESS APPEAL CENTRE DELHI AND AO (NATIONAL FACELESS ASSESSMENT CENRE ,, DELHI

Assessee by : Shri.Bhavin . J. Marfatia.AR Revenue by : Smt.Sayogita Nagpal. CIT DR Date of Hearing 05.10.2023 Date of Pronouncement 13.10.2023 आदेश / O R D E R

PER PAVAN KUMAR GADALE JM:

1.The Ld. AO (National faceless assessment center) ought to have appreciated that the duty drawback of sum of Rs.26,006/- is already offered for tax in A Y 2019-20 (being duty drawback received in April, 2018) and the addition in AY 2018-19 is unwarranted. The Ld . CIT(A) (National faceless appeal) also ought to have appreciated that the duty drawback of sum of Raveshia Pigments Ltd, Mumbai. - 2 -

Rs.26,006/- is already offered for tax in AY 2019-20 and the same amount cannot be taxed twice and the addition in AY 2018-19 is unjustified.

2. The CIT(A) (National faceless appeal) erred on facts and also in law in sustaining the addition of salaries paid of Rs.42,00,000/-to Directors, without any notice to the appellant. The Ld . CIT(A) | National faceless appeal) failed to appreciate that out of the total salaries of Rs.1,10,40,000/- LD AO has allowed in assessment order, the sum of Rs.54,00,000/- (which includes the salaries of Rs .42 ,00,000/-) and the balance of Rs.56,40,000/- Stands allowed in the First appeal order after verification of forms 16Accordingly, the question of sustaining the disallowance of Rs. the salaries of Rs. 42 ,00,000/ does not arise at all.

3The Ld.CIT(A) (National faceless appeal) erred on facts and also in law in concluding that the salaries of Rs.42,00,000/- remains unexplained. The Ld .CIT(A) (National faceless appeal) ought to have appreciated that these salaries of Rs. 42,00,000/- are already explained for and accepted in the assessment order u / sec 143(3) and the same forms the part of salaries of Rs.54,00,000/- allowed by LD AO in assessment order u/s.143(3) of the Income Tax Act, 1961.

Raveshia Pigments Ltd, Mumbai. - 3 -

3. The brief facts of the case are that, the assessee company is engaged in the business of manufacturing of red oxide and yellow oxide products. The assessee has filed the return of income for the A.Y 2018-19 on 15.10.2018 disclosing a total income of Rs. Nil and the return of income was processed u/sec 143(1) of the Act. The case was selected complete scrutiny under E-assessment scheme 2019 for (i) verification of duty drawback received as shown in the export import data and (ii) low income from TCS receipts scrap. Subsequently, the Assessing Officer (A.O) has issued notice u/s 143(2) and U/sec 142(1) of the Act calling for the explanations on the claims. In compliance, the assessee has submitted the details on various dates as referred at Para 3 of the AO order. The AO on Raveshia Pigments Ltd, Mumbai. - 4 - perusal of the facts, information and details found that (i) the assessee is entitled for duty drawback of Rs.2,80,831/- but has received Rs.2,54,778/-during the F.Y 2017-18 and balance was received in the April 2018.Since the assessee is fallowing mercantile Accounting system, therefore the AO has made the addition Of Rs.26,000/- under Income from business (ii) Further the AO dealt on the statement submitted in respect of salaries paid to executives and directors including bonus Rs.1,10,40,000/- and out of the said amount Rs.54,00,000/- is towards remuneration to directors and the AO is of the opinion that the directors being shareholders are paid remuneration and bonus i.e Rs.56,40,000/- being the remaining amount, though the assessee has filed the returned income with the loss. The A.O dealt on the facts and information and came to a conclusion that the assessee has paid bonus which is in the nature of dividends to their directors, who are also the share holders and invoked the provisions U/sec 36(1)(ii) of the Act and disallowed Rs.56,40,000/-.(iii) the A.O found that the assessee has paid salaries to three staff members aggregating to Rs.9,78,453/- without Raveshia Pigments Ltd, Mumbai. - 5 - deduction of TDS U/sec192 of the Act. Hence the A.O has applied the provisions of section 40(a)(ia) of the Act and disallowed @30% of the salaries paid, which works out to Rs.2,93,536/-.Finally the AO has assessed the total income Rs. Nil after setting off of the current year and passed the order u/s 143(3) of the Act dated 20.04.2021.

4. Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) has considered the grounds of appeal, submissions of the assessee and findings of the AO. Whereas in respect of disallowance U/sec36(1)(ii) of the Act by the A.O, the CIT(A) has granted partial relief and sustained the disallowance to the extent of Rs,42,00,00/- and partly allowed the assessee appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Hon’ble Tribunal.

5. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in sustaining the partial disallowance U/sec36(1)(ii) of the Act irrespective of the fact that the directors of the company were not Raveshia Pigments Ltd, Mumbai. - 6 - paid any bonus in the F.Y 2017-18 and the total payments/ remuneration towards the salaries. The AO and CIT(A) were under the wrong assumption that bonus is paid to the directors and the assessee has also complied with the provisions of the Companies Act 2013.The Ld. AR substantiated the submissions with the factual paper book and prayed for allowing the appeal. Per Contra, the Ld. DR supported the order of the CIT(A).

6. We heard the rival submissions and perused the material on record, the sole matrix of the disputed issue envisaged by the Ld. AR that the CIT(A) has erred in sustaining salaries aggregating to Rs.42,00,000/- as remain unexplained though the assessee has substantiated the facts of salary paid to executives and directors remuneration duly supported with the Audited financial statements and Tax Audit report U/sec44AB of the Act. Whereas on perusal of the Audited Profit & Loss account under the Head – Other Expenses Rs.3,68,75,027/- Note 20, the assessee has claimed administrative expenses which includes directors remuneration of Rs.54,00,000/ and Raveshia Pigments Ltd, Mumbai. - 7 - executive salary of Rs.56,40,000/- along with other business administration expenses placed at page 16 & 20 of the Paper book. Further in the Notes forming part of Accounts for the year ended 31 march 2018, at Note 7 “Related Party Transactions” –Scheduled “D”- Disclosure of material transactions with related parties under Remuneration to Key Management personal for the Year ended 31-03-2018 Rs.54,00,000/-was paid as specified and similarly Rs.56,40,000/- was paid to the persons being relatives of key management personal placed at page 29 & 28 of the paper book. Hence It clear that the total claim of Rs.1,10,40,00/- was paid in respect of director remuneration and executive salary and whereas the A.O. has wrongly considered Rs. 56,40,000/- as bonus paid to directors in addition to salary and invoked the provisions U/sec36(1)(ii) of the Act and made disallowance. On appeal, the CIT(A) has sustained the addition to the extent of Rs,42,00,000/-. We find the CIT(A) has overlooked the submissions and facts as dealt in the above paragraphs and has partially sustained the disallowance. Considering the facts and Raveshia Pigments Ltd, Mumbai. - 8 - circumstances, we find the findings of the CIT(A) are not tenable and accordingly we set aside the order of the CIT(A) on this disputed issue and direct the assessing officer to delete the disallowance and we allow this ground of appeal

in favour of the assesse. 7. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 13.10.2023.