M/S. KAMAL OIL INDUSTRIES,,MEHSANA vs. THE JT.CIT, PATAN RANGE,, PATAN

Being, aggrieved, the assessee filed an appeal before the Ld. CIT (A). However, CIT (A) observed that no correspondence has been submitted that issue of water seeping was taken with warehouse owner nor any claim of insurance was filed. The appellant is silent on the reason as to why huge stock was kept lying in godown from A.Y. 2005-06 to A.Y. 2009-10 and which was not inspected by the owner of the stock. The plea of the Appellant that goods were pledged with bank and therefore, seeds cannot be inspected was not found acceptable as goods were perishable nature and could be inspected after obtaining keys from bank authorities. In view of this matter, the CIT (A) held that the AO has rightly taken valuation @ 19.15 per kg. Therefore, action of the AO was confirmed.

Being, aggrieved the assessee filed this appeal before the Tribunal. The learned counsel for the assessee referring to audit report submitted that the assessee has been valuing closing stock as Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 5 per market value or cost price whichever is lower. The goods were become wet due to rain hence, these were become low quality hence, cost price of the same were low. The learned counsel for the assessee contended that goods were very old which were kept from A.Y. 2005-06. The learned counsel for the assessee referred balance sheet as on 31.03.2007 (PB-42) and submitted same goods were lying with the assessee for A.Y. 2007-08. The learned counsel for the assessee contended that goods were sold during year were of 3,57,070 Kilograms of which average realization value was at Rs. 17.65 per kg. which were even after mixing the goods purchased @ 22.11 per kg. during year. The learned counsel for the assessee referred APMC rate and NCDEX as per Exhibit B and C respectively which showed that when the assessee has sold goods @ 19.53 per kg. in April 2011, these rates were ranging between 25.50 per kg. to 28.20 per kg. in addition, even 30 to 31.01 per kg. This proves that goods seeds could only be realized @ 19.53 per kg. as they were not of good quality. The learned counsel for the assessee placed reliance in the case of DCIT v. Loil Health Foods Ltd. [2017] 82 taxmann.com 324 (Chandigarh-Trib) and Alfa Laval India Ltd. v. DCIT [2003] 133 Taxman 740 (Bombay)/ 266 ITR 418 (Bombay) in support of his claim.

Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 6 Au contraire, the ld. Sr. D.R. supported the order of the lower 6. authorities. The ld. Sr. D.R. submitted that the AO has applied LIFO method of valuation and has arrived at correct finding. The assessee has not been able to substantiate that goods were become wet or lower quality as same goods were sold in April next year on higher rate.

We have heard the rival submissions and perused the relevant material on record. We find that no correspondence has been adduced in support of water seeping or any claim of insurance to support that goods were deteriorated. However, it is also facts that goods were lying in godown from A.Y. 2005-06 to A.Y. 2009-10 as same quantity of goods were shown in balance sheet as on 31.03.2007. The AO adopted cost price @19.15 per kg. presuming that goods purchased on 30.07.2009 @ 22.11 per kg. have been sold out and goods out of opening stock were remained in closing stock.

Ground No. 6 is against the disallowance of salary payment in respect of person specified under section 40A(2)(b) of the Act.

The AO noticed that the assessee has not debited any expenditure on wages payment in last financial year whereas in the current year, it has debited a sum of Rs. 17,80,200 which inter-alia included payment of Rs.5.80 Lakh each to Smt. Shilpaben Kiranbhai Patel, and Smt. Darshnaben Alpeshbhai Patel (wives of partners of the assessee firm). The AO examined and observed that the assessee has failed to adduce any evidence of the performance of work done by them. Accordingly, concluded that payments made at Rs. 11,60,000 to above two women is excessive. However, considering the increase in turnover by 62% from last year, these women might have been rendered some help to the assessee firm in respect of business activity. In view of this matter, the AO treated payment of Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 9 Rs. 10,000 per month as reasonable to above person and accordingly, considered payment at Rs. 2,40,000 as reasonable and disallowed balance amount of Rs. 9,20,000 [ 11,60,000- 2,40,000] under the provisions of section 40A(2)(b) of the Act.

Being dissatisfied, the assessee preferred an appeal before the CIT (A). However, without any success.

Being, dissatisfied the assessee has filed this appeal before the Tribunal. The learned counsel for the assessee submitted that the Assessing Officer has failed to appreciate that the assessee has furnished detail of qualification and nature of service rendered by them. The AO has also accepted this fact as he allowed part remuneration as reasonable. The learned counsel for the assessee argued that both the lady members are assessed to maximum marginal rate ( Copy of acknowledgement of return of income for A.Y. 2010-11, filed showing assessed at maximum marginal rate by both ladies) hence, in the light of ratio laid down by the Hon’ble Gujarat High Court in the case of Pr. CIT -2 v. Gujarat Financial Services Ltd. [Tax Appeal No. 428 & 431 of 2015 dated 07.07.2015] in which it was considering the CBDT dated 06.07.1968 it was held that where the payer and recipient are assessed at maximum marginal Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 10 rate, and payment may be treated as bonafide, hence, no disallowance under section 40A(2)(b) of the Act be made. The learned counsel for the assessee further placed reliance on the decision of Co-ordinate Bench of Ahmedabad tribunal in the case of H.C. Sons v. ACIT Circle -12 Ahmedabad [I.T.A. No. 2713/Ahd/2013/A.Y. 2009-10 dated 25.01.2017] wherein following the ratio laid down by the Hon’ble Gujarat High Court in the case of PWS Engineers Limited v. DCIT [Tax Appeal No. 209 of 2015 dated 06.06.2016] wherein their Lordship have inter-alia held as long as the amount paid by the assessee to specific persons are taxed in the hands of specific persons at the same rate , disallowance under section 40A(2)(b) will be meaningless inasmuch as “permitting the Revenue to tax the same income again at the same rate in the hand of principal payer would amount to double taxation”. Therefore, following same the matter was remitted back to the AO to verify whether payment has been brought to tax in the hands of recipient at the same rate. if that is so, disallowance will stand deleted. Per contra, the ld. Sr. D.R. relied on lower authorities. 12. 13. We have heard the rival submissions and perused the relevant material on record. We find that the recipient of remuneration are Kamal Oil Industries v. JCIT-Range-Patan, Mehsana /I.T.A.No. 2158/AHD/2014/AY10-11 11 have requisite qualification and rendered service for handling of banking services, moreover, as the AO has accepted part payment reasonable, meaning thereby that they have rendered some services.

In the result, the appeal of the assessee is partly allowed.

The order pronounced in the open Court on 19.09.2019.