COMMISSIONER OF INCOME TAX, LUDHIANA vs. M/S S.S.R.D. SOMANY SIKSHAN SANSTHAN,

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ITA/775/2010HC Punjab & HaryanaPHHC01093744201002 May 2011Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL9 pages

AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arose in the appeal. The Tribunal, in affirming the findings of the CIT(A), had concluded that the AO was not justified in holding that the assessee inflated expenses under the head 'salary to staff'. The CIT(A)'s reasoning, upheld by the Tribunal, was that the AO based the addition on the statement of one employee (Shri Surinder Miglani) who later retracted his statement via affidavit, which the AO wrongly rejected. Furthermore, statements of 11 other employees were in favor of the assessee, and the AO improperly rejected this evidence. The Tribunal found no evidence of the assessee retaining part of the cash withdrawn from employees' bank accounts and noted that an increase in salary alone did not constitute conclusive evidence of genuine expenses. Therefore, the addition of Rs.14,33,132/- was deleted.

What were the facts?

The Revenue (Commissioner of Income Tax) appealed under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT) dated December 4, 2009. The ITAT had dismissed the Revenue's appeal and allowed the assessee's appeal for assessment year 2007-08. A search and seizure operation on August 24, 2006, at the assessee's premises revealed incriminating documents, and the books of account were not up-to-date. The Assessing Officer (AO) made additions of Rs. 18,87,000/- (capitation fees), Rs. 14,33,132/- (inflated salary expenditure), and Rs. 11,92,806/- (cash found). The Commissioner of Income Tax (Appeals) [CIT(A)] reduced the capitation fee addition and deleted the other two additions. The ITAT upheld the CIT(A)'s deletion of the salary expenditure addition.

What were the issues?

1. Whether, on the facts and circumstances of the case, the Hon'ble ITAT was right in law in deleting the addition of Rs.14,33,132/- made by the AO on account of the salary paid by the assessee to his employees and thereafter having received the said salary back from them? Assessee's Contentions: The judgment does not record specific arguments made by the assessee before the High Court. However, the reasoning of the ITAT and CIT(A) indicates that the assessee contended that the addition was not sustainable. Revenue's Contentions: The Revenue contended that the ITAT was wrong in deleting the addition of Rs.14,33,132/- made by the AO on account of inflated salary expenditure, arguing that the assessee had paid salary to employees and then received it back. The Revenue's counsel's endeavor was to re-appreciate the evidence to persuade the Court to take a different view.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances

ITA No. 775 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 775 of 2010 Date of Decision: 2.5.2011 Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus M/s S.S.R.D. Somany Sikshan Sansthan ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL, ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Standing Counsel, for the appellant. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 775 and 784 of 2010 as according to the learned counsel, an identical question of law is involved therein. For brevity, the facts are being taken from ITA No. 775 of 2010. 2. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 4.12.2009 passed by the Income Tax Appellate Tribunal, Delhi Bench “D”, New Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 3804/Del/2009, for the assessment year 2007-08, claiming the following substantial questions of law:- “Whether, on the facts and circumstances of the case, the Hon'ble ITAT was right in law in deleting ITA No. 775 of 2010 -2- the addition of Rs.14,33,132/- made by the A.O. on account of the salary paid by the assessee to his employees and thereafter having received the said salary back from them?” 3. Briefly stated, the facts necessary for adjudication as narrated in the appeal are that a search and seizure operation was carried out on 24.8.2006 at the premises of the assessee and during the search, certain incriminating documents were found and seized. The books of accounts, i.e. cash books, ledger etc. were not found uptodate. The assessee filed its return in Form ITR-7 on 28.3.2008 declaring nil income. The case was taken up for scrutiny and the Assessing Officer vide order dated 20.11.2008 made the following additions:- (i) Rs.18,87,000/- on account of capitation fees received outside the books of account. (ii) Rs.14,33,132/- on account of inflation of expenditure under the head 'salary to staff'. (iii) Rs.11,92,806/- on account of cash found during search as per books of account. 4. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] who vide order dated 11.6.2009 reduced addition of Rs.18,87,000/- to Rs.3,60,400/- and deleted the other two additions fully. Against the order of the CIT(A), the revenue as well as the assessee approached the Tribunal. The Tribunal vide order dated 4.12.2009 dismissed the appeal filed by the revenue and allowed that of the assessee. Hence, the present appeal by the revenue. ITA No. 775 of 2010 -3- 5. We have heard learned counsel for the appellant. 6. The point for consideration in these appeals is whether the assessee had taken back the amount from the employees which was paid to them as salary and, therefore, the same was taxable in the hands of the assessee itself. 7. The Tribunal while affirming the findings of CIT(A), after elaborate discussion had concluded that the Assessing Officer was not right in holding that the assessee had inflated the expenses under the head “salary to staff”. The relevant findings recorded by the Tribunal in paras 13 and 14 of its order are as under:- “13. We have heard the rival submissions and have gone through the material available on record. We find that the Ld CIT(A) has decided this issue after discussing all the facts in proper perspective and hence we reproduce below the finding of Ld CIT(A) from page No.13 to 15 of his

order:- “I have carefully considered the contention of the Ld counsel for the appellant and perused the relevant record. The Assessing Officer has made this addition mainly on the basis of statements of Shri Surinder Miglani S/o Shri Om Prakash Miglani, who was a lecturer of MBA with SSRD since August, 2005. This statement was recorded during the course of search. Though Shri Miglani has retracted from his statement by filing affidavit before the Assessing Officer, this affidavit has not been -4- accepted by the Assessing Officer on the ground that Shri Surinder Miglani was not an assessee, who facing search action when his statement on oath was recorded. However, the Assessing Officer cannot be said to be justified in rejecting the sworn affidavit of Shri Miglani on the above ground. Though I agree with the Assessing Officer that none can be allowed to retract from the statement made during the course of search, unless there was evidence to establish that such statement was recorded under duress etc. in the case of appellant, though there is apparently no evidence of such duress etc. this aspect is to be seen keeping in view the totality of the facts and circumstances. As brought out in the assessment order also, the statements of other 11 employees was also recorded during the course of search. Even the names of these persons are mentioned in para 10.2 of the assessment order. The Assessing Officer admits in the assessment order itself that all these statements were in favour of the appellant. However, he has rejected such evidence on the ground that the employees would speak in conformity with interest of their employees. However, again the Assessing Officer cannot be held to be justified in rejecting the evidence as above on this ground. Whereas he has based his entire assessment order on the basis of -5- statement of one such employee, he has ignored the statement of other 11 similar employees. If the statements of all these 11 persons are considered, the adverse inference drawn by the Assessing Officer against the appellant is not sustainable. In addition to the above evidence, the Assessing Officer has himself mentioned that he was making addition on the basis of certain circumstantial evidence. Circumstantial evidence may be important for deciding an issue in the assessment proceedings in a normal case. However, in my opinion, when an assessee is subjected to search and all the important premises are covered, there could not be any scope for making such huge additions on the basis of circumstantial evidence. Finding of blank signed cheques books of the employees have been considered for adverse inference by the Assessing Officer. However, as brought out in para 10.2 of the assessment order itself, in the statement recorded during the course of search itself, Shri Anil Sharma Accountant of SITM has duly explained the reasons for the same. What has been stated by Shri Anil Sharma is the consistent stand on the appellant right from the date of search. Therefore, the conclusion drawn by the Assessing Officer that the amount from the respective bank accounts of the employees is -6- first withdrawn by the appellant and then part of it is handed over to the employees after pocketing the balance is without evidence. Not even single seized document has been discussed which showed that the appellant did not retain part of cash withdrawn from the respective bank accounts of the employees. If the version of the Assessing Officer was correct, there should have been least some evidence found during the course of search in this regard. The increase in salary from assessment year 2005-06 to 2006-07, in itself would further not constitute conclusive evidence that the appellant claimed certain in genuine expenses under the head. Keeping in view the above discussion, I am not inclined to agree with the Assessing Officer that the appellant inflated expenses under the head “Salary”. Though on the basis of statement of Shri Surinder Miglani recorded during the course of search, adverse inference could be drawn against the appellant, as far as payment of salary to him alone is concerned, keeping in view the entirely of the facts and circumstances i.e. statement of 11 other employees recorded during the course of search and the subsequent affidavit of Shri Miglani which has been rejected by the Assessing Officer not for some good and valid reasons, it would not be appropriate -7- even to sustain addition even in respect of salary paid to Shri Miglani. In view of the above, addition of Rs.14,33,132/- made by the Assessing Officer is, therefore, deleted.”

14.

From the above, we find that Ld. CIT(A) has decided this issue in proper perspective because the Assessing Officer has based his conclusion on the statement of one employee whereas 11 other employees have stated in the statements that they were getting full salary as debited by the assessee in its books. We also find that the statement of one employee of Shri Miglani was also retracted by him by filing an affidavit. Under these facts we find no good reason to interfere in the order of the Ld. CIT(A) on this issue and hence we uphold the same. This ground of the revenue is dismissed.”

No perversity or illegality could be pointed out by the learned counsel for the appellant in the aforesaid findings recorded by the Tribunal. The only endeavour of the learned counsel was to reappreciate the evidence so as to pursuade this Court to take a different view, which is not permissible.

In view of the above, no substantial question of law arises in these appeals. Accordingly, the appeals are dismissed. (AJAY KUMAR MITTAL) JUDGE May 2, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE -8- -9- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 784 of 2010 Date of Decision: 2.5.2011 Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus M/s S.S.R.D. Somany Sikshan Sansthan ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL, ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Standing Counsel, for the appellant. AJAY KUMAR MITTAL, J.

The appeal is dismissed. For reasons, see the detailed order of even date recorded in ITA No. 775 of 2010 (Commissioner of Income Tax (Central), Ludhiana v. M/s S.S.R.D. Somany Sikshan Sansthan). (AJAY KUMAR MITTAL) JUDGE May 2, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE

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