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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER आदेश आदेश आदेश
PER D. KARUNAKARA RAO, AM :
The Revenue filed the main appeal and the assessee filed the Cross Objection with the delay of 533 days. They are filed against the
order of CIT(A), Kolhapur, dated 19-03-2014 for the Assessment year
2010-11.
We shall first deal with the Cross Objection filed by the assessee.
C.O.No.03/PUN/2018 – By Assessee (Arising out of ITA No.1328/PUN/2014) A.Y. 2010-11
In connection with the request for condonation of delay in filing
the Cross Objection, Ld. Counsel for the assessee drew our attention to
the Affidavit of Shri Subhash Hemaraj Saraswat, Director of H.C.
Saraswat Tobacco Co. Pvt. Ltd. (assessee) dated 04-01-2018 and read
out the contents of relevant para to demonstrate the reasons.
From the reasons given in the affidavit of the assessee, we find
the same constitutes general in nature. Assessee waited for the
Revenue to file the present appeal and therefore, the same is the reason
for delay in filing the Cross Objection. However, we find the Revenue
filed the appeal on 20-06-2014. Considering the lack of due diligence
from the assessee’s side, the request for condonation in filing the Cross
Objection is rejected. The legal requirement of explaining each day of
delay of 533 days is not discharged by the assessee. Therefore, the
request for condoning the delay is not allowed. Hence, the cross
objection is not admitted.
In the result, Cross Objection filed by the assessee is dismissed.
Now we shall take up the appeal filed by the Revenue.
ITA No.1328/PUN/2014 - By Revenue A.Y. 2010-11
Grounds raised by the Revenue are as under :
“1 (i). On the facts and in the circumstances of the case the CIT(A) erred in deleting the addition of Rs.76,95,866/- though the assessee company
has tried to show that Angad and Earmas was available for sale by adopting high figure of generation of Raval and Wastage.
(ii) On the facts and in the circumstances of the case the CIT(A) erred in admitting assessee’s Say without calling for Remand Report from the AO and relief is granted without appreciating the fact that no stock details were available with the assessee and neither such details of stock of different kinds of tobacco are produced before him while explaining the generation of tobacco of different kinds on processing.
(iii) On the facts and in the circumstances of the case the CIT(A) erred in not appreciating the fact that the records do not show any circumstances barring the assessee to submit the fresh evidences furnished before the CIT(A), Kolhapur which could not be furnished by it before the Assessing Officer as provided under Rule 46A(1) of the Income Tax Rules, 1962. The reasons for admission for such evidences by the Hon’ble CIT(A) are also not found in the appellate order as provided under Rule 46A(2).
2(i) On the facts and in the circumstances of the case the CIT(A) is not justified in deleting the 40% of disallowance of excessive & unreasonable salary u/s.40A(2)(b) made by the AO at Rs.12,26,400/-, though there is small increase in the total turnover and no evidence has been furnished to substantiate the work done by lady members.
(ii) On the facts and in the circumstances of the case, the CIT(A) erred in granting of 40% relief out of reasonable disallowance made by the AO without any basis.
The appellant prays that the order of the CIT(A), Kolhapur be vacated and that of the AO be restored.
The appellant craves right to add, alter, amend any or all grounds during hearing of appeal.”
Briefly stated relevant facts are that the assessee is engaged in
the trading of Tobacco and filed the return of income declaring total
income of Rs.18,78,180/-. During the scrutiny proceedings, there was
enquiry into the sales and understatement of stock. Eventually, AO
made out certain lacunaes with regard to the sale Bill No.20 before
making various additions on account of understatement of stock,
suppression of gross profit, suppression of sales and purchases, bogus
commission and also disallowances on account of excessive payments
u/s.40A(2)(b) of the Act. The assessed income is determined at
Rs.1,53,56,630/-. During the First Appellate proceedings, the CIT(A)
deleted certain additions and partly allowed the appeal of the assessee.
The CIT(A) granted relief to the assessee on the issue of addition of
Rs.76,95,866/- made by the AO on account of understatement of stock
and suppression of gross profits. [Ground No.1(i) to (iii)]. CIT(A) also
granted relief on the issue of addition made by the AO invoking the
provisions of section 40A(2)(b) of the Act [Ground No.2(i) & 2(ii)].
Aggrieved with the order of CIT(A), the Revenue filed the present
appeal with the grounds mentioned above.
Referring to the ground No.1 and its sub-grounds, Ld. DR for the
Revenue submitted that Revenue is aggrieved with the deletion of
Rs.76,95,866/- by the CIT(A), who admitted the fresh evidences from
the assessee and failed to call for the remand report from the AO on the
said evidences. In this regard, referring to Ground No.1 along with its
sub grounds (i) to (iii), Ld. DR brought our attention to page 8 of the
assessment order where this bill No.20 dated 25-06-2009 an other Bill
Nos. 21 & 22 are inserted and mentioned that the said bills are full of
defects. Further, bringing our attention to the letter dated 06-11-2013
issued by Samar Biri Factory, Arabinda Pally, P.O. Siliguri, Darjeeling,
West Bengal, placed at page 66 of the paper book, Ld. DR submitted
that the said letter constitutes an additional evidence which was non-
existing at the time of assessment proceedings and therefore, never filed
before the AO. It is also undisputed fact that the CIT(A) never called for
a remand report on this paper from the AO before admitting the same
and granting relief to the assessee.
On this issue, Ld. Counsel for the assessee fairly agreed that
CIT(A) has not called for a remand report on this additional evidence.
However, he mentioned that the said sale bill is doubted by the AO. AO
ignored the fact of granting benefit of equivalent amount in the stock
account. He further submitted that he has no objection is remanding
the issue raised in Ground No.1 (i) to (iii) to the file of AO so long as
such treatment is granted by the AO.
On hearing both the parties on this limited issue of remanding,
we find page No.66 of the paper book, i.e. letter dated 06-11-2013 from
M/s. Samar Biri Factory, is undisputedly an additional evidence and
the CIT(A) erroneously did not felt need of calling for a remand report
from the AO. Admittedly, it is a case where page 67 of the paper book
being ledger extract confirmed by the said party and the same is good
enough for granting relief to the assessee. In any case, we find there is
failure on part of CIT(A) in admitting the additional evidence at the back
of the AO and failed to follow the set procedures on such issues.
Considering the same, we are of the opinion that Ground No.1 (i) to (iii)
raised by the Revenue are remanded to the file of AO for fresh
adjudication. In the said proceedings, AO shall note that if the said sale
bill is also bogus or otherwise, still what happens to the equivalent
stock qua the stock account of the assessee. Obviously, when the same
is not sold, it shall remain in the closing stock account of the assessee
for the year under consideration. AO shall also note that this should be
the case as long as AO failed to bring the evidence to the extent
equivalent stock is also in the grey market and outside the books of
account. With these remarks, we remand Ground No.1 (i) to (iii) raised
by the Revenue to the file of AO. Accordingly, the same are allowed for
statistical purposes.
Ground No.2 (i) and (ii) by the Revenue relates to applicability of
provisions of section 40A(2)(b) of the Act in respect of the salary
payments made to the Director, Son of the Director, Wife and daughter-
in-law of the Director. Total salary paid by the assessee for the A.Y.
2010-11 is Rs.49,80,000/-. For the earlier assessment year 2009-10,
total salary paid is only Rs.24,72,000/-. On adhoc basis, AO allowed
salary amount of Rs.19,14,000/- as reasonable and considered the
amount of Rs.30,66,000/- as excess salary. CIT(A) agreed to the logic
in the AO’s conclusions that the increase in salary is disproportionate.
He, however, on estimate basis, allowed 10% of increase in the salary
and confirmed the balance amount.
We heard both the parties on this limited issue and perused the
orders of the Revenue. There is no dispute on the facts. The dispute is
only with reference to the estimation of increase of salary. In this
regard, we perused the contents of Para No.15 of the order of CIT(A) and
considered the same as a speaking order. The said para is extracted
here as under for the sake of completeness :
“15. I find that there is logic in assessing officer’s conclusion that increase in salary is disproportionate. Whereas increase in the salary every year is understandable, the assessee’s submission has force that in view of the increase in business, more than normal increase is justified. However, this cannot justify increase in salary by 100%. Salary of Shri Saraswat Nandlal H. Senior most Director has been increased from Rs.4,80,000/- to Rs.9,00,000/- in the current assessment year which is almost double. Similarly, 100% increase has been made in the salary of other persons. On the other hand, this is also a fact that business of appellant has increased during the year and the appellant would like to reward concerned directors and family members suitably for efforts made by them in increasing the business. It may be noted that gross profit of the business was 8.37% in assessment year 2009-10 which is 13.99% in the current assessment year. Turnover has increased from Rs.5.82 crores to Rs.6.97 crores in this year. In view of this improvement in the business, I feel that increase in salary over and above mere 10% increase will be justified. I hereby delete 40% of the disallowance made by the assessing officer amounting to Rs.12,26,400/- and confirm 60% of the disallowance being Rs.18,39,600/-.”
The above conclusions drawn by the CIT(A) on the specific facts of
this case are fair and reasonable and does not call for any interference.
Accordingly, Ground Nos. 2(i) and (ii) raised by the Revenue are
dismissed.
In the result, appeal of the Revenue is partly allowed for
statistical purposes.
To sum up, the Cross objection filed by the assessee is dismissed
and the appeal filed by the Revenue is partly allowed for statistical
purposes.
Order pronounced in the open court on this 11th day of April, 2018.
Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य
पुणे Pune; �दनांक Dated : 11th April, 2018 सतीश आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A), Kolhapur 4. CIT, Kolhapur िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” Pune; 5. गाड� फाईल / Guard file. 6.
आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार
स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune