ASSISTANT COMMISSIONER OF INCOME-TAX vs. H.C. SARASWAT TOBACCO CO. PVT. LTD., KOLHAPUR

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

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.

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.

Now we shall take up the appeal filed by the Revenue.

ITA No.1328/PUN/2014 - By Revenue A.Y. 2010-11

“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 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)].

appeal with the grounds mentioned above.

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.

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.

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.

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.

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.

statistical purposes.

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