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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), Kolhapur dated 28-08-2014 for the assessment year 2011-12.
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The facts of the case as emanating from records are: The assessee is engaged in trading of computers and computer peripherals. The assessee filed his return of income for the impugned assessment year on 28-09- 2011 declaring total income of Rs.70,84,890/-. The case of the assessee was selected for scrutiny on the basis of AIR information, accordingly statutory notice u/s. 143(2) was issued to the assessee on 28-09-2012. During the course of scrutiny assessment proceedings, the Assessing Officer made additions/disallowances on following counts : i. Disallowance of remuneration to the Directors : (a). Mohini Arun Mangave Rs.8,00,000/-. (b). Rajeshwari A. Mangave Rs.8,00,000/-. ii. Cessation of liability u/s. 41(1) Rs.10,21,672/-. iii. Disallowance u/s. 40A(2)(b) payment of incentive to M/s. Click a associated concern of the assessee Rs.1,63,870/-.
Aggrieved by assessment order dated 11-10-2013, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The assessee reiterated his submissions before the Commissioner of Income Tax (Appeals) in respect of aforesaid additions/disallowances. The First Appellate Authority rejected the same and confirmed the additions / disallowances. Now, the assessee is in second appeal before the Tribunal assailing the findings of Commissioner of Income Tax (Appeals).
Shri Pramod Shingte appearing on behalf of the assessee submitted that the assessee company is having four Directors namely Shri Arun Jaykumar Managave, Shri Appasaheb Jaykumar Managave, Mrs. Mohini Arun Managave and Mrs. Rajeshwari Appasaheb Managave. The assessee
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has paid salary to the first two Directors at the rate of Rs.12,00,000/- per annum and to latter two Directors at the rate of Rs.8,00,000/- per annum. The Assessing Officer has allowed payment of salary to Shri Arun Jaykumar Managave and Shri Appasaheb Jaykumar Managave, whereas salary paid to Mrs. Mohini Arun Managave and Mrs. Rajeshwari Appasaheb Managave have been disallowed in toto. In earlier assessment year i.e. assessment year 2010-11 and even in the subsequent assessment years the assessee has been paying salary to Mrs. Mohini Arun Managave and Mrs. Rajeshwari Appasaheb Managave. The Department has accepted the same without raising any question. It is only in the assessment year under appeal that salary paid to Mrs. Mohini Arun Managave and Mrs. Rajeshwari Appasaheb Managave have been disallowed. The ld. AR further submitted that a perusal of assessment order reveal that the payment of salary to the lady Directors have been disallowed on the basis of some discrete enquiry made by the Assessing Officer. The enquiry report was never confronted to the assessee, therefore, the disallowances have been made in unjustified and arbitrary manner.
3.1 In respect of addition of Rs.10,21,672/- u/s. 41(1) of the Act the ld. AR submitted that the Assessing Officer has made addition in respect of sundry creditors with whom no transactions were carried out in the period relevant to the assessment year under appeal. The ld. AR pointed that the sundry creditors are the supplier of computer components and peripherals. Their payments were withheld as the materials supplied by them were not as per the specifications or due to non-replacement of the materials/ components. The ld. AR fairly admitted that the assessee had not squared up the said liability till date.
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3.2 In respect of ground No. 4 relating to disallowance of incentive Rs.1,63,870/- u/s. 40A(2)(b) paid to M/s. Click a group concern, the ld. AR submitted that admittedly the assessee has paid higher incentive to the aforesaid group entity as it was exclusively dealing with the products of the assessee alone. The assessee paid incentive @ 7% to the associate concern as against 5% to unrelated parties. The assessee paid lower incentive of 5% to unrelated parties as they were trading in the products of other vendors as well. The ld. AR in support of his submissions placed reliance on the following decisions : i. Principal Commissioner of Income Tax Vs. Ramgopal Minerals, 394 ITR 696 (Kar.); ii. DSA Engineers Vs. Income Tax Officer, 30 SOT 31 (Mum.); iii. Jagdamba Rollers Flour Mill Ltd. Vs. Assistant Commissioner of Income Tax, 117 ITD 260 (Nagpur)(TM).
On the other hand Shri Achal Sharma representing the Department vehemently defended the findings of Commissioner of Income Tax (Appeals). The ld. DR submitted that discrete enquiries made by Assessing Officer reveal that the lady Directors were not contributing towards the management of the assessee company, in any manner. The assessee has not filed any documentary evidence to show that the lady Directors were professionally qualified to carry out business activities of the assessee company.
4.1 In respect of addition u/s. 41(1), the ld. DR submitted that the credit amounts were pending for very long time. The assessee has not furnished any evidence to support his contentions that the payments were not made
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as the replacement material was not received from the said parties. The ld. DR pointed that during assessment proceedings, in respect of some of parties the assessee had admitted for surrendering certain amount as cessation of liability. The ld. DR referred to the observations of the Assessing Officer in para 4.5 of the assessment order. It was further contended that the Assessing Officer asked for confirmations from respective parties but the assessee failed to furnish confirmations.
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. In ground Nos. 1 and 2 of appeal the assessee has assailed disallowances of remuneration (Rs.16,00,000) u/s. 40A(2)(b) of the Act paid to lady Directors. A perusal of documents on record show that there are four Directors of the company. The name of the Directors and salaries paid to them are as under : Name of Directors Annual salary paid (in Rs.) Shri Arun Jaykumar Managave Rs.12,00,000/- Shri Appasaheb Jaykumar Managave Rs.12,00,000/- Mrs. Mohini Arun Managave Rs.8,00,000/- Mrs. Rajeshwari Appasaheb Managave Rs.8,00,000/-
The authorities below have disallowed remuneration paid to lady Directors only. The ld. AR of the assessee has stated at the Bar that all the four Directors are receiving salary since long. In scrutiny assessment proceedings for assessment year 2010-11 and even prior to that no such disallowance was made in respect of any of the Directors. Even in the scrutiny assessment proceedings for assessment year 2013-14 the
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Assessing Officer allowed entire payment of remuneration to the lady Directors. In assessment year 2011-12 the assessee had again claimed payment of remuneration to all the Directors, no disallowance was made as the assessments were made u/s. 143(1) of the Act. The assertions made by the ld. AR remained uncontroverted.
We observe that the assessee has been consistently claiming remuneration for all the four Directors. It is only in the assessment year under appeal that disallowances u/s. 40A(2) has been made by the Assessing Officer in respect of lady Directors. The Assessing Officer has made disallowance of entire remuneration paid u/s. 40A(2) which in our considered opinion is not justified. The Assessing Officer has not raised any objection in the subsequent or preceding assessment years. There has been no change in the facts and circumstances in the assessment year under appeal and the assessment years in which salary to lady Directors have been allowed. The disallowance of remuneration to the lady Directors in the assessment year under appeal is not justified. Accordingly, ground Nos. 1 and 2 raised in the appeal are allowed.
In ground No. 3 the assessee has assailed addition of Rs.10,21,672/- made u/s. 41(1) of the Act. The Assessing Officer has treated the cessation of liability u/s. 41(1) in respect of following sundry creditors : 1 DSK Infotech (P) Ltd. Rs.97.200 2 Runicha INformatque Rs.61,200 3 Son Enterprises Rs.76,494 4 Trinity Computers Rs.2,27,635 5 Web Peripherals Ltd. Rs.5,09,284 6 As admitted by the assessee in the submission dated Rs.46,859
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10.09.2013 at Sr. No. 3b for cessation of liability in respect of a number of sundry creditors, as detailed above. 7 As discrepancy detected and pointed out in query no. 5d Rs.3,000 in respect of the creditors balance of the creditors Basant India Ltd. shown by the assessee at Rs.12120/-, which actually should be Rs.15120/- and hence the difference amount of Rs.3000/- (i.e. Rs.15120/- minus Rs.12120/-) Rs.10,21,672
It has been contended that the payments were pending to the said creditors due to non-issuance of replacement material. A perusal of the impugned order reveals that neither the assessee has filed confirmations from the concerned parties nor the assessee has filed any documentary evidence to substantiate that the amounts were outstanding on account of non-receipt of material sent for replacement. We do not find any infirmity in the findings of authorities below in making the additions u/s. 41(1) of the Act. Accordingly, ground No. 3 raised in the appeal by the assessee is dismissed.
In ground No. 4 of appeal, the assessee has assailed payment of incentive Rs.1,63,870/- to associate concern. The disallowance u/s. 40A(2)(b) has been made as the assessee has paid higher incentive to M/s. Click, a group concern. It is an admitted fact that the assessee has paid incentive @ 5% to unrelated parties and @ 7% to M/s. Click. No cogent evidence has been furnished by the assessee for paying higher incentive to a group concern except for making bald assertions that the group concern is dealing with the products of the assessee firm only. We do not find any
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merit in the submissions made on behalf of the assessee. Accordingly, the disallowance made by the authorities below on this count is confirmed and the ground No. 4 raised in the appeal by assessee is dismissed.
In the result, the appeal of assessee is partly allowed in the manner aforesaid.
Order pronounced on Friday, the 19th day of January, 2018.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 19th January, 2018 RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A), Kolhapur 3. आयकर आयुक्त / The CIT-I/II, Kolhapur/CIT(Central), Pune 4. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune