DEEPAK PANDURANG GADRE, Ratnagiri V. DCIT Central Circle, Kolhapur

CO 21/PUN/2010

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6010 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 30-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HARESHWAR SHARMA
• Keywords: Question of law; Tax effect
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI D. KARUNAKARA RAO, AM. I.T.A. NO. 22/PN/2009 : A.Y. 2005-06 DY. CIT CENT. CIR. 1, KOLHAPUR .. APPELLA NT VS. DEEPAK PANDURANG GADRE 3298 A MIRKARWADA, RATNAGIRI PAN ABHPG 2085 K .. RESPONDEN T C.O. NO. 21/PN/2010 ARISING OUT OF I.T.A. NO. 22/PN/2009 : A.Y. 2005-0 6 DEEPAK PANDURANG GADRE 3298 A MIRKARWADA, RATNAGIRI PAN ABHPG 2085 K CROSS OBJECTOR VS. DY. CIT CENT. CIR. 1, KOLHAPUR APPELLANT IN APPE AL DEPARTMENT BY: SHRI HARESHWAR SHARMA ASSESSEE BY: SHRI NIKHIL PATHAK ORDER PER SHAILNDRA KUMAR YADAV, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) KOLHAPUR DATED 18-9-2008 WHICH, IN TU RN, HAS ARISEN FROM ORDER OF THE ASSESSING OFFICER DATED 28 .12.2007 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR S 2005-06. THE ASSESSEE HAS ALSO FILED A CROSS OBJECTION RAISI NG CERTAIN GROUNDS ARISING OUT OF SAME ORDER OF THE CIT(A) DAT ED 18-9- 2008. ITA NO. 22/PN/2009 AND C.O NO. 21/PN/10 DEEPAK P. GADRE A.Y. 2005-06 2 2. AT THE TIME OF HEARING, THE LEARNED REPRESENTATI VE FOR THE RESPONDENT-ASSESSEE RAISED A PRELIMINARY OBJECTION BY POINTING OUT INSTRUCTION NO. 3/2011 DATED 09.02.2011 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (CBDT) FIXING THE MON ETARY LIMITS FOR FILING OF DEPARTMENTAL APPEALS BEFORE TH E TRIBUNAL. IN TERMS OF THE SAID INSTRUCTION, MONETARY LIMIT FOR F ILING DEPARTMENTAL APPEAL TO THE TRIBUNAL HAS BEEN FIXED AT RS 3 LAKHS. IN OTHER WORDS, IN CASES WHERE THE TAX EFFEC T OF THE ADDITIONS DELETED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IS LESS THAN RS 3 LAKHS, NO APPEAL SHALL BE FILED B Y THE DEPARTMENT IN SUCH CASES. ACCORDING TO THE LEARNED REPRESENTATIVE, THE TAX EFFECT WITH RESPECT TO THE RELIEF ALLOWED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN THE CAPTIONED APPEAL IS BELOW RS 3 LAKHS. SUCH FACTUAL MATRIX HAS NOT BEEN CONTESTED BY THE LEARNED DEPARTMENTAL REPRESENTATIV E FOR THE REVENUE. 3. THE LEARNED REPRESENTATIVE FOR THE RESPONDENT-AS SESSEE FURTHER RELIED UPON A RECENT DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITO V SHRI ASHOK G. DHA NDHARIAI, MUMBAI IN ITA NO2460/MUM/2010 DATED 28.2.2011 TO CANVASS THAT THE REVISED INSTRUCTIONS DATED 9.2.201 1 (SUPRA) ARE APPLICABLE TO THE PRESENT CASE ALSO, ALTHOUGH S UCH APPEAL HAVE BEEN FILED ON A PRIOR DATE. IN VIEW OF THE PRE CEDENT BROUGHT OUT BY THE LEARNED REPRESENTATIVE FOR THE R ESPONDENT, FACTUALLY THE CAPTIONED DEPARTMENTAL APPEAL IS LIAB LE TO BE CONSIDERED TO HAVE BEEN FILED CONTRARY TO THE CBDT INSTRUCTIONS DATED 9.2.2011 (SUPRA). THE TRIBUNAL F OLLOWING THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT V MADHUKAR K. INAMDAR (HUF) 318 ITR 149 AND CIT V PITHWA ENGINEERING WORKS 276 ITR 519 (BOM) FOUND IT APPROPRIATE TO DISMISS THE DEPARTMENTAL APPEAL ON T HE GROUND ITA NO. 22/PN/2009 AND C.O NO. 21/PN/10 DEEPAK P. GADRE A.Y. 2005-06 3 THAT TAX EFFECT IS LESS THAN RS 3 LAKHS, EVEN IN A CASE WHERE THE DEPARTMENTAL APPEAL WAS FILED PRIOR TO THE DATE OF THE CBDT INSTRUCTION DATED 9.2.2011 (SUPRA). THE FOLLOWING D ISCUSSION IN THE ORDER IS WORTHY OF NOTICE: 5. WE HEARD BOTH THE PARTIES. THE CASE OF CIT VS. CHHAJER PACKAGING & PLASTICS PVT. LTD. 300 ITR RELI ED ON BY THE DR IS DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE. AT PARA 12 PAGE 184 OF THE DECISION IN THE CA SE OF CHHAJER PACKAGING & PLASTICS PVT. LTD. IT HAS BEEN HELD AS FOLLOWS: OTHERWISE ALSO, PARAGRAPH OF THIS CIRCULAR ITSELF SAVES CERTAIN APPEALS FROM BEING OBSTRUCTED DUE TO FINANCIAL LIMITS. PARAGRAPH 3 READS: THE BOARD HAS ALSO DECIDED THAT IN CASES INVOLVING SUBSTANTIAL QUESTION OF LAW OF IMPORTANCE AS WELL AS IN CASES WHERE THE SAME QUESTION OF LAW WILL REPEATEDLY ARISE, EITHER IN THE CASE CONCERNED OR IN SIMILAR CASES, SHOULD BE SEPARATELY CONSIDERED ON THE MERITS WITHOUT BEING HINDERED BY THE MONETARY LIMITS. IT IS EVIDENT THAT, WHENEVER THERE IS A SUBSTANTIAL QUESTION OF LAW, OR QUESTION OF LAW WHICH IS LIKELY TO RECUR IN FUTURE, THE DEPARTMENT IS NOT PROHIBITED FROM FILING AND PURSUING APPEALS. WE BELIEVE THAT THE SAVING CLAUSE SAVES THE PRESENT APPEAL SINCE IT INVOLVES A QUESTION OF LAW REGARDING INTERPRETATION OF SECTION 275(1)(C) OF THE ACT, AND MORE PARTICULA RLY THE ASPECT OF MANNER IN WHICH THE LIMITATION SHOULD BE COMPUTED IN THE LIGHT OF THE SAID PROVISIONS. WE HAVE, THEREFORE, PROCEEDED TO HEAR THE ADVOCATES ON THE MERITS. IN OUR OPINION, THE CASE OF CIT V CHHAJER WAS WITH RESPECT OF INTERPRETATION OF 275(1)(C) OF THE ACT A ND HENCE CAME UNDER THE EXCEPTION CLAUSE UNDER THE CBDT CIRCULAR AND WAS NOT OBSTRUCTED BY THE MONETARY LIMIT OF RS 3 LAKHS PRESCRIBED BY THE CIRCULAR. THEREFORE THE CASE OF 300 ITR 180 IS INAPPLICABLE TO THE FACTS OF OUR CASE. FURTHER INSTRUCTION NO. 5 DT. 15.5.2008 FIXING THE MONETARY LIMIT AT RS 2 LAKHS IS SIMILAR TO THAT OF INSTRUCTI ON NO. 3 DATED 9.2.2011 WHICH THE ASSESSEE HAS BROUGHT TO OUR NOTICE IN SUPPORT OF HIS CONTENTION. SINCE BOTH THE INSTRUCTION NOS. 5 & 3 ARE IDENTICAL , THE RATIO OF THE DECISION IN THE CASE OF CIT V PITH WA ENGG. WORK WHICH DEALS WITH INSTRUCTION NO. 5 DT. ITA NO. 22/PN/2009 AND C.O NO. 21/PN/10 DEEPAK P. GADRE A.Y. 2005-06 4 15.5.2008 SHALL EQUALLY APPLY TO THE PRESENT CASE WHICH FALLS UNDER LNSTRUCTION NO. 3 DATED 9.2.2011. FOLLOWING THE RATIO OF THE DECISION IN THE CASE OF CIT V PITHWA ENGG. WORK WHEREIN IT HAS BEEN HELD THAT IN OUR VIEW, THE BOARDS CIRCULAR DT. 27 TH MARCH, 2000 IS VERY MUCH APPLICABLE EVEN TO THE OLD REFERENCES WHICH ARE STILL UNDECIDED, WE DISMISS THE DEPARTMENTAL APPEAL ON THE GROUND THAT THE TAX EFFECT IS LESS THAN 3 LAKHS. 4. FOLLOWING THE AFORESAID PRECEDENT, THE APPEAL FI LED BY THE REVENUE IS LIABLE TO BE DISMISSED IN VIEW OF CBDT I NSTRUCTION NO. 3 DATED 9.2.2011 (SUPRA) AS THE TAX EFFECT WITH RESPECT TO THE QUANTUM OF RELIEF ALLOWED BY THE COMMISSIONER O F INCOME- TAX (APPEALS) IS BELOW RS 3 LAKHS AND IT HAS NOT BE EN SHOWN THAT THE APPEAL FALL UNDER ANY OF THE EXCEPTIONS PR OVIDED IN PARA 8 OF THE CBDT INSTRUCTION (SUPRA). WE ORDER AC CORDINGLY. 5. COMING TO THE CROSS OBJECTION FILED BY THE ASSES SEE, AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE AS SESSEE DID NOT PRESS GROUNDS NO. 1 AND 2. HENCE THE SAME ARE DISMISSED AS NOT PRESSED. 6. THE GROUND NO. 3 RAISED IN CROSS OBJECTION RELAT ES TO CONFIRMATION OF DISALLOWANCE OF RS. 6,19,976/- BEIN G SALARY TO THE EMPLOYEES OF THE ASSESSEE, WHO WHILE WORKING FO R THE ASSESSEE WERE ALSO LOOKING AFTER THE PROJECT IMPLEM ENTATION OF THE PROJECT SET UP BY THE GROUP COMPANY IN WHICH TH E ASSESSEE IS A DIRECTOR AND SHAREHOLDER. THE RELEVANT FACTS A RE THAT THE AUDIT REPORT CONTAINED REMARKS THAT A SUM OF RS. 6, 19,976/- DEBITED TO THE P & L ACCOUNT UNDER THE HEAD SALARY TO STAFF COMPRISED OF SALARY PAID TO STAFF MEMBERS WHOSE SER VICES WERE AVAILED OF BY ANOTHER COMPANY IN WHICH THE PROPRIET OR WAS DIRECTOR. IT WAS THE CONTENTION OF THE ASSESSEE THA T THE EMPLOYEES HAVE PARTLY WORKED FOR GROUP COMPANY VIZ. GADRE ITA NO. 22/PN/2009 AND C.O NO. 21/PN/10 DEEPAK P. GADRE A.Y. 2005-06 5 MARINE EXPORT PVT. LTD. AND THEREFORE ONLY 25% OF T HE SALARY SHOULD BE DISALLOWED. THE ASSESSING OFFICER REJECT ED THIS CONTENTION OF THE ASSESSEE AND ADDED THE SAME TO TH E INCOME OF THE ASSESSEE WHICH HAS BEEN CONFIRMED BY THE CIT (A) IN APPEAL. 7. DURING THE PROCEEDINGS BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE LIST OF EMPLOYEES I NCLUDED PRODUCTION MANAGER, SOFTWARE ENGINEER, CIVIL WORK I N CHARGE WITHOUT WHOM THE ORGANIZATION COULD NOT RUN. THESE PEOPLE ARE RESPONSIBLE FOR LOOKING AFTER DAY TO DAY PRODUC TION WHICH COULD NOT HAVE TAKEN PLACE IF THEIR SERVICES WERE N OT UTILIZED AT LEAST PARTLY BY THE COMPANY. FURTHER, THE SALARY P AID TO THESE PERSONS INCLUDED BONUS OF RS. 1,03,329/- WHICH COMP RISED BONUS FOR THE PREVIOUS YEAR 2004-05 WHICH AMOUNT HA D BEEN CONSIDERED FOR DISALLOWANCE U/S 43B OF THE ACT. IT WAS THEREFORE, SUBMITTED THAT THE CIT(A) WAS NOT JUSTIF IED IN CONFIRMING THE DISALLOWANCE OF RS. 6,19,976/-. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDER OF THE CIT (A). 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS NOT PRODUC ED ANY DOCUMENTARY EVIDENCE TO COUNTER THE REMARKS MADE IN THE AUDIT REPORT. THE AUDITORS HAVE CATEGORICALLY QUAN TIFIED AN AMOUNT OF SALARY GIVEN TO PERSONS WHO WERE WORKING FOR GADRE MARINE EXPORTS PVT. LTD. THE ASSESSEE HAS SIMPLY S TATED THE PERSONS ARE IMPORTANT OFFICERS WITHOUT WHOM FACTORY COULD NOT HAVE BEEN OPERATING. TAKING INTO CONSIDERATION TOT ALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER SHOULD QUANTIFY THE AMOUNT OF SALARY GIVEN TO THE PERSONS WHO WERE WORKING FOR GADRE MARINE EXPORTS PVT. LTD., AND THE SAME IS REQUIRED TO BE ITA NO. 22/PN/2009 AND C.O NO. 21/PN/10 DEEPAK P. GADRE A.Y. 2005-06 6 DISALLOWED. NEEDLESS TO MENTION THAT THE ASSESSING OFFICER SHOULD ALSO TAKE INTO CONSIDERATION THE AMOUNT OF R S. 1,03,329/- WHICH REPRESENTS BONUS FOR THE PREVIOUS YEAR 2004-05 BY ENSURING THAT THE ASSESSEE DOES NOT CLAI M THIS AMOUNT IN THE SUBSEQUENT YEAR. THIS GROUND OF CROSS OBJECTION OF THE ASSESSEE IS THUS PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED WHILE THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF MAY 2011. SD/- SD/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER PUNE: DATED: 20 TH MAY, 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A) KOLHAPUR 4. THE CIT, KOLHAPUR 5. THE D.R, A BENCH, PUNE TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE