H.C. Saraswat Tobacco Co. Pvt. Ltd., Kolhapur V. Assistant Commissioner of Income-tax, Ichalkaranji

CO 3/PUN/2018

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3738 (ITAT-PUNE)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-04-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 15-01-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR VIVEK AGGARWAL
• Keywords: Additional evidence

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1328/PUN/2014 / ASSESSMENT YEAR : 2010-11 ACIT, ICHALKARANJI CIRCLE, ICHALKARANJI, DIST. KOLHAPUR . /APPELLANT VS. H.C. SARASWAT TOBACCO CO. PVT. LTD., C.S.NO.2204/2205, GANDHI ROAD, JAYSINGPUR, TAL : SHIROL, DIST. KOLHAPUR PAN : AABCH2518N . / RESPONDENT C.O.NO.03/PUN/2018 (ARISING OUT OF ITA NO.1328/PUN/2014) ASSESSMENT YEAR 2010-11 H.C. SARASWAT TOBACCO CO. PVT. LTD., C.S.NO.2204/2205, GANDHI ROAD, JAYSINGPUR, TAL : SHIROL, DIST. KOLHAPUR PAN : AABCH2518N . CROSS OBJECTOR VS. DCIT, ICHALKARANJI CIRCLE, ICHALKARANJI, DIST. KOLHAPUR . APPELLANT IN THE APPEAL ASSESSEE BY : SHRI KISHOR PHADKE REVENUE BY : DR. VIVEK AGGARWAL / DATE OF HEARING : 04.04.2018 / DATE OF PRONOUNCEMENT: 11.04.2018 / ORDER PER D. KARUNAKARA RAO, AM : THE REVENUE FILED THE MAIN APPEAL AND THE ASSESSEE FILED TH E CROSS OBJECTION WITH THE DELAY OF 533 DAYS. THEY ARE FILED AGAINST THE 2 ORDER OF CIT(A), KOLHAPUR, DATED 19-03-2014 FOR THE ASSESS MENT 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 2. IN CONNECTION WITH THE REQUEST FOR CONDONATION OF DELA Y 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 04-01-20 18 AND READ OUT THE CONTENTS OF RELEVANT PARA TO DEMONSTRATE THE REASONS . 3. 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 SAM E 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 DU E DILIGENCE FROM THE ASSESSEES SIDE, THE REQUEST FOR CONDONATION IN FILING THE CROSS OBJECTION IS REJECTED. THE LEGAL REQUIREMENT OF EXPLAINING E ACH DAY OF DELAY OF 533 DAYS IS NOT DISCHARGED BY THE ASSESSEE. T HEREFORE, THE REQUEST FOR CONDONING THE DELAY IS NOT ALLOWED. HENCE, T HE CROSS OBJECTION IS NOT ADMITTED. 4. 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 5. GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1 (I). ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.76,95,866/- THOUGH T HE ASSESSEE COMPANY 3 HAS TRIED TO SHOW THAT ANGAD AND EARMAS WAS AVAILAB LE FOR SALE BY ADOPTING HIGH FIGURE OF GENERATION OF RAVAL AND WAS TAGE. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE CIT(A) ERRED IN ADMITTING ASSESSEES SAY WITHOUT CALLING FOR REMAND REPORT FROM THE AO AND RELIEF IS GRANTED WITHOUT APPRECIATING T HE FACT THAT NO STOCK DETAILS WERE AVAILABLE WITH THE ASSESSEE AND NEITHE R SUCH DETAILS OF STOCK OF DIFFERENT KINDS OF TOBACCO ARE PRODUCED BE FORE HIM WHILE EXPLAINING THE GENERATION OF TOBACCO OF DIFFERENT K INDS 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 NO T SHOW ANY CIRCUMSTANCES BARRING THE ASSESSEE TO SUBMIT THE FR ESH EVIDENCES FURNISHED BEFORE THE CIT(A), KOLHAPUR WHICH COULD N OT 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 HONBLE 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 C ASE THE CIT(A) IS NOT JUSTIFIED IN DELETING THE 40% OF DISALLOWANCE OF EX CESSIVE & 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 MEM BERS. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE CIT(A) ERRED IN GRANTING OF 40% RELIEF OUT OF REASONABLE DISALLO WANCE MADE BY THE AO WITHOUT ANY BASIS. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) , KOLHAPUR BE VACATED AND THAT OF THE AO BE RESTORED. 4. THE APPELLANT CRAVES RIGHT TO ADD, ALTER, AMEND ANY OR ALL GROUNDS DURING HEARING OF APPEAL. 6. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE TRADING OF TOBACCO AND FILED THE RETURN OF INCOME DECLA RING TOTAL INCOME OF RS.18,78,180/-. DURING THE SCRUTINY PROCEEDINGS, THERE WAS ENQUIRY INTO THE SALES AND UNDERSTATEMENT OF STOCK. EV ENTUALLY, 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 PURCH ASES, BOGUS COMMISSION AND ALSO DISALLOWANCES ON ACCOUNT OF EXCESSIVE P AYMENTS 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 UNDERSTATEM ENT OF STOCK 4 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 INV OKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT [GROUND NO.2(I) & 2(II)]. 7. AGGRIEVED WITH THE ORDER OF CIT(A), THE REVENUE FILED THE PRESENT APPEAL WITH THE GROUNDS MENTIONED ABOVE. 8. REFERRING TO THE GROUND NO.1 AND ITS SUB-GROUNDS, LD . DR FOR THE REVENUE SUBMITTED THAT REVENUE IS AGGRIEVED WITH THE DE LETION OF RS.76,95,866/- BY THE CIT(A), WHO ADMITTED THE FRESH EVID ENCES FROM THE ASSESSEE AND FAILED TO CALL FOR THE REMAND REPORT FRO M 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 PAG E 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 D ATED 06-11-2013 ISSUED BY SAMAR BIRI FACTORY, ARABINDA PALLY, P.O. SILIGURI, DA RJEELING, WEST BENGAL, PLACED AT PAGE 66 OF THE PAPER BOOK, LD. DR SUBMITTED THAT THE SAID LETTER CONSTITUTES AN ADDITIONAL EVIDENCE WH ICH WAS NON- EXISTING AT THE TIME OF ASSESSMENT PROCEEDINGS AND THERE FORE, 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 ADMITT ING THE SAME AND GRANTING RELIEF TO THE ASSESSEE. 9. ON THIS ISSUE, LD. COUNSEL FOR THE ASSESSEE FAIRLY AGRE ED THAT CIT(A) HAS NOT CALLED FOR A REMAND REPORT ON THIS ADDITIONA L EVIDENCE. HOWEVER, HE MENTIONED THAT THE SAID SALE BILL IS DOUBTED B Y THE AO. AO IGNORED THE FACT OF GRANTING BENEFIT OF EQUIVALENT AMOUNT IN THE STOCK ACCOUNT. HE FURTHER SUBMITTED THAT HE HAS NO OBJECTIO N IS REMANDING THE ISSUE RAISED IN GROUND NO.1 (I) TO (III) TO THE FILE OF AO SO LO NG AS SUCH TREATMENT IS GRANTED BY THE AO. 5 10. ON HEARING BOTH THE PARTIES ON THIS LIMITED ISSUE OF RE MANDING, 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 EVIDE NCE AND THE CIT(A) ERRONEOUSLY DID NOT FELT NEED OF CALLING FOR A RE MAND REPORT FROM THE AO. ADMITTEDLY, IT IS A CASE WHERE PAGE 67 OF TH E 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 A T 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 EQ UIVALENT STOCK QUA THE STOCK ACCOUNT OF THE ASSESSEE. OBVIOUSL Y, 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 T HE EXTENT EQUIVALENT STOCK IS ALSO IN THE GREY MARKET AND OUTSIDE T HE 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 A RE ALLOWED FOR STATISTICAL PURPOSES. 11. GROUND NO.2 (I) AND (II) BY THE REVENUE RELATES TO APPLICA BILITY 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 A ND DAUGHTER- IN-LAW OF THE DIRECTOR. TOTAL SALARY PAID BY THE ASSESSE E FOR THE A.Y. 2010-11 IS RS.49,80,000/-. FOR THE EARLIER ASSESSMENT YEA R 2009-10, TOTAL SALARY PAID IS ONLY RS.24,72,000/-. ON ADHOC BASIS, A O ALLOWED SALARY AMOUNT OF RS.19,14,000/- AS REASONABLE AND CONSIDER ED THE 6 AMOUNT OF RS.30,66,000/- AS EXCESS SALARY. CIT(A) AGREED TO THE LOGIC IN THE AOS CONCLUSIONS THAT THE INCREASE IN SALARY IS DIS PROPORTIONATE. HE, HOWEVER, ON ESTIMATE BASIS, ALLOWED 10% OF INCREASE IN TH E SALARY AND CONFIRMED THE BALANCE AMOUNT. 12. WE HEARD BOTH THE PARTIES ON THIS LIMITED ISSUE AND P ERUSED 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 OR DER 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 OFFICE RS CONCLUSION THAT INCREASE IN SALARY IS DISPROPORTIONATE. WHEREAS IN CREASE IN THE SALARY EVERY YEAR IS UNDERSTANDABLE, THE ASSESSEES SUBMIS SION HAS FORCE THAT IN VIEW OF THE INCREASE IN BUSINESS, MORE THAN NORM AL INCREASE IS JUSTIFIED. HOWEVER, THIS CANNOT JUSTIFY INCREASE I N SALARY BY 100%. SALARY OF SHRI SARASWAT NANDLAL H. SENIOR MOST DIRE CTOR HAS BEEN INCREASED FROM RS.4,80,000/- TO RS.9,00,000/- IN TH E CURRENT ASSESSMENT YEAR WHICH IS ALMOST DOUBLE. SIMILARLY, 100% INCRE ASE HAS BEEN MADE IN THE SALARY OF OTHER PERSONS. ON THE OTHER HAND, TH IS 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 ASSESSMEN T YEAR 2009-10 WHICH IS 13.99% IN THE CURRENT ASSESSMENT YEAR. TU RNOVER 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 I N SALARY OVER AND ABOVE MERE 10% INCREASE WILL BE JUSTIFIED. I HEREB Y DELETE 40% OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AMOUNTIN G 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 AN Y INTERFERENCE. ACCORDINGLY, GROUND NOS. 2(I) AND (II) RAISED BY THE REVENUE ARE DISMISSED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7 14. 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 11 TH DAY OF APRIL, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 11 TH APRIL, 2018 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A), KOLHAPUR 4. CIT, KOLHAPUR 5. , , B BENCH PUNE; 6. / GUARD FILE.