M.P. Electrocrafts (P) Ltd., AZAMGARH V. ITO, AZAMGARH

ITA 113/ALLD/2012

• Counselvise Citation: 11320714 RSA 2012
• Duration Of Justice: 3 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 28-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K PANDEY
• Assessee Lawyers: ASHISH BANSAL; SAURABH AGRAWAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH ALLAHABAD BEFORE SHRI P.K. BANSAL , ACCOUNTANT MEMBER ITA NO.113/ALLD/2012 ASSESSMENT YEAR: 2006 - 07 M.P. ELECTROCRAFTS PVT. LTD. 20 - BELAISA, AZAMGARH. PAN: AABCM 5432G VS ITO, WARD - 2, AZAMGARH. (APP ELLANT) (RESPONDENT) REVENUE BY : SHRI A.K. PANDEY , D.R., ASSESSEE(S) BY : S/ SHRI ASHISH BANSAL & SAURABH AGRAWAL , A.R. / DATE OF HEARING : 01 / 09 /2015 / DATE OF PRONOUNCEMENT: 29 / 09/ 2015 ORDER PER: P.K. BANSAL ACCOUNTANT MEMBER THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CI T(A) - III, LUCKNOW DATED 04.11.2011 BY TAKING AS MANY AS 14 GROUNDS OF APPEAL. 2. GROUNDS NO.1, 9, 10, 11, 12 SINCE NOT PRESSED STAND DISMISSED AS NOT PRESSED. 3. GROUNDS NO.13 AND 14 ARE GENERAL IN NATURE THEREFORE DOES NOT REQUIRE ANY ADJUDICATION. 2 4. G ROUND NO.2 CONTAINS THE MAIN ISSUE IN THIS APPEAL READ AS UNDER: 2. BECAUSE CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ADDITION AND/OR DISALLOWANCES MADE BY THE ASSESSING OFFICER AS UNDER: RS. (A) EXTRA PROFIT ADDITION AFTER REJECT ING THE BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. 3,17,054 (B) DISALLOWANCE OUT OF REMUNERATION PAID TO DIRECTORS 2,88,000 (C) DISALLOWANCE OUT OF CAR RUNNING AND MAINTENANCE EXPENSES FOR PERSONAL USER OF THE CAR. 6,247 5. GROUND NO.3 IS THE EXTENSION OF GROUND NO.2A. 6. GROUND S NO.4, 5, 6, 7 AND 8 ARE THE EXTENSION AND ARGUMENTATIVE TO THE GROUND NO.2 ( B ) REPRODUCED HEREINABOVE. 7. THE ISSUE CONTAINED IN GROUND NO.2 (A) RELATES TO SUST AINI NG OF THE ADDITION OF RS.3,17,054/ - BY THE CIT(A). 8. THE FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSEE IS A MANUFACTUR ER OF THE TRANSFORMER , REPAIRS TRANSFORMER EQUIPMENTS AND ALSO CARRIES THE JOB WORK. THE RETURN WAS FILED DECLARING AN INCOME OF R S.2,31,240/ - ON 30.10.2006 . THE A SSESSMENT WAS COMPLETED ON AN INCOME OF RS.7,65,790/ - . 9. THE ASSESSING OFFICER DURING THE COURSE OF THE ASSESSMENT NOTED THAT THE ASSESSEE HAS SHOWN GROSS PROFIT @15.67% AS AGAINST 3 THE GROSS PROFIT @18.57%. HE THEREFORE AFTER POINTING OUT THE DISCREPANCIES IN RESPECT OF NON MAINTAINING THE STOCK RECORD , REJECTED THE BOOKS OF ACCOUNT AND INVOKE THE PROVISION OF SECTION 145(3) AND ESTIMATED THE GROSS PROFIT @18.57%. THUS MADE AN ADDITION OF RS.3,17,054/ - AFTER CALLING FOR T HE EXPLANATION OF THE ASSESSEE. 9. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) CONFIRMED THE ADDITION. 10. WE HEARD THE RIVAL SUBMISSION S AND CAREFULLY CONSIDERED THE SAME ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW, WE NOTED FROM PARAGRAPH 3.2 OF THE ORDER OF THE CIT(A) THAT ON THE ONE SIDE THE CIT(A) HAS STATED THAT THE ASSESSEE DID NOT COMPLY WITH THE REQUIREMENT OF THE ASSESSING OFFICER OR PRODUCING THE BOOKS OF ACCOUNT BILLS/VOUCHERS, DETAILS OF SALES AND PURCHASES, DEBTORS AND CREDITORS AND COPY OF ALL THE BANK ACCOUNT. ON THE OTHER SIDE, THE CIT(A) STATED THAT THE ASSESSEE FAILED TO PRODUCE ENTIRE BILLS/VOUCHERS EXPENSES DEBITED IN THE JOB WORK ACCOUNT AND ONLY A SUM OF RS.4 , 44 , 650/ - REMAINED UNVERIFIED. THE ASSESSING OFFICER ALSO FAILE D TO PRODUCE THE BILLS IN RESPECT OF THE FREIGHT AND CAR TAGE EXPENSES, WAGES AND SALARY. THE ASSESSEE SUBMITTED THE QUANTITATIVE DETAILS OF THE STOCK AND THE ASSESSEE WAS ALSO FOUND TO 4 MAINTAIN THE STOCK IN RESPECT OF CATEGORY - A ITEMS . U NDER THESE FACTS TH E ASSESSING OFFICER IS REJECTED THE BOOKS OF ACCOUNT AND APPLIED THE GP RATE AS HAS BEEN SHOWN BY THE ASSESSEE FOR THE PRECEDING YEAR. THE ASSESSEE EVEN THOUGH COMES IN APPEAL BEFORE US BUT WE NOTED THAT THE ASSESSEE HAS CHALLENGED THE REJECTION OF THE BOO KS OF ACCOUNT BY TAKING THE GROUND NO.3.2. WE ALSO NOTED THAT THERE IS NO CHANGE IN THE METHOD OF ACCOUNTING BY THE ASSESSEE . T HE ACCOUNTS OF THE ASSESSEE ARE DULY AUDITED BY THE CHARTERED ACCOUNTANT. THE ASSESSEE SUBMITTED THE QUANTITY RECONCILIATION OF T HE MATERIAL IN THE EARLIER YEAR ALSO . T HE ASSESSEE HAS MAINTAINED THE STOCK IN THE SIMILAR MANNER . T HE SALES OF THE ASSESSEE HAS INCREASED TWO TIMES AS COMPARED TO THE EARLIER YEARS. IT IS AN ACCEPTED PHENOMENON OF BUSINESS THAT THE EXTRA SALES CAN BE MADE BY EARNING THE LESS PROFIT , NO THUMB RULE CAN BE LAID DOWN THAT THE ASSESSEE WILL EARN THE GROSS PROFIT AT THE SAME RATE AS HAS BEEN EARNED IN THE EARLIER YEAR. IN MY OPINION, IF THE ASSESSING OFFICER WAS NOT SATISFIED WITH THAT ASSESSEE COULD NOT PRODUCE ALL VOUCHERS OF THE EXPENSES , HE COULD HAVE DISALLOWED PART OF THE EXPENSES INSTEAD OF REJECTING THE BOOKS OF ACCOUNT. IT IS NOT A CASE WH ERE SALES HAVE BEEN MADE OUTSIDE THE BOOKS OF ACCOUNT AS THE ASSESSEE HAS NOT MAINTAINED THE STOCK REGISTER AS HAS BE EN MAINTAINED BY HIM IN THE EARLIER YEAR AND ACCEPTED BY THE REVENUE . I THEREFORE UNDER THESE CIRCUMSTANCES DELETE THE ADDITION. 5 11. THE NEXT ISSUE INVOLVED RELATE S TO REMUNERATION PAID TO DIRECTORS . 12. A FTER HEARING THE RIVAL SUBMISSION S, I NOTED THAT DURING THE IMPUGNED YEAR THE ASSESSEE HAS PAID REMUNERATION TO DIRECTORS AT RS.4, 20 ,000/ - BUT THE ASSESSING OFFICER BY INVOKING THE PROVISION OF SECTION 40A(2)(A) DISALLOWED A SUM OF RS.2,88,000/ - . I NOTED THAT T HE CIT(A) CONFIRMED THE DISALLOWANC E OF REMU NERATION MADE TO THE DIRECTOR ON THE BASIS THAT THE PROVISION OF SECTION 198 R.W.S. 309 OF THE COMPANIES ACT HAS NOT BEEN COMPLIED WITH THOSE PROVISION OF THE COMPANIES ACT ARE NOT APPLICABLE TO A PRIVATE LIMITED COMPANY . T HE ASSESSEE IS A PRIVATE LIMITED COMPANY . T HIS IS ALSO A FACT THAT IN THE EARLIER YEAR , THE REMUNERATION WAS MADE ONLY TO THE DIRECTOR S, NAMELY, SHRI AVINASH KUMAR RUNGTA, SHRI ANIL KUMAR RUNGTA, SHRI ARVIND KUMAR RUNGRTA, WHILE DURING THE IMPUGNED ASSESSMENT YEAR REMUNERATION IS PAID TO FOUR DIRECTORS NAMELY SHRI AVINASH KUMAR RUNGTA, SHRI ANIL KUMAR RUNGTA, SHRI ARVIND KUMAR RUNGRTA & SMT. INDUMATI DEVI RUNGTA , REMUNERATION PAID TO SHRI A VINASH WAS INCREASED FROM RS. 44,000 / - TO RS. 72,000 / - , SHRI ANIL KUMAR FROM RS. 42 , 000 / - TO RS. 48 , 000 / - AND SHRI ARVIND KUMAR RUNGTA FROM RS. 42000 / - TO RS. 1,80000 / - , SMT. INDU MATI DEVI RUNGTA FROM RS.42,000/ - TO RS. 1,20,000 / - . 6 AFTER APPROVING THE SAME BY THE MEETING OF THE BOARD OF DIRECTORS , THE ASSESSEE HAS DULY DEDUCTED THE TDS OF ALL THESE PEOPLE TO WHO M THE REMUNERATION IS PAID , HAVE BEEN DULY SHOWN INCOME BY WAY OF DIRECTOR OF REMUNERATION TOO IN THEIR RESPECTIVE RETURN . N O HARD AND FAST RULE CAN BE LAID DOWN HOW MUCH REMUNERATION IS TO PAY TO EACH OF THE DIRECTOR . I N MY OPINION IT IS THE PREROGATIVE OF THE ASSESSEE COMPANY TO DECIDE HOW MUCH REMUNERATION IS TO BE PAID TO EACH OF THE DIRECTOR. THE ASSESSING OFFICER CANNOT ENTER INTO THIS RULE OF THE ASSESSEE . IT IS AN UNDISPUTED FACT THAT THE SALES OF THE ASSESSEE COMPANY HAS INCREASED TWO FOLD AS COMP ARED TO THE EARLIER YEAR AFTER THE APPOINTMENT OF THE NEW DIRECTOR AND ALSO INCREASED IN THE REMUNERATION OF THE DIRECTOR . U NDER THESE FACTS AND CIRCUMSTANCES , I DELETE THE DISALLOWANCE. 13. THE NEXT ISSUE RELATING TO MAINT AINING OF THE LOAN OF CAR EXPENS ES AMOUNTING TO RS.6 , 247 / - SINCE THIS ISSUE HAS NOT BEEN PRESSED THEREFORE THE SAME STAND DISMISSED AS NOT PRESSED. 14. IN THE RESULT , THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON THIS DAY, THE 29 / 9 / 2015 AT ALLAH ABAD . (P.K. BANSAL) ACCOUNTANT MEMBER DATED: / 09 /201 5 PRABHAT KUMAR KESARWANI, SR.P.S. 7 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR ITA T ASSISTANT REGISTRAR