Assistant Commissioner of Income-tax, V. S.B. Reshellers Pvt. Ltd., Kolhapur

ITA 1172/PUN/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7521 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 21-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 43B

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. 1172/PUN/2015 / ASSESSMENT YEAR : 2010-11 A CIT, CIRCLE - 1, KOLHAPUR . /APPELLANT V/S S.B. RESHELLERS PVT. LTD., 392, E-WARD, SHAHUPURI, KOLHAPUR PAN : AAACT9142M . /RESPONDENT ASSESSEE BY : NONE REVENUE BY : SHRI AJAY MODI / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF CIT(A)-1 & 2, KOLHAPUR DATED 02-06-2015 FOR THE ASSESSMENT YEAR 2 010-11. 2. REVENUE RAISED THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT PAYMENT OF EX-GRATIA OF RS.65,00,000/- IS CLEARLY COVERED UNDER EXPENDITURE INCURRED BY TH E ASSESSEE COMPANY AND PAYMENT IS MADE TO PERSON SPECIFIED IN SECTION 40A( 2)(B)(II) OF THE INCOME TAX ACT, 1961, AND THE PAYMENT OF EX-GRATIA CANT BE CO VERED UNDER SECTION 43B OF THE INCOME TAX ACT, 1961, AS HELD BY THE LD.CIT(A). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) HAS ERRED IN ALLOWING THE ASSESSEES APPEAL AGAINST THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF RS.10,34,075/- ON ACC OUNT OF MELTING LOSS. 3. BRIEFLY RELEVANT FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF CI, CS AND CG CASTINGS , SUGAR MILL ROLLERS, SHELLS, RE- / DATE OF HEARING : 05.09.2017 / DATE OF PRONOUNCEMENT: 05.09.2017 2 ITA NO.1172/PUN/2015 S.B. RESHELLERS PRIVATE LIMITED SHELLING OF SUGAR MILL ROLLERS ETC. ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.4.97 CRORES (ROUNDED OFF). DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, AO DETERMINED THE ASSESSED INCOME AT R S.5,76,61,020/-. APART FROM OTHERS, AO MADE ADDITION ON ACCOUNT OF DISALLOWANCE OF ADDITIONAL EX-GRATIA PAID TO DIRECTORS AMOUNTING TO RS.65 LAKHS AND ALSO DISA LLOWANCE ON ACCOUNT OF MELTING LOSS AMOUNTING TO RS.10,34,075/-. THE CIT(A) DELETED B OTH THE ADDITIONS AND THEREFORE THE REVENUE IS IN APPEAL BE FORE US WITH THE GROUNDS EXTRACTED ABOVE. 4. RELEVANT FACTS RELATING TO THE FIRST GROUND INCL UDE THAT THE ASSESSEE REPORTED PAYMENT OF SUBSTANTIAL EX-GRATIA AND ADDIT IONAL EX-GRATIA TO THE MANAGING DIRECTOR, EXECUTIVE DIRECTOR AND OTHER DIR ECTORS. THE PAYMENTS ARE COMPARATIVELY HIGHER WHEN COMPARED WITH THE PAYMENT S MADE IN THE PAST. IN RESPONSE TO THE QUERY FROM THE AO, THE ASSESSEE FUR NISHED REPLY JUSTIFYING THE SAID PAYMENT OF EX-GRATIA QUA THE EARNING OF THE AS SESSEE. HE SUBMITTED THAT THE SAID PAYMENTS ARE IN PROPORTION WITH THE FINANCIAL RESULTS OF THE COMPANY. AO DID NOT ACCEPT THE SAME AND FOUND THE PAYMENTS WERE IN EXCESS IN RESPECT OF THE PERSONS COVERED U/S.40A(2)(B) OF THE ACT. HE DISAL LOWED A TOTAL SUM OF RS.65 LAKHS PAID TO THE 5 DIRECTORS AS EXCESSIVE AND UNRE ASONABLE. AT NO POINT OF TIME, AO BROUGHT ANY COMPARABLE INSTANCES IN SUPPORT OF H IS DECISION TO MAKE SUCH ADDITION. THE CIT(A) WAS CRITICAL OF THE ORDER OF THE AO AND MENTIONED THAT THE AO FAILED TO BRING ANY COMPARABLE INSTANCES AND WRO NGLY INVOKED THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. HE ALSO NOTICED THE FACT THAT THE COMPANY PASSED A RESOLUTION IN SUPPORT OF THE SAID PAYMENTS AS PER T HE DISCUSSION GIVEN IN PARA NO.7 AND THE CIT(A) DELETED THE ENTIRE ADDITION ON THIS ISSUE. 5. BEFORE US, THERE IS NONE TO REPRESENT THE CASE O F THE ASSESSEE DESPITE THE ISSUE OF NOTICE AS PER THE PROCEDURE LAID DOWN IN T HE TRIBUNAL. HOWEVER, THE LD. 3 ITA NO.1172/PUN/2015 S.B. RESHELLERS PRIVATE LIMITED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE EXPLAIN ED THE FACTS OF THE CASE AND RELIED HEAVILY ON THE ORDER OF THE AO. 6. WE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE AND PERUSED THE ORDERS OF THE AO AND THE CIT(A). AFTER GOING THROUGH THE CONTENTS OF PARA 4 TO 6 OF THE ORDER OF CIT(A), WE FIND IT IS A N UNDISPUTED FACT THAT AT NO POINT OF TIME THE AO DISCHARGED THE ONUS BY BRINGING IN A NY COMPARABLE INSTANCES TO ESTABLISH THE PAYMENTS OF EX-GRATIA AND ADDITIONAL EX-GRATIA AMOUNT PAID BY THE ASSESSEE TO THE DIRECTORS, I.E. MD, ED AND OTHERS A S EXCESSIVE AND UNREASONABLE. FROM THIS POINT OF VIEW, WE FIND MERIT IN THE DECIS ION OF THE CIT(A). FOR THE SAKE OF COMPLETENESS, WE PROCEED TO EXTRACT OPERATIONAL PARA NO.7 AND THE SAME READS AS UNDER : 7. IN FINE, FIRST THE PAYMENT IN QUESTION CANNOT B E CONSIDERED UNDER SECTION 40A(2)(B) AND SECOND, IF AT ALL IT IS CONSIDERED UN DER THE SAID SECTION, THE ASSESSING OFFICER MUST PROVIDE THE COMPARABLE INSTA NCES TO ESTABLISH THAT THE PAYMENT WAS EXCESSIVE. THEREFORE, THE GROUND TAKEN BY THE APPELLANT COMPANY IS ALLOWED AND THE ADDITION MADE BY ASSESSING OFFICER IS DELETED. 7. IT IS A TRITE LAW THAT THE ONUS IS ON THE ASSESS EE IN MATTERS RELATING TO THE INVOKING OF PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. FURTHER, IT IS AN UNDISPUTED FACT THAT THE AO FAILED TO BRING ANY COMPARABLE INS TANCES TO DEMONSTRATE THAT THE PAYMENTS ARE EXCESSIVE AND UNREASONABLE WITHIN THE MEANING OF THE SAID PROVISIONS. CONSIDERING THE ABOVE, WE ARE OF THE C ONSIDERED OPINION THAT THE ORDER OF THE CIT(A) IS FAIR AND REASONABLE AND DOES NOT CALL FOR ANY INTERFERENCE. 8. REFERRING TO GROUND NO.2 RELATING TO THE DISALLO WANCE ON ACCOUNT OF MELTING LOSS. THE FACTS ARE THAT THE ASSESSEE REPORTED MEL TING LOSS @7.78% FOR THIS YEAR AND THE SAME IS SAID TO BE MARGINALLY HIGHER WHEN C OMPARED TO THAT OF THE 3 PRECEDING YEARS, I.E. A.YRS. 2007-08 TO 2009-10. C ORRESPONDING MELTING LOSS REPORTED FOR THE 3 YEARS ARE 7.25%, 6.88% AND 7.05 % RESPECTIVELY. THE AVERAGE MELTING LOSS OF THESE 3 YEARS WORKS OUT TO 7.06%. IN THE ASSESSMENT, AO CAME TO 4 ITA NO.1172/PUN/2015 S.B. RESHELLERS PRIVATE LIMITED THE CONCLUSION THAT THERE IS REQUIREMENT OF DISALLO WING MELTING LOSS CORRESPONDING TO 0.72% (7.78% - 7.06%) WHICH WORKS OUT TO RS.10, 34,075/-. 9. DURING THE FIRST APPELLATE PROCEEDINGS, IT WAS D EMONSTRATED THE FACT THAT THE AO FAILED TO FIND DEFECT IN THE BOOKS OF ACCOUN T, RAW MATERIAL, STOCK REGISTER ETC. ASSESSEE ALSO FURNISHED THE BOOKLET CONTAININ G THE COPY OF THE REPLY FURNISHED BY THE ASSESSEE TO THE AO. ASSESSEE ALSO MAINTAINED THE DOCUMENTS RELATING TO THE QUANTITY-WISE MATERIAL USED, CONSUM PTION OF PIG IRON, MANGANESE, SILICON, MS SCRAP, CI SCRAP, SMR BORING, SMR, COKE BH, LIMESTONE, FERRO BLACK AND RESULTING POURED METAL ETC. THIS DATA WAS NOT DIST URBED BY THE AO. HE MERELY TOOK THE ADHOC APPROACH FOR MAKING THE ABOVE SAID D ISALLOWANCE. CIT(A) DID NOT APPROVE THE SAID LINE OF MAKING ADHOC DISALLOWANCE AND DELETED THE ADDITION EVENTUALLY. 10. BEFORE US, AS STATED ABOVE, THERE IS NONE TO RE PRESENT THE CASE OF THE ASSESSEE. LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE EXPLAINED THE ABOVE FACTS OF THE CASE AND RELIED HEAVILY ON THE ORDER O F THE AO. 11. ON HEARING THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, WE FIND THE CONTENTS OF PARA NO.10 ARE RELEVANT AND THE SAM E IS REQUIRED TO BE EXTRACTED AS UNDER : 10. FROM THE ABOVE FACTS IT IS SEEN THAT AS PER TH E ASSESSING OFFICER, ALTHOUGH THE APPELLANT HAS FURNISHED DETAILS OF WORKING OF M ELTING LOSS, HOWEVER, NO RELEVANT EVIDENCES WERE FURNISHED. THIS OBSERVATIO N HAS BEEN MADE IN PARAGRAPHS 4.3, 4.5 AND 4.7. DURING THE APPELLATE PROCEEDINGS, APPELLANT HAS SUBMITTED THE BOOKLET CONTAINING COPY OF REPLY FURN ISHED TO THE ASSESSING OFFICER. ONE OF THE DOCUMENTS IS HEAT WISE RECORD ON VARIOUS DATES. THIS RECORD CONSISTS OF DETAILS OF QUANTITY WISE MATERIAL USED, INCLUDIN G PIG IRON, MANGANESE, SILICON, MS SCRAP, CI SCRAP, SMR BORING, SMR, COKE BH, LIMES TONE, FERRO BLACK AND RESULTING POURED METAL. QUANTITY OF POURED METAL H AS BEEN DEDUCTED FROM TOTAL INPUT TO COMPUTE THE MELTING LOSS. THESE SHEETS AR E MELTED DATE WISE. ANOTHER DOCUMENT IS ABOUT MANUFACTURING DETAILS WHICH CONTA INS THE DETAILS OF OPENING STOCK, QUANTITY AND AMOUNT, VAT, TRANSPORT, NET AMO UNT AND ISSUE AMOUNT. ASSESSING OFFICER HAS NOT BROUGHT OUT ANY DEFECT IN THESE DATA, WHICH ARE THE DAY TO DAY RECORD OF MANUFACTURING PROCESS OF ASSESSEE COMPANY FROM WHICH MELTING LOSS IS COMPUTED. WHEN QUANTITY WISE DETAILS OF AL L BATCHES ARE AVAILABLE AND HEAT WISE QUANTITATIVE DETAILS WERE FURNISHED FROM WHICH SHEET, MELTING LOSS IS WORKED OUT, WHAT MORE DOCUMENTS WERE NEEDED HAS NOT BEEN S PECIFIED BY THE ASSESSING 5 ITA NO.1172/PUN/2015 S.B. RESHELLERS PRIVATE LIMITED OFFICER. I DING THAT THESE ARE SUFFICIENT DOCUMENT S FOR WORKING OUT THE LOSS. IN ABSENCE OF ANY DEFECT/DISCREPANCY IN THESE WORKINGS , I HEREBY DIRECT THE ASSESSING OFFICER TO ACCEPT THE LOSS CLAIMED BY THE ASSESSEE AND DELETE THE ADDITION. 12. DURING THE ASSESSMENT PROCEEDINGS, AO INVESTIGA TION MERELY REVOLVED AROUND THE GROSS PROFIT RATES OF THE ASSESSEE. NO INCRIMINATING MATERIAL IS BROUGHT TO THE RECORDS ON ACCOUNT OF THE MANUFACTURING ACTI VITY OF THE ASSESSEE. THEREFORE, IT IS A CASE THAT AO FAILED TO FIND DEFE CT IN DOCUMENTS FURNISHED BY THE ASSESSEE. WHILE ACCEPTING THE DATA MAINTAINED BY T HE ASSESSEE MAKING SUCH ADHOC DISALLOWANCE CONVENIENTLY BY THE AO IS NOT WA RRANTED. THEREFORE, WE ARE OF THE OPINION THAT THE FINDING OF THE CIT(A) ON THIS ISSUE IS FAIR AND REASONABLE AND NO INTERFERENCE IS WARRANTED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF SEPTEMBER, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 05 TH SEPTEMBER, 2017. / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - 1 & 2 , KOLHAPUR 4. CIT - 1 & 2, KOLHAPUR 5. , , B BENCH PUNE; 6. / GUARD FILE.