The DCIT, Circle-1, Surat V. M/s. Ashapuri Exim Pvt.Ltd., Surat

ITA 1288/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5659 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-07-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.1288/AHD/2010 A.Y.: 2007-08 THE DCIT, CIRCLE-1, ROOM NO.108, AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. ASHAPURI EXIM PVT. LTD., 201, SUMANGAL APARTMENT, JADA KHADI, MAHIDHARPURA, SURAT PA NO. AADCA 7724 K (APPELLANT) (RESPONDENT) APPELLANT BY SHRI K. M. MAHESH, DR RESPONDENT BY NONE O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-I, SURAT DA TED 22-02-2010 FOR ASSESSMENT YEAR 2007-08 ON THE FOLLOWING GROUND: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A)- 1, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.26,67,501/- MADE ON ACCOUNT OF DISALLOWANCE OUT OF SALARY AND WAGES. 2. IN THE ASSESSMENT ORDER THE AO NOTED THAT THERE IS AN ABNORMAL INCREASE IN THE LABOUR CHARGES AND SALARY AND WAGES . THE ASSESSEE EXPLAINED THAT THERE IS A DIRECT NEXUS OF LABOUR EX PENSES WITH MANUFACTURED QUANTITIES. THE AO CONSIDERED THE ABOV E EXPLANATION AND STATED THAT THE ASSESSEES EXPLANATION WITH RESPECT OF INCREASE IN LABOUR CHARGES IS ACCEPTABLE. BUT THE ASSESSEE HAS NOT OFF ERED ANY EXPLANATION WITH RESPECT TO SALARY AND WAGES. THE PAYMENT OF SA LARY AND WAGES ARE UNDER DIRECT CONTROL OF MANAGEMENT WHICH CAN BE MAN IPULATED BY THE ITA NO.1288/AHD/2010 DCIT, CIR-1,SURAT VS M/S. ASHAPURI EXIM PVT. LTD. 2 ASSESSEE. THE SALARY AND WAGES ARE NOT DIRECTLY REL ATED TO TURNOVER. THE INCREASE IN SALARY AND WAGES OF MORE THAN TWO TIMES WAS, THEREFORE, NOT JUSTIFIABLE. THE AO STATED THAT THERE IS AN INCREAS E IN THE TURNOVER BY 2.72% AND THEREFORE, THE SALARY AND WAGES CAN BE TA KEN TO HAVE INCREASED TO THAT AMOUNT. THE AO FURTHER STATED THA T THAT THERE MAY BE INCREASE IN 10% DUE TO COST OF LIVING INFLATION AND ANNUAL INCREMENT. THEREFORE, REASONABLE SALARY DURING THE YEAR WOULD BE RS.32,04,743/-. THE ASSESSEE ON THE CONTRARY HAD CLAIMED RS.58,72,2 44/-. THE AO ACCORDINGLY DISALLOWED BALANCE AMOUNT AS EXCESSIVE AND UNREASONABLE AND NOT GENUINE AND MADE THE DISALLOWANCE OF RS.26, 67,501/-. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT SALARY AND WAGES DO NOT DEPEND UPON THE TURNOVER OF THE ASSESSEE COMPANY BUT IT DE PENDS UPON THE PRODUCTION IN TERMS OF UNIT WHICH IS NOT CONSIDERED BY THE AO. IN UNIT TERMS THE ASSESSEES PRODUCTION HAS INCREASED MORE THAN 50%. THE AO DID NOT CONSIDER THE FACT THAT INCREASE IN SALARY A ND WAGES WAS DUE TO STARTING OF MANUFACTURING ACTIVITIES. THE ASSESSEE HAS GIVEN COMPLETE DETAILS OF ALL THE EMPLOYEES. THE PAYMENT HAS BEEN MADE THROUGH CORPORATE BANKING ACCOUNT AND 94% OF THE SALARY HAS BEEN PAID BY WAY OF BANK ACCOUNT. COMPLETE DETAILS OF THE EMPLOYEES WITH THEIR NAMES AND ADDRESSES, PHOTOGRAPHS AND EMPLOYEES REGISTER WERE FILED. IN THE FINANCIAL YEAR 2005-06 THE ASSESSEE DISCONTINUED TR ADING BUSINESS AND IN THE CURRENT YEAR THE MANAGEMENT TOOK STEPS FOR S TARTING MANUFACTURING ACTIVITIES OF ITS OWN WHICH WAS START ED IN NOVEMBER, 2006. THEREFORE, SALARY AND WAGES EXPENSES WERE MOR E. THE DETAILS WERE FILED BEFORE THE LEARNED CIT(A) WHICH ARE INCORPORA TED IN THE IMPUGNED ORDER. IT WAS FURTHER EXPLAINED THAT DUE TO THE ABO VE FACT THERE WAS INCREASE IN THE SALARY BECAUSE OF MANUFACTURING ACT IVITIES STARTED. IT WAS SUBMITTED THAT DISALLOWANCE HAS BEEN MADE ON MERE C ONJECTURE AND SURMISES. THE LEARNED CIT(A) CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE NOTED THAT THE AO WAS NOT JUSTIFIED IN COM PARING THE EXPENDITURE WITH TURNOVER BUT QUANTITY MANUFACTURED . IF THE QUANTITY ITA NO.1288/AHD/2010 DCIT, CIR-1,SURAT VS M/S. ASHAPURI EXIM PVT. LTD. 3 MANUFACTURED IS COMPARED WITH THE LAST YEAR THEN DI FFERENCES ARE NOT MUCH (WHICH IS RS.705.59 PER CARRAT TO 669.56 PER C ARRAT). THE SALARY INCREASED DUE TO ASSESSEE STARTED MANUFACTURING ACT IVITIES AND THE AVERAGE MANUFACTURING COST IS IN FACT INCREASED AS NOTED ABOVE. THE LEARNED CIT(A) ALSO NOTED THAT THE AO HAS NOT BROUG HT ANY EVIDENCE ON RECORD TO SHOW IF ANY BOGUS SALARY AND WAGES CLAIM OR EXPENSES INFLATED. THEREFORE, DISALLOWANCE ON AD HOC BASIS IS NOT JUST IFIED. ADDITION WAS ACCORDINGLY DELETED AND THE APPEAL OF THE ASSESSEE WAS ALLOWED. 3. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. HOWEVER, NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE. 4. ON CONSIDERATION OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE ENTIRE ADDITION. FIRST OF ALL THERE COULD NOT BE A COMPARISON OF EXPENDITURE WITH EARLIER YEARS AND FURTHER THE AO HAS NOT BROUGHT ANY EVIDENCE ON RECO RD TO SHOW IF THE ASSESSEE CLAIMED ANY BOGUS SALARY AND WAGES AND THA T ANY EXPENDITURE HAS BEEN INFLATED BY THE ASSESSEE. THEREFORE, THE A O WAS NOT JUSTIFIED IN MAKING THE AD HOC ADDITION ON THIS ISSUE. FURTHER, THE LEARNED CIT(A) FOUND THAT PAYMENT OF SUBSTANTIAL SALARY AND WAGES HAVE BEEN MADE THROUGH BANKING CHANNEL AND COMPLETE DETAILS OF THE EMPLOYEES HAVE BEEN FILED. IN FACT, AVERAGE MANUFACTURING COST HAS DECREASED IN THE ASSESSMENT YEAR IN QUESTION, BECAUSE OF THE ASSESSE E STARTED ITS OWN MANUFACTURING ACTIVITIES. THEREFORE, SALARY AND WAG ES HAVE INCREASED. IT CANNOT BE COMPARED WITH THE EARLIER YEARS. CONSIDER ING THE FACTS AND CIRCUMSTANCES NOTED ABOVE, WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. WE CONFIRM THE FINDINGS OF THE LEARNE D CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 5. AS A RESULT, THE DEPARTMENTAL APPEAL IS DISMISSE D. ITA NO.1288/AHD/2010 DCIT, CIR-1,SURAT VS M/S. ASHAPURI EXIM PVT. LTD. 4 ORDER PRONOUNCED IN THE OPEN COURT ON 9-07-2010 SD/- SD/ (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 9-07-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD