DCIT, Circle-3(1), Kolkata, Kolkata V. M/s Shiv Shakti Sponge Iron Ltd., Kolkata

ITA 1620/KOL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9196 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Department
• Bench Allotted: SMC
• Next Hearing Date: 27-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 11-08-2016
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL
• Assessee Lawyers: V N PUROHIT
• Keywords: Assessment record
• Section: 132; 144

Judgement Text

I.T.A. NO. 1620/KOL./2016 ASSESSMENT YEAR: 2007-2008 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C(SMC) BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 1620/KOL/ 2016 ASSESSMENT YEAR: 2007-2008 DEPUTY COMMISSIONER OF INCOME TAX,................. .........................APPELLANT CIRCLE-3(1), KOLKATA, P-7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, 4 TH FLOOR, ROOM NO. 19, KOLKATA-700 069 -VS.- M/S. SHIV SHAKTI SPONGE IRON LIMITED,.............. ........................RESPONDENT P-48, STRAND BANK ROAD, 3 RD FLOOR, KOLKATA-700 007 [PAN: AAFCS 3682 J] APPEARANCES BY: SHRI RAJAT KUMAR KUREEL, JCIT, D.R., FOR THE DEPARTMENT SHRI V.N. PUROHIT, FCA, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : FEBRUARY 27, 2017 DATE OF PRONOUNCING THE ORDER : MARCH 24, 2017 O R D E R THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-1, KOLKATA DAT ED 10.05.2016 AND IN THE SOLITARY GROUND RAISED THEREIN, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDI TION OF RS.48,32,116/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLO WANCE OF EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD SALARY, WAG ES AND ALLOWANCES. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SPONGE IRON. THE R ETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 31. 10.2007 DECLARING A LOSS OF RS.45,08,193/-. THE SAID RETURN FILED BY TH E ASSESSEE WAS SELECTED FOR SCRUTINY BY THE ASSESSING OFFICER AND A NOTICE UNDER SECTION 132 WAS ISSUED BY HIM TO THE ASSESSEE. THERE WAS, HOWEVER, NO COMPLIANCE ON THE I.T.A. NO. 1620/KOL./2016 ASSESSMENT YEAR: 2007-2008 PAGE 2 OF 7 PART OF THE ASSESSEE TO THE SAID NOTICE AS WELL AS TO THE SUBSEQUENT NOTICES ISSUED BY THE ASSESSING OFFICER UNDER SECTION 142(1 ) FROM TIME TO TIME. THE ASSESSEE ALSO COULD NOT FURNISH THE DETAILS AND DOCUMENTS REQUIRED BY THE ASSESSING OFFICER SUCH AS THE LIST OF EMPLOY EES WITH THEIR NAMES, ADDRESSES AND ASSESSMENT JURISDICTION, PERMANENT AC COUNT NUMBER AND THE AMOUNT OF SALARY AND WAGES RECEIVED BY THEM, TH EIR P.F. ACCOUNT NOS., ESI A/C. NOS. AND GRATUITY A/C. NOS., ETC. IN ORDER TO ENABLE HIM TO VERIFY THE EXPENSES OF RS.48,32,116/- CLAIMED UNDER THE HE AD SALARY, WAGES AND ALLOWANCES. THE ASSESSING OFFICER, THEREFORE, WAS LEFT NO OPTION BUT TO COMPLETE THE ASSESSMENT OF THE ASSESSEE TO BEST OF HIS JUDGMENT UNDER SECTION 144 AND IN THE ASSESSMENT SO COMPLETED VIDE AN ORDER DATED 31.12.2009, HE DISALLOWED THE ENTIRE EXPENSES OF RS .48,32,116/- CLAIMED BY THE ASSESSEE UNDER THE HEAD SALARY, WAGES AND A LLOWANCES BY TREATING THE SAME AS UNVERIFIABLE. 3. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 144, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(APPEALS). DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. CIT(APPEALS) REMANDED THE MATTER TO THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY THE EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD SALARY, WAGES AND ALLOWANCES AND AFTER CONSIDERING THE REMAND REPORT S SUBMITTED BY THE ASSESSING OFFICER, REJOINDERS FILED BY THE ASSESSEE IN RESPONSE THERETO AS WELL AS THE OTHER MATERIAL AVAILABLE ON RECORD, THE LD. CIT(APPEALS) DELETED THE ADDITION OF RS.48,32,116/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD SALARY, WAGES AND ALLOWANCES FOR THE FOLLOWI NG REASONS GIVEN IN HIS IMPUGNED ORDER:- I HAVE CAREFULLY CONSIDERED THE AO'S FINDING, WRIT TEN SUBMISSIONS, REMAND REPORT AND REJOINDER, AND MATER IAL ON RECORD. IT IS OBSERVED THAT THE AO HAD DISALLOWED T HE ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE AMOUNTING TO RS.48,32,116/- UNDER THE HEAD SALARY, WAGES & ALLOW ANCES BY HOLDING THAT THE GENUINENESS OF THE CLAIM OF EXP ENSES CANNOT BE VERIFIED IN VIEW OF NON-COMPLIANCE BY THE ASSESSEE TO PRODUCE DETAILS IN RESPECT OF EXPENSES I.E. SALA RY, WAGES WITH THE LIST OF THE EMPLOYEES WITH THEIR NAME, ADD RESS WITH I.T.A. NO. 1620/KOL./2016 ASSESSMENT YEAR: 2007-2008 PAGE 3 OF 7 ASSESSMENT JURISDICTION, PAN AND AMOUNT OF SALARY/W AGES RECEIVED BY THEM. THE APPELLANT'S A.R HAS CONTENDED THROUGH THE WRITTEN SUBMISSION THAT FROM SCHEDULE 1 8 OF THE PROFIT AND LOSS ACCOUNT, THE AMOUNT OF RS. 48,32,11 6/- WAS CLAIMED AS SALARY, WAGES AND ALLOWANCES WHICH WAS DISALLOWED BY THE AO IN TOTALITY. IT WAS FURTHER AR GUED THAT IT WAS NOT POSSIBLE FOR THE ASSESSEE TO PRODUCE 15, 875 M. TONS OF SPONGE IRON WITHOUT PAYMENT OF SALARY AND W AGES AND THAT THE AO COULD HAVE MADE ESTIMATION OF PROFI T BASED ON MATERIAL AVAILABLE ON RECORD LIKE AUDITED ACCOUN TS AND CAPITAL TAR OR PAST ASSESSMENT RECORDS. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE A.O WAS ASKED TO VERI FY THE APPELLANT'S CLAIM OF SALARY, WAGES AND ALLOWANCES A S PER PROFIT AND LOSS ACCOUNT AFTER EXAMINATION OF BOOKS OF ACCOUNTS OF THE APPELLANT. THE A.O HAS SUBMITTED TH E REMAND REPORT DATED 15.10.2015 AS UNDER: '2. MR. V.N. PUROHIT, A. R., APPEARED AND HE WAS AS KED TO SUBMIT THE SALARY WAGES LEDGER COPY, COPY OF THE BA NK STATEMENT, COPY OF PF, ESI PAYMENT. 3. THE ASSESSEE SUBMITTED THE LEDGER COPY OF THE SA LARY AND WAGES AND PF. THE ASSESSEE EXPLAINED THAT THE FACTO RY WAS CLOSED FOR THREE YEARS AND FOR THAT REASON PF CHALL AN OR BANK STATEMENT COULD NOT BE PRODUCED. 4. UNDER THESE CIRCUMSTANCES, THE PAYMENT OF SALARY AND WAGES COULD NOT BE VERIFIED PROPERLY BECAUSE ASSESS EE WAS UNABLE TO PRODUCE NAME AND ADDRESS OF THE EMPLOYEE/LABOUR. THE THIRD PARTY VERIFICATION LIKE PF PAYMENT/ESI PAYMENT COULD NOT BE DONE DUE TO LACK O F EVIDENCE, THIS IS YOUR KIND INFORMATION AT YOUR END . THE APPELLANT'S A. R HAS THROUGH HIS: REJOINDER/COM MENTS ON THE REMAND REPORT VIDE LETTER DATED 27.04.2016 H AS STATED THAT 'COPIES OF LEDGER ACCOUNT OF SALARY, WA GES AND PF FILED ON RECORD. THIS APART ORIGINAL SALARY, WAG ES SHEETS WERE ALSO PRODUCED.' IN SUPPORT THEREOF, THE APPELL ANT'S A. R SRI V.N. PUROHIT HAS SUBMITTED A SWORN AFFIDAVIT DA TED 23.05.2016, WHEREIN HE HAS AFFIRMED TO HAVE PRODUCE D BEFORE THE DCIT THE FOLLOWING DETAILS/RECORDS: '(I) LEDGER COPIES OF SALARY & WAGES AND P.F. ACCOU NTS AS APPEARING IN THE BOOKS OF ACCOUNTS OF ASSESSEE COMP ANY. (II) TWO FILES OF PAYMENT VOUCHERS FOR THREE MONTHS -APRIL, MAY & JUNE, 2006. (III) STAFF SALARY SHEET FOR 2006-07. I.T.A. NO. 1620/KOL./2016 ASSESSMENT YEAR: 2007-2008 PAGE 4 OF 7 (IV) LABOUR WAGES SHEET FROM APRIL-2006 TO OCTOBER- 2006. IN VIEW OF THE ABOVE DISCUSSION AND APPRAISAL OF DO CUMENTS ON RECORD, IT IS OBSERVED THAT THERE IS SUFFICIENT FORCE IN THE SUBMISSIONS OF THE APPELLANT'S A.R. IT IS FOUND THA T THE APPELLANT COMPANY WAS ENGAGED IN THE MANUFACTURING OF SPONGE IRON AND DISCLOSED NET LOSS OF RS.12,699,379 /- FROM GROSS SALES AMOUNTING TO RS.125,600,946/- DURING TH E FINANCIAL YEAR 2006-07 RELEVANT TO THE AY 2007-08 U NDER CONSIDERATION. FROM PERUSAL OF THE P & L ACCOUNTS F OR THE YEAR ENDED 31.03.20017 ANNEXED WITH THE AUDITED ACCOUNTS. IT IS FOUND THAT THE GROSS SALES DURING T HE RELEVANT A.Y HAD DECLINED AS COMPARED TO SALES OF RS.L,35,047,164/- IN THE PRECEDING AY 2006-07. FURT HER, THERE WAS A DECLINE IN COST OF MATERIAL FROM RS.1,13,637,819/- IN FY 2005-06 TO RS.I02,870,482/- IN THE FY 2006-07. IN RESPECT OF EXPENDITURE UNDER THE HEA D 'EXPENSES ON EMPLOYEES' VIDE SCHEDULE 18 TO THE AUD ITED ACCOUNTS, EXPENDITURE ON 'SALARY, WAGES AND ALLOWAN CES' WERE SHOWN AT RS.48,32,116/- FOR FY. 2006-07 AS COM PARED TO RS.46,97,441/- IN THE PRECEDING FY 2005-06 SHOWI NG A MARGINAL INCREASE UNDER THIS HEAD. FROM PERUSAL OF THE ASSESSMENT ORDER U/S.144 OF THE ACT, IT IS FOUND THAT ALTHOUGH THE ASSESSMENT WAS M ADE ON THE BASIS OF BEST JUDGEMENT', HOWEVER, THE AO HAD PROCEEDED TO DISALLOW AND ADD BACK THE ENTIRE EXPEN SES OF RS.48,32,116/- UNDER THE HEAD 'SALARY, WAGES AND ALLOWANCES'. IN THE INSTANT CASE, THE ONLY DISPUTE PERTAINS TO THE DISALLOWANCE MADE BY THE AO OF THE ENTIRE EX PENSES UNDER THE HEAD 'SALARY, WAGES AND ALLOWANCES'. FROM PERUSAL OF THE REMAND REPORT OF THE AO, IT IS FOUND THAT ALTHOUGH THE AO HAS ADMITTED THAT THE ASSESSEE SUBM ITTED THE LEDGER COPY OF SALARY, WAGES AND PF, HOWEVER, T HE CONCLUSION DRAWN BY THE AO THAT THE PAYMENT OF SALA RY AND WAGES COULD NOT BE VERIFIED BECAUSE ASSESSEE WAS UN ABLE TO PRODUCE NAME AND ADDRESS OF THE EMPLOYEE/LABOUR IS FOUND TO BE CONTRADICTORY. IN THIS REGARD, THE APPELLANT' S AR HAS CATEGORICALLY STATED IN THE SWORN AFFIDAVIT DATED 23.02.2016 FILED WITH THE REJOINDER TO THE A.O'S RE MAND REPORT THAT: '(II) TWO FILES OF PAYMENT VOUCHERS FOR THREE MONTH S-APRIL, MAY & JUNE, 2006. (III) STAFF SALARY SHEET FOR 2006-07. (IV) LABOUR WAGES SHEET FROM APRIL-2006 TO OCTOBER- 2006.' I.T.A. NO. 1620/KOL./2016 ASSESSMENT YEAR: 2007-2008 PAGE 5 OF 7 ON THE ISSUE OF EVIDENTIARY VALUE OF AVERMENTS OF A DEPONENT THROUGH AN AFFIDAVIT, IT IS WELL SETTLED THAT THE S TATEMENTS ARE TO BE CONSIDERED AS CORRECT IN THE ABSENCE OF A NY CONTRARY EVIDENCE ON RECORD. CONSIDERING THE FACT T HAT THE APPELLANT'S A.R HAD PRODUCED RELEVANT SUPPORTING VO UCHERS, SALARY/WAGES SHEETS FOR THE PERIOD APRIL, MAY, JUNE AND APRIL TO OCTOBER RESPECTIVELY, IT IS INFERRED THAT SUFFICIENT MATERIAL WAS PRODUCED TO SUBSTANTIATE THE GENUINENE SS OF CLAIM FOR HAVING INCURRING EXPENDITURE OF SALARY, W AGES AND ALLOWANCES. HENCE, IN THE ABSENCE OF ANY DISCREPANC Y HAVING BEING FOUND OR CONFRONTED BY THE A.O, THE CLAIM OF EXPENDITURE OF SALARY/WAGES IS CONSIDERED TO BE SUBSTANTIATED, IN VIEW OF THE FACT THAT THE BOOKS O F ACCOUNTS AND BOOK RESULTS WERE AUDITED AND THE IMPUGNED EXPENDITURE WAS FOUND TO BE DULY VOUCHED. CONSIDERI NG THE TOTALITY OF THE FACTS OF THE CASE, IT IS HELD THAT THE DISALLOWANCE OF ENTIRE EXPENDITURE UNDER THE HEAD S ALARY, WAGES AND ALLOWANCES AMOUNTING TO RS.48,32,116/- IS FOUND TO BE NOT JUSTIFIED AND THE AO IS DIRECTED TO DELET E THE SAID DISALLOWANCE. THIS GROUND IS ALLOWED. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ALTHOUGH THE LD. D.R. HAS CONTENDED THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSE E TO SUPPORT AND SUBSTANTIATE THE EXPENSES CLAIMED UNDER THE HEAD S ALARY, WAGES AND ALLOWANCES BY PRODUCING THE RELEVANT DOCUMENTARY E VIDENCE CALLED FOR BY THE ASSESSING OFFICER EITHER DURING THE COURSE O F ASSESSMENT PROCEEDINGS OR EVEN DURING THE COURSE OF REMAND PRO CEEDINGS, IT IS OBSERVED THAT SOME OF THE RELEVANT DOCUMENTARY EVID ENCE IN THE FORM OF LEDGER ACCOUNT COPIES OF SALARY AND WAGES ACCOUNTS AND PROVIDENT FUND ACCOUNT WERE PRODUCED BY THE ASSESSEE BEFORE THE AS SESSING OFFICER ALONG WITH TWO FILES OF PAYMENT VOUCHERS FOR ATLEAST THRE E MONTHS AND STAFF SALARY SHEET AND LABOUR WAGES SHEET FOR THE YEAR UN DER CONSIDERATION. IN MY OPINION, THE SAID DOCUMENTARY EVIDENCE PRODUCED BY THE ASSESSEE WAS SUFFICIENT FOR THE ASSESSING OFFICER TO VERIFY THE EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD SALARY, WAGES AND ALLOWANC ES, BUT INSTEAD OF DOING THE SAME, HE INSISTED FOR OTHER RECORDS, SUCH AS COPIES OF P.F. I.T.A. NO. 1620/KOL./2016 ASSESSMENT YEAR: 2007-2008 PAGE 6 OF 7 CHALLANS, BANK STATEMENT, ETC. WHICH THE ASSESSEE C OULD NOT PRODUCE FOR THE REASON THAT ITS FACTORY HAD ALREADY BEEN CLOSED FOR THREE YEARS. IN ANY CASE, THE ASSESSING OFFICER, IN MY OPINION, ADOPTED A VERY ARBITRARY AND UNREASONABLE APPROACH WHILE DISALLOWING THE ENTIRE EXPENSES CLAIMED BY THE ASSESSEE UNDER THE HEAD SALARY, WAGES AND ALLO WANCES IGNORING COMPLETELY THE FACT THAT SPONGE IRON OF 15,875 METR IC TON WAS PRODUCED BY THE ASSESSEE-COMPANY IN ITS FACTORY DURING THE Y EAR UNDER CONSIDERATION, WHICH WAS NOT POSSIBLE WITHOUT THE P AYMENT OF SALARY AND WAGES. THE LD. CIT(APPEALS), ON THE OTHER HAND, APP RECIATED THIS RELEVANT FACTUAL POSITION IN THE RIGHT PERSPECTIVE AND DELET ED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SALARY, WAGES AND ALLOWANCES AFTER TAKING NOTE OF THE FACT THAT THERE WAS ONLY A MARGINAL INCOME IN THE SAID EXPENSES CLAIMED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR, WHEREIN THE EXPENSES ON ACCOUNT OF SALARY, WAGES AND ALLOWANCES TO THE EXTE NT OF RS.46,97,441/- WERE CLAIMED BY THE ASSESSEE. AS SUCH, KEEPING IN V IEW ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE VIEW THAT TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER OF THE ENTIRE EXPENSES CLAIME D BY THE ASSESSEE UNDER THE HEAD SALARY, WAGES AND ALLOWANCES WAS N OT SUSTAINABLE AND THE LD. CIT(APPEALS) IS FULLY JUSTIFIED IN DELETING THE SAME. IN THAT VIEW OF THE MATTER, I UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE AND DISMISS THIS APPEAL FILED BY THE REVENUE. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 24, 201 7. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER KOLKATA, THE 24 TH DAY OF MARCH, 2017 COPIES TO : (1) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1), KOLKATA, P-7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, 4 TH FLOOR, ROOM NO. 19, KOLKATA-700 069 I.T.A. NO. 1620/KOL./2016 ASSESSMENT YEAR: 2007-2008 PAGE 7 OF 7 (2) M/S. SHIV SHAKTI SPONGE IRON LIMITED, P-48, STRAND BANK ROAD, 3 RD FLOOR, KOLKATA-700 007 (3) COMMISSIONER OF INCOME TAX(APPEALS)-1, KOLKATA (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.