The ACIT, Circle-1, Bhavnagar V. Ambuja Ginning Pressing & Oil Co.Ltd., Bhavnagar

ITA 178/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89705 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Keywords: Peak credit; Fair market value
• Section: 143(3); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENC H, AHMEDABAD (BEFORE SHRI SHAILENDRA KR. YADAV, J.M & SHRI ANIL CHATURVEDI, A.M.) I.T. A. NO. 178/AHD/2011 & C.O. N O. 36/AHD/2011 (ASSESSMENT YEAR: 2007-08 ACIT, CIRCLE-1, BHAVNAGAR V/S AMBUJA GINNING PRESSING AND OIL CO. PVT. LTD, PALITANA ROAD, TALAJA (APPELLANT) (RESPONDENT) AMBUJA GINNING PRESSING AND OIL CO. PVT. LTD, PALITANA ROAD, TALAJA V/S ACIT, CIRCLE-1, BHAVNAGAR (APPELLANT) (RESPONDENT) PAN: AABCA7985Q APPELLANT BY : SHRI NARENDRA SINGH, SR. D .R. RESPONDENT BY : SMT. URVASHI SODHAN, A.R. ( )/ ORDER DATE OF HEARING : 02-07-2015 DATE OF PRONOUNCEMENT : 03-07-2015 PER ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A)-XX, AHMEDABAD DATED 18.10.2010 FOR A.Y. 2007-08 AND ASS ESSEE HAS ALSO FILED C.O. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. ITA NO. 178/A/11 & C.O NO.36/A/2011 . A.Y. 2007-08 2 3. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE B USINESS OF MANUFACTURING OF COTTON WOOL, COTTONSEEDS OIL AND OILED PRODUCTS. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 25.1 0.2007 DECLARING TOTAL INCOME OF RS. 2,34,64,900/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 14.12.2009 AND THE TOTAL INCOME WAS DETERMINED AT R S. 2,57,11,130/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED TH E MATTER BEFORE LD. CIT(A) WHO VIDE ORDER DATED 18.10.2010 PARTLY ALLOW ED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE AFORESAID ORDER OF LD. C IT(A), REVENUE IS NOW IN APPEAL BEFORE US AND ASSESSEE HAS ALSO FILED C.O. T HE GROUNDS RAISED BY THE REVENUE READS AS UNDER:- 1. THE LD.CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS. 14,00,000/- OUT OF THE REMUNERATION PAID TO THE DIRECTORS. 2. THE LD. CIT(A) HAS FURTHER ERRED IN LAW AND ON FACT S IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE INCREASE IN THE SALARY TO THE DIRECTORS FOR F.Y.2006-07 INSPITE OF THE FACT THAT THE CLAIM HAD INCREASED BY 200% OF THE SALARY PAID DURING THE EARLIER YEAR I.E. F.Y.2005-06; WHEREAS THIS INCREAS E IN THE F.Y.2005-06 OVER F.Y.2004-05 WAS ONLY 11.11%. 3. THE LD.CIT(A) OUGHT TO HAVE UPHELD THE FINDING OF T HE ASSESSING OFFICER THAT THE INCREASE IN SALARY DURING F.Y.2006-07 WAS EXCESSIVE AND UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES OFFERED BY THE DIRECTORS, IN VIEW OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE I.T. ACT 196 1. 1. ON THE OTHER HAND THE GROUNDS RAISED BY THE ASSESSE E IN THE C.O READS AS UNDER:- 1. THE LD. CIT(A)-XX, AHMEDABAD [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED ON FACTS AS ALSO IN LAW IN RETAINING ADDITION OF RS. 8 ,46,226/- BEING DIFFERENCE BETWEEN ITA NO. 178/A/11 & C.O NO.36/A/2011 . A.Y. 2007-08 3 INCOME ADMITTED DURING THE COURSE OF SURVEY AND COR RECT INCOME OFFERED IN RETURN OF INCOME. THE ADDITION MAY KINDLY BE DELETED. NOW WE FIRST TAKE UP REVENUES APPEAL IN ITA NO. 178/AHD/2011 2. THOUGH VARIOUS GROUNDS HAVE BEEN RAISED, BUT THE ON LY ISSUE IS WITH RESPECT TO DELETING THE DISALLOWANCE OF REMUNERATION PAID T O DIRECTORS. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ON PERUSING THE DETAILS OF SALARY PAID TO THE DIRECTORS, A.O NOTICED THAT THE SALARY PAID DURING THE YEAR TO THE DIRECTORS HAS INCREASED BY 200% AS COMPARED TO THE SALARY PAID DURING THE IMMEDIATE PRECEDING FINANCIAL YEAR. A.O WAS OF THE VIEW THAT THE INCREASE IN SALARY TO THE DIRECTORS WAS EXCESSIVE A ND UNREASONABLE AND WAS OF THE VIEW THAT THE INCREASE IN SALARY TO THE EXTE NT OF 25% WOULD BE REASONABLE. HE THEREFORE AFTER CONSIDERING THE INCR EASE OF 25% OF SALARY (BEING RS. 2 LACS OUT OF THE TOTAL INCREASE OF SALA RY OF RS. 16 LACS) TO BE REASONABLE ALLOWED IT AND DISALLOWED THE REMAINING INCREASE OF RS. 14 LACS UNDER THE PROVISIONS OF SECTION 40(A)(2)(B) OF THE ACT. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE L D. CIT(A) WHO DELETED THE ADDITION BY HOLDING AS UNDER:- 7.3 IT IS SEEN THAT THE PAYMENTS HAVE IN FACT BEEN MADE TO THE DIRECTORS. IT IS NOT THE CASE OF THE AO THAT NO PAYMENT HAS BEEN MADE. THE A MOUNT WHICH IS APPROPRIATE IS TO BE DECIDED BY THE ASSESSEE AND NOT THE AO. IN THE CASE OF A COMPANY THE PAYMENTS WHICH CAN BE MADE TO A DIRECTOR ARE GOVERNED BY THE COMPA NIES ACT. THE PAYMENT IS ALSO WITHIN THE LIMITS PRESCRIBED BY THE COMPANIES ACT. IT IS ALSO SEEN THAT IN THE EASE OF ACIT VS. BONY POLYMERS PVT. LTD THE 'A' BENCH OF IT AT DELHI HELD THAT EVEN IF THE COMMISSION PAI D TO THE DIRECTORS WAS LINKED TO THE TURNOVER OF THE COMPANY OR THE PROFIT OF THE COMPAN Y WHICH WAS WITHIN THE RULES PRESCRIBED BY THE COMPANY ACT THEN THE SAME WAS ALL OWABLE IN THE HANDS IN THE ITA NO. 178/A/11 & C.O NO.36/A/2011 . A.Y. 2007-08 4 COMPANY. SUCH PAYMENTS OF COMMISSION WERE NOT AFFEC TED BY SECTION 36(1 )(II) OF THE. I.T. ACT. 7.3(I) IN VIEW OF THE ABOVE THE A.O WAS NOT JUSTIFI ED IN DISALLOWING THE REMUNERATION PAID TO THE DIRECTORS PARTLY. THE ADDITION OF RS. 1 4,00,000/- IS HENCE DELETED. 4. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 5. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND SUPPORTED THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DELETING THE ADDITION HA S NOTED THAT PAYMENT OF SALARY TO THE DIRECTORS OF THE ASSESSEE WERE WITHIN THE LIMITS PRESCRIBED BY THE COMPANIES ACT 1956 AND THE PAYMENTS HAVE IN FAC T BEEN MADE TO THE DIRECTORS. HE HAS FURTHER NOTED THAT THE AMOUNT OF SALARY WHICH IS TO BE PAID BY THE ASSESSEE IS TO BE DECIDED BY THE ASSESSEE AN D NOT BY THE A.O. LD. CIT(A) HAD ALSO RELIED ON THE DECISION OF DELHI BEN CH RENDERED IN THE CASE OF ACIT VS. BONY POLYMERS PVT. LTD. BEFORE US, REV ENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS O F LD. CIT(A) NOR HAS BROUGHT ANY CONTRARY BINDING DECISION IN ITS SUPPOR T. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDE R OF LD. CIT(A) AND THUS THE GROUND OF REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSED. NOW WE TAKE UP C.O NO. 36/AHD/2011 ITA NO. 178/A/11 & C.O NO.36/A/2011 . A.Y. 2007-08 5 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT IN THE STATEMENT RECORDED U/S. 131 OF THE ACT, ASSESSEE HA D DISCLOSED INCOME AGGREGATING TO RS. 2,92,18,574/- (THE DETAILS OF WH ICH ARE LISTED AT PAGE 2 OF THE ASSESSMENT ORDER). HE FURTHER NOTICED THAT IN T HE STATEMENT OF INCOME FILED, THE INCOME ADMITTED DURING THE COURSE OF SUR VEY WAS DECREASED BY RS. 8,46,226/- AND THE REASON FOR DECREASING THE AMOUNT AS PER THE ASSESSEE WAS INTERALIA THAT THE DISCREPANCIES IN STOCK WAS WORKE D OUT ON RANDOM BASIS AND THE DEFICIT IN CASH BALANCE WAS TAKEN CARE BY THE P EAK BALANCE WORKED OUT. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEP TABLE TO THE A.O. AS ACCORDING TO HIM ASSESSEE HAD NOT FURNISHED ANY CAL CULATION ALONG WITH THE EVIDENCES TO JUSTIFY THE DECREASE IN THE INCOME ADM ITTED DURING THE COURSE OF SURVEY AND ACCORDING TO HIM THE DECREASE IN ADMITTE D INCOME WAS AN AFTERTHOUGHT. HE ACCORDINGLY MADE ADDITION OF RS. 8 ,46,226/-. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFO RE LD. CIT(A) WHO UPHELD THE ORDER OF A.O BY HOLDING AS UNDER:- 6.1 1 HAVE GONE THROUGH THE ASSESSMENT ORDER AS ALS O THE SUBMISSIONS OF THE AR CAREFULLY. IT IS SEEN THAT THE AO MADE THE ADDITION ONLY OBSERVING THAT THE INCOME OFFERED DURING THE COURSE OF SURVEY WAS NOT INCORPORATED IN THE RETURN OF INCOME. ON THE OTHER HAND THE AR RELIED ON THE FACT THAT THE PEAK CREDIT WORKED OUT AT THE TIME OF SURVEY ALSO INCLUDED THE GROSS PROFIT ADDITION MADE ON ACCOUNT OF SHORTAGE OF STOCK AND EXCESS STOCK OF LINT COTTON AND GUNNY BAGS FOUND AT THE TIME OF SURVEY. DURING COURSE OF APPELLATE PROCEEDINGS THE AR OF THE APPELLANT WAS ASKED TO FI LE THE DETAILS OF WORKING OF THE CREDIT FOR CASH TRANSACTIONS IN ORDER TO ASCERTAIN WHETHER ADEQUATE CASH WAS AVAILABLE TO THE ' APPELLANT TO INCLUDE THE EXCESS STOCK OF LINT COTTO N AND GUNNY BAGS FOUND AT THE TIME OF SURVEY AND GROSS PROFIT ADDITION MADE ON ACCOUNT OF SHORTAGE OF STOCKS FOUNDERED THE TIME OF SURVEY OR NOT. VIDE ORDER SHEET ENTRY DATED 29/9/10 THE AR OF THE APPELLANT STATED THAT THE WORKING OF THE PEAK IT COULD NOT BE DONE A T THIS STAGE. ITA NO. 178/A/11 & C.O NO.36/A/2011 . A.Y. 2007-08 6 IN VIEW OF .THE ABOVE IT IS CLEAR THAT ON THE DALE OF SURVEY HAD DECLARED CASH WAS NOT AVAILABLE WITH THE APPELLANT, TO EXPLAIN THE EX CESS STOCK OF LINT COTTON AND GUNNY BAGS FOUND AT THE TIME OF SURVEY AND GROSS PROFIT ADDITI ON MADE ON ACCOUNT OF SHORTAGE OF STOCKS FOUND AT THE TIME OF SURVEY. IN VIEW OF THE ABOVE THE ADDITION MADE BY THE A.O IS CONFIRMED. 9. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), ASS ESSEE IS NOW IN APPEAL BEFORE US. 10. LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A). ON THE OTHER HAND LD. D.R. SUPPORTED THE ORDER OF A.O AND LD. CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE UPHOLDING THE ADDITION H AS GIVEN A FINDING THAT ON THE DATE OF SURVEY, CASH WAS NOT AVAILABLE WITH THE ASSESSEE TO EXPLAIN THE EXCESS STOCK FOUND AT THE TIME OF SURVEY. BEFORE US , ASSESSEE HAS NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS O F LD. CIT(A). IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF ASSESSEE IS DISMISSED . 12. IN THE RESULT, THE APPEAL OF REVENUE AND C.O OF AS SESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 03 - 07 - 20 15. SD/- SD/- (SHAILENDRA KR. YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH