M/S Quality pumps PVT LTD., Kanpur V. DCIT-1, Kanpur

ITA 272/LKW/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54805 (ITAT-LUCKNOW)
• Duration Of Justice: 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-08-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 10-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Additional evidence
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI H.L. KARWA, VICE PRESIDENT AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NO.272 & 273/LKW/2011 ASSESSMENT YEAR:2002-03 AND 2003-04 QUALITY PUMPS PVT. LTD. 1-B/A, DADA NAGAR, KANPUR V. DCIT KANPUR PAN:AAACQ0265C (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. ABHINAV MEHROTRA, C.A. RESPONDENT BY: SHRI. RAJESH YADAV, D.R. DATE OF HEARING: 18.08.2011 DATE OF PRONOUNCEMENT: 26.08.2011 O R D E R PER N.K. SAINI: THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS DATED 17.2.2011 AND 20.1.2011 OF THE LD. CIT(A)-II, KANPUR FOR ASSESSMENT YEARS 2002-03 AND 2003-04 RESPECTIVELY. 2. SINCE SOME OF THE ISSUES INVOLVED ARE COMMON IN THESE APPEALS AND THE APPEALS WERE HEARD TOGETHER, WE DISPOSE OF THESE APPEALS BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. FIRSTLY WE WILL DEAL WITH ITA NO. 272/LKW/2011. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX, APPEALS HAS ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING DISALLOWANCE OF RS.35000/- :-2-: OUT OF TOTAL SALARY PAID TO SMT. NEELAM MOORJANI AMOUNTING TO RS.60000/-WITHOUT APPRECIATING FACTS OF THE CASE, SERVICES RENDERED, EVIDENCES ADDUCED AND QUALIFICATION. 2. THAT THE LD. COMMISSIONER OF INCOME TAX, APPEALS HAS FURTHER ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING DISALLOWANCE OF RS.31806/- OUT OF TOTAL SALARY PAID TO SMT. POONAM MOORJANI AMOUNTING TO RS.55806/- WITHOUT APPRECIATING FACTS OF THE CASE, SERVICES RENDERED, EVIDENCES ADDUCED AND QUALIFICATION. 3. THAT THE LD. COMMISSIONER OF INCOME TAX, APPEALS HAS FURTHER ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING DISALLOWANCE OF ENTIRE COMMISSION AMOUNTING TO RS.747027/- PAID TO M/S MATRI STEELS LTD ON THE PROCUREMENT OF ORDERS WITHOUT APPRECIATING FACTS OF THE CASE, EVIDENCES FILED, WRITTEN REPLIES, CONFIRMATIONS, AGREEMENT, TREATING CERTAIN DETAILS FILED IN APPELLATE PROCEEDINGS AS AN ADDITIONAL EVIDENCES. 4. THAT THE LD. COMMISSIONER OF INCOME TAX HAS FURTHER ERRED IN LAW AS WELL AS ON FACTS IN HOLDING THAT THE APPELLANT COOKED UP STORY OF COMMISSION AND EVERY THING WAS AFTER THOUGHT WITHOUT ANY MATERIAL ON RECORD AND WITHOUT ESTABLISHING ANYTHING AGAINST THE EVIDENCES. 5. THAT THE LD. COMMISSIONER OF INCOME TAX HAS FURTHER ERRED IN LAW AS WELL AS ON FACTS IN NOT DIRECTING TO A.O. TO RECOMPUTE THE DEDUCTION U/S. 80IB OF THE ACT ON THE ENHANCED INCOME AS ASSESSED BY THE A.O AND AFTER CONSIDERING THE DISALLOWANCES OR ADDITION , IF ANY SUSTAINED. 6. THAT IN ANY CASE THE DISALLOWANCE AS CONFIRMED ARE BAD IN LAW AND ARE HIGHLY EXCESSIVE. :-3-: 3. FIRST ISSUE VIDE GROUND NO. 1 RELATES TO THE SUSTENANCE OF DISALLOWANCE OF ` 35,000 OUT OF SALARY PAID TO SMT. NEELAM MOORJANI. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE FILED RETURN OF INCOME ON 31.10.2003 DECLARING AN INCOME OF ` 29,30,960. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE PAID SALARY OF ` 60,000 TO SMT. NEELAM MOORJANI, WIFE OF SHRI. ROSHAN MOORJANI FOR THE FIRST TIME. HE FURTHER OBSERVED THAT SHRI. ROSHAN MOORJANI HAPPEN TO BE THE DIRECTOR OF THE ASSESSEE-COMPANY AND RECEIVED A SALARY OF ` 4,839. THE EXPLANATION OF THE ASSESSEE WAS THAT SMT. NEELAM MOORJANI WAS APPOINTED AS DIRECTOR IN THE RELEVANT ACCOUNTING PERIOD ONLY AND FOR THAT REASON NO SALARY WAS PAID TO HER IN THE IMMEDIATELY PRECEDING YEAR. ACCORDING TO THE ASSESSING OFFICER, SMT. NEELAM MOORJANI WAS A PERSON COVERED UNDER SECTION 40A(2)(B) OF THE ACT AND THE ASSESSEE WAS REQUIRED TO SUBSTANTIATE REMUNERATION PAID TO HER WITH REFERENCE TO THE SERVICES RENDERED. THE ASSESSEE EXPLAINED THAT ALL THE DIRECTORS WERE PERFORMING THEIR DAY-TO-DAY WORKING WHICH INCLUDED PRODUCTION, SALES, ADMINISTRATION, ACCOUNTS, ETC AND IT WAS A COMBINED EFFORTS OF THE BOARD OF DIRECTORS THAT THE ASSESSEE ACHIEVED THE SALES AMOUNTING TO ` 5.88 CORES AND THE PROFIT OF ` 44.19 LAKHS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SUBMISSIONS MADE BY THE ASSESSEE WERE QUITE GENERAL IN NATURE. HE, THEREFORE, ASKED THE ASSESSEE TO PRODUCE THE DIRECTOR TO WHOM REMUNERATION WAS PAID. THE ASSESSING OFFICER POINTED OUT THAT THE LADY DIRECTOR WAS NOT PRODUCED AND NO REASON FOR NON-PRODUCING WAS TENDERED WHICH SHOWS THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE BUSINESS EXPEDIENCY IN RESPECT OF PAYMENT MADE TOHER WHO HAPPENED TO BE WIFE OF THE DIRECTOR OF THE ASSESSEE AND AS SUCH :-4-: COVERED UNDER THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. HE, THEREFORE, DISALLOWED SALARY OF ` 60,000 PAID TO THE LADY DIRECTOR. 4. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE VIDE REPLY DATED 5.8.2004 EXPLAINED THE NATURE OF SERVICES RENDERED BY THE DIRECTOR, SMT. NEELAM MOORJANI WHO WAS APPOINTED AS A WHOLE TIME DIRECTOR AND A SUM OF ` 60,000 HAD BEEN PAID TO HER FOR THE PERIOD 1.11.2001 TO 18.3.2002. THE SAID REMUNERATION WAS FINALIZED IN THE AGM AND SHE WAS APPOINTED AS WHOLE TIME DIRECTOR BY FULFILLING THE REQUIRED FORMALITIES WITH ROC. IT WAS STATED THAT THE REMUNERATION HAD BEEN PAID TO THE DIRECTOR ACCORDING TO HER QUALIFICATIONS, INTEGRITY AND SEEING HER DEVOTION TO WORK AND THAT SMT. NEELAM MOORJANI HAD BEEN LOOKING AFTER THE FOLLOWING WORK:- (I) OFFICE SUPERVISION AND ADMINISTRATION, FINANCIAL MATTERS. (II) SHE IS AN AUTHORIZED SIGNATORY IN BANK ACCOUNT OF THE COMPANY AND MAKES PAYMENTS TO SUPPLIERS BY ACCOUNT PAYEE CHEQUES AFTER VERIFICATION OF CREDITORS INVOICE. (III) VERIFICATION OF CASH VOUCHERS. (IV) SHE ATTENDS BUSINESS QUERIES FROM TIME TO TIME. 5. THE ASSESSEE ALSO FURNISHED EVIDENCE PROVING THAT SMT. NEELAM MOORJANI WAS SUPERVISING THE WORK REGULARLY. AS REGARDS TO HER PERSONAL PRESENCE WHICH WAS NOT PUT IN THE ASSESSMENT PROCEEDINGS, IT WAS STATED THAT ON ACCOUNT OF HER PRE-OCCUPANCIES SHE COULD NOT APPEAR BEFORE THE ASSESSING OFFICER WHICH DID NOT IN ANY WAY JUSTIFY THAT SHE HAD NOT RENDERED ANY SERVICE TO THE ASSESSEE-COMPANY. THE ASSESSEE ALSO FURNISHED COPY OF BOARDS RESOLUTION APPOINTING HER AS WHOLE TIME DIRECTOR AND COPY OF FORM NO.23 FILED WITH ROC WITH FILING FEE RECEIPT DECLARING HER AS WHOLE TIME DIRECTOR AND ALSO COPY OF BANK CERTIFICATE SHOWING THAT SHE :-5-: WAS THE AUTHORIZED SIGNATORY AND HAD SIGNED MANY CHEQUES. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT SMT. NEELAM MOORJANI IS ONLY A GRADUATE AND DID NOT HOLD ANY PROFESSIONAL DEGREE IN MANAGEMENT OR IN ANY OTHER FIELD SO AS TO JUSTIFY REMUNERATION PAID @ ` 10,000 PER MONTH. HE FURTHER OBSERVED THAT THE WORK ASSIGNED TO THE LADY WAS LOOKING AFTER THE FINANCE, ADMINISTRATIVE WORK AND ALSO BANKING TRANSACTIONS WHICH WAS GENERAL TYPE OF WORK AND COULD BE DONE BY ANY OTHER EMPLOYEE OF THE OFFICE. THE LD. CIT(A) WAS OF THE VIEW THAT THE REMUNERATION PAID TO THE LADY DIRECTOR WAS EXCESSIVE. HE CONSIDERED IT FAIR AND REASONABLE TO ESTIMATE THE REMUNERATION @ ` 5,000 PER MONTH TOTALING TO ` 25,000 FOR THE PERIOD OF HER WORK. 6. NOW THE DEPARTMENT IS IN APPEAL. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT SMT. NEELAM MOORJANI WAS A WHOLE TIME DIRECTOR OF THE ASSESSEE-COMPANY AND PERFORMING WORKS RELATING TO OFFICE SUPERVISION, ADMINISTRATION AND FINANCE MATTER. SHE ALSO ATTENDED BUSINESS QUERIES FROM TIME TO TIME. SO IT CANNOT BE SAID THAT SMT. NEELAM MOORJANI WAS NOT PERFORMING HER DUTIES ASSIGNED BY THE COMPANY IN THE CAPACITY OF WHOLE TIME DIRECTOR. THEREFORE, SHE WAS ENTITLED TO THE SALARY. THE LD. CIT(A) WHILE RESTRICTING SALARY @ ` 5,000 PER MONTH HAS NOT GIVEN ANY BASIS. WE, THEREFORE, TO MEET THE ENDS OF JUSTICE, DEEM IT FAIR AND REASONABLE TO ESTIMATE SALARY TO THE LADY DIRECTOR @ ` 8,000 PER MONTH. IN THIS MANNER, ALLOWABLE SALARY IS ESTIMATED AT ` 48,000 FOR THE RELEVANT PERIOD INSTEAD OF ` 60,000 CLAIMED BY THE ASSESSEE AND ` 25,000 ESTIMATED BY THE LD. CIT(A). THUS, ASSESSEE WILL GET A RELIEF OF ` 23,000 ON THIS COUNT. 8. THE NEXT ISSUE VIDE GROUND NO. 2 RELATES TO SUSTENANCE OF DISALLOWANCE OF ` 31,806 OUT OF TOTAL SALARY PAID TO SMT. POONAM MOORJANI. :-6-: THE FACTS RELATING TO THIS ISSUE ARE SIMILAR TO THE FACTS INVOLVED IN GROUND NO. 1 (SUPRA). THE ONLY DIFFERENCE IS THAT SALARY OF ` 55,806 WAS PAID TO SMT. POONAM MOORJANI, WIFE OF SHRI. SATENDRA MOORJANI FOR THE FIRST TIME ON HER APPOINTMENT AS THE DIRECTOR OF THE COMPANY. THE ASSESSING OFFICER DISALLOWED WHOLE OF THE SALARY CLAIMED. WHEN THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A), HE THOUGHT IT FAIR AND REASONABLE TO ESTIMATE THE SALARY OF SMT. POONAM MOORJANI AT ` 4,000 PER MONTH TOTALING TO ` 24,000 FOR THE PERIOD OF HER WORK. IN THE INSTANT CASE ALSO SERVICES RENDERED BY SMT. POONAM MOORJANI ARE NOT IN DISPUTE. CONSIDERING THE TOTALITY OF THE FACTS, WE DEEM IT APPROPRIATE TO ESTIMATE SALARY OF SMT. POONAM MOORJANI @ ` 7,000 PER MONTH TOTALING TO ` 42,000 INSTEAD OF ` 24,000 ESTIMATED BY THE LD. CIT(A). THUS, ASSESSEE WILL GET FURTHER RELIEF OF ` 18,000. 9. VIDE GROUNDS NO. 3 & 4, THE GRIEVANCE OF THE ASSESSEE RELATE TO THE CONFIRMATION OF DISALLOWANCE OF COMMISSION AMOUNTING TO ` 7,47,027 PAID TO M/S MATRI STEELS LTD. ON PROCUREMENT OF ORDERS. 10. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD PAID A SUM OF ` 11,48,755 AS COMMISSION TO VARIOUS PARTIES. HE ASKED THE ASSESSEE TO FURNISH DETAILS OF COMMISSION PAID AND CONFIRMATION IN RESPECT OF PAYMENT MADE OF ALL COMMISSIONS. THE ASSESSING OFFICER RECORDED STATEMENT OF SHRI. AJAY KANT, DIRECTOR OF M/S MAITRI STEELS LTD. WHICH HAS BEEN REPRODUCED AT PAGES 5 TO 8 OF THE ASSESSMENT ORDER DATED 21.12.2004. THE ASSESSING OFFICER ALSO RECORDED THE STATEMENT OF SHRI. SATENDRA MOORJANI, ONE OF THE DIRECTORS OF THE ASSESSEE-COMPANY. ACCORDING TO THE ASSESSING OFFICER, THERE WERE QUITE CONTRADICTION IN THE SUBMISSIONS OF SHRI. SATENDRA MOORJANI AND SHRI. AJAY KANT. HE POINTED OUT THAT THOUGH SHRI. AJAY KANT CONFIRMED HAVING VISITED THE FACTORY OF THE ASSESSEE BUT HE DID NOT KNOW THE CORRECT ADDRESS OF THE FACTORY BECAUSE HE :-7-: HAS STATED THAT THE FACTORY WAS SITUATED IN PANKI INDUSTRIAL AREA WHILE THE FACTORY WAS SITUATED IN DADA NAGAR, KANPUR. HE, THEREFORE, WAS OF THE VIEW THAT THE SUBMISSIONS MADE BY SHRI. SATENDRA MOORJANI AND SHRI. AJAY KANT WERE NOT WORTHY OF ANY CREDENCE, THEREFORE, COULD NOT BE RELIED UPON. ACCORDING TO HIM, THE COMMISSION PAID TO M/S MAITRI STEELS LTD. REMAINED TOTALLY UNSUBSTANTIATED AS THE ASSESSEE HAD NOT BEEN ABLE TO PRODUCE ANY KIND OF SUPPORTING DOCUMENTARY EVIDENCE WHICH COULD HAVE JUSTIFIED RENDERING OF SERVICE BY M/S MAITRI STEELS LTD. HE ACCORDINGLY DISALLOWED THE COMMISSION AMOUNTING TO ` 7,47,027. 11. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT ALL THE DOCUMENTS OF M/S MAITRI STEELS LTD. WERE SIGNED BY SHRI. RAJIV KANT, MANAGING DIRECTOR AND THE STATEMENT WAS RECORDED OF SHRI. AJAY KANT, DIRECTOR. IT WAS FURTHER STATED THAT THE ASSESSING OFFICER ALTOGETHER IGNORED THE FOLLOWING FACTS OF THE CASE:- (I) THAT M/S MAITRI STEELS LTD. THROUGH ITS MANAGING DIRECTOR, SH. RAJIV KANT VIDE LETTER DATED 30-03-2000 (DULY SIGNED BY HIM) APPROACHED THE APPELLANT COMPANY OFFERING THEIR SERVICES TO ACT AS AN AGENT. AN AGREEMENT WAS EXECUTED BETWEEN THE PARTIES ON 01-04-2000 AND THE SAID AGREEMENT WAS DULY SIGNED BY SH. RAJIV KANT. THEREAFTER, AN AMENDMENT IN THE AGENCY AGREEMENT WAS ALSO SIGNED ON 01-04-2001 WHICH HAS ALSO BEEN SIGNED BY SH. RAJIV KANT. COPY OF ALL THESE AGREEMENT HAD BEEN FILED VIDE REPLY DATED 30-11-2004. (II) THAT A LETTER WAS ADDRESSED TO THE MATERIAL MANAGER, U.P. JAL NIGAM, LUCKNOW BY THE APPELLANT COMPANY DECLARING AUTHORIZATION TO M/S MAITRI STEELS LTD. FOR PROCUREMENT OF ORDERS AND FOR REALIZATION OF PAYMENTS. THE SAID LETTER HAS :-8-: BEEN ACKNOWLEDGED BY U.P. JAL NIGAM. COPY OF THE SAID AUTHORIZATION LETTER IS ON RECORD. (III) THAT M/S MAITRI STEELS LTD. FROM TIME TO TIME RAISED MONTHLY BILLS OF COMMISSION UPON THE APPELLANT COMPANY WITH FULL DETAILS OF SUPPLIES MADE TO U.P. JAL NIGAM AND COMMISSION DUE AS PER AGREEMENT. ALL THESE BILLS WERE SIGNED BY SH. RAJIV KANT. (IV) THAT SH. AJAY KANT ON THE LETTER PAD OF THE APPELLANT COMPANY DULY SIGNED BY HIM AS AN AUTHORIZED REPRESENTATIVE ADDRESSED TO U.P. JAL NIGAM APPROACHED WITH OUTSTANDING BILLS FOR REALIZATION OF THE PAYMENTS. 12. THE ASSESSEE ALSO EXPLAINED DISCREPANCIES NOTICED BY THE ASSESSING OFFICER IN THE STATEMENT RECORDED ON OATH IN RESPECT OF SHRI. SATENDRA MOORJANI AND SHRI. AJAY KANT IN ORDER TO ESTABLISH THAT M/S MAITRI STEELS LTD RENDERED SERVICES TO THE ASSESSEE AND THE EXPENDITURE ON COMMISSION WAS INCURRED FOR BUSINESS PURPOSES. THE LD. CIT(A), HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER:- THE FACTS OF THE CASE AS WELL AS SUBMISSIONS MADE BY THE APPELLANT HAVE BEEN CAREFULLY CONSIDERED. IT IS OBSERVED THAT THE A.O. HAS DISALLOWED COMMISSION PAID AT RS.7,47,027/- ON THE GROUND THAT FROM THE STATEMENT RECORDED ON OATH IN RESPECT OF SH. SATENDRA KUMAR MOORJANI, DIRECTOR OF THE APPELLANT AND SH. AJAY KANT, DIRECTOR OF M/S MAITRI STEELS LTD. IT WAS GATHERED BY THE A.O. THAT SEVERAL CONTRADICTIONS HAD SURFACED WHICH HAVE BEEN DISCUSSED AT LENGTH IN THE ASSESSMENT ORDER AND ARE NOT REPEATED HERE FOR THE SAKE OF BREVITY. FURTHER, THE APPELLANT AT THE APPELLATE STAGE HAS :-9-: FURNISHED ADDITIONAL EVIDENCES WHICH WERE NOT PUT BEFORE THE A.O. IT IS NOT UNDERSTOOD WHY THE APPELLANT HAD NOT PRODUCED SUCH EVIDENCES DURING THE COURSE OF ASSESSMENT PROCEEDINGS. IT APPEARS THAT THE APPELLANT HAS COOKED UP A STORY AND IS HELD AS AN AFTER THOUGHT. THUS THE ADDITIONAL EVIDENCES FURNISHED BY THE APPELLANT ARE NOT ADMITTED UNDER RULE 46A OF THE ACT AND ARE HEREBY REJECTED. FURTHER, MERELY BECAUSE THE APPELLANT HAS ESTABLISHED THE EXISTENCE OF AN AGREEMENT BETWEEN IT AND HIS AGENT AND AN ACTUAL PAYMENT THEREUNDER, IT WOULD NOT TAKE AWAY THE JURISDICTION OR THE DISCRETION OF THE A.O. TO CONSIDER WHETHER THE EXPENDITURE WAS GENUINELY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF THE BUSINESS AND WHETHER THE EXPENDITURE WAS COMMERCIALLY EXPEDIENT. RELIANCE IS PLACED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF LAKSHMI NARAYAN MADAN LAL V. CIT (1972) 86 ITR 439 (SC). I HAVE NO DOUBT THAT THE COMMISSION PAID AT RS.7,47,027/- IS NOT REAL AND IS NOT INCURRED IN THE COURSE OF BUSINESS, BUT A COLOURFUL DEVICE TO AVOID INCIDENCE OF TAX AS HELD BY THE A.O. IN HIS ASSESSMENT ORDER. IN THE GIVEN FACTS AND CIRCUMSTANCES IT IS CLEAR THAT THE COMMISSION PAID AT RS.7,47,027/- IS NOT REPRESENTING GENUINE EXPENDITURE, BUT RATHER IT REPRESENTS CONCOCTED/SHAM TRANSACTION MERELY WITH THE PURPOSE OF EVADING TAX. BUT TO REITERATE, THE DOCUMENTARY EVIDENCE LIKE COPY OF AGREEMENT, AUTHORIZATION LETTERS, BILLS, ETC. LOOSE THEIR VALUE, AS THEY HAVE BEEN CREATED ON PAPER TO LEND THE SEMBLANCE OF GENUINENESS TO COMMISSION PAID. THE BOTTOM LINE IS THAT THE SERVICE PART INVOLVED IN THE TRANSACTION IS NOT GENUINE AND THIS IS WHY THE APPELLANT HAS NOT PRODUCED EVIDENCES BEFORE THE A.O. FOR :-10-: VERIFICATION. HENCE, THE ADDITION MADE AT RS.7,47,027/- IS HEREBY CONFIRMED. GROUND NO.3 IS DISMISSED. 13. NOW THE ASSESSEE IS IN APPEAL. 14. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND HE FURTHER SUBMITTED THAT THE CLAIM OF THE ASSESSEE WAS ALLOWABLE SINCE COMMISSION WAS PAID FOR THE BUSINESS EXPEDIENCY AS M/S MAITRI STEELS LTD. PROCURED ORDERS FOR THE ASSESSEE AND THE FOLLOWING DOCUMENTS WERE FURNISHED TO THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A):- A) COPY OF OFFER LETTER DATED 30.3.2000 FROM M/S MAITRI STEELS LTD. B) COPY OF AGENCY AGREEMENT DATED 1.4.2000. C) COPY OF AMENDMENT TO AGENCY AGREEMENT DATED 1.4.2001 15. HOWEVER, NEITHER THE ASSESSING OFFICER NOR THE LD. CIT(A) GAVE COGNIZANCE TO THOSE DOCUMENTS. HE FURTHER SUBMITTED THAT THE LD. CIT(A) ERRED IN OBSERVING THAT THE ABOVE DOCUMENTS WERE IN THE NATURE OF ADDITIONAL EVIDENCE INSPITE OF THE FACT THAT THOSE WERE ALREADY AVAILABLE ON RECORD. IT WAS CONTENDED THAT THE LD. CIT(A) WITHOUT APPRECIATING THE FACTS IN RIGHT PERSPECTIVE CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN ARBITRARY MANNER. 16. IN HIS RIVAL SUBMISSIONS, THE LD. D.R. STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 17. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND MATERIALS ON RECORD, IT APPEARS THAT THE LD. CIT(A) WHILE DECIDING THE ISSUE AT HAND CONSIDERED THE DOCUMENTS WHICH WERE ALREADY AVAILABLE ON RECORD, AS AN ADDITIONAL EVIDENCE. THE SAID DOCUMENTS WERE OFFER LETTER DATED 30.3.2000, :-11-: AGENCY AGREEMENT DATED 1.4.2000 AND AMENDMENT TO AGENCY AGREEMENT DATED 1.4.2001. THE OTHER DOCUMENTS WERE FURNISHED BY THE ASSESSEE TO THE LD. CIT(A) VIDE LETTER DATED 30.11.2004 WHICH IS PLACED AT PAGES 64 AND 65 OF THE ASSESSEES COMPILATION. IN OUR OPINION, THE LD. CIT(A) WAS NOT JUSTIFIED IN OBSERVING THAT THE AFORESAID DOCUMENTS WERE IN THE NATURE OF ADDITIONAL EVIDENCE. WE, THEREFORE, DEEM IT APPROPRIATE TO REMAND THIS ISSUE BACK TO THE FILE OF THE LD. CIT(A) TO BE ADJUDICATED AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND ALSO CONSIDERING THE DOCUMENTS AND THE MATERIALS WHICH ARE ALREADY AVAILABLE ON RECORD. 18. AS REGARDS GROUND NO. 5, THE LD. COUNSEL FOR THE ASSESSEE GAVE IN WRITING AS UNDER:- SINCE NOT TAKEN UP BEFORE THE LD. CIT(A), MAY BE TREATED AS NOT PRESSED. 19. IN VIEW OF THE ABOVE, GROUND NO.5 IS DISMISSED AS NOT PRESSED. 20. GROUND NO. 6 IS GENERAL IN , SO DOES NOT REQUIRE ANY SPECIFIC COMMENTS ON OUR PART. 21. NOW WE WILL DEAL WITH ITA NO. 273/LKW/2011. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX, APPEALS HAS ERRED IN LAW AS WELL AS ON FACTS IN NOT ALLOWING DEDUCTION U/S. 80IB ON INTEREST ON FDRS WITHOUT APPRECIATING THE FACTS OF CASE THAT THE FDRS WERE MADE UNDER COMPULSION AS PER REQUIREMENT OF THE GOVT. DEPARTMENTS TO KEEP SECURITY AGAINST TENDERS AND THERE WAS NO PURPOSE OF ANY INVESTMENT TO EARN INTEREST INCOME AND THE PURPOSE WAS TO ATTAIN THE BUSINESS. :-12-: 2. THAT THE LD. COMMISSIONER OF INCOME TAX, APPEALS HAS FURTHER ERRED IN LAW AS WELL AS ON FACTS IN NOT ALLOWING NETTING OF INTEREST RECEIVED AND PAID ON CC LIMIT WHILE CONSIDERING DEDUCTION UNDER SECTION 80IB OF THE ACT. 3. THAT THE LD. COMMISSIONER OF INCOME TAX, APPEALS HAS ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING DISALLOWANCE OF RS.72,000/- OUT OF TOTAL SALARY PAID TO SMT. NEELAM MOORJANI AMOUNTING TO RS.1,32,000/- WITHOUT APPRECIATING FACTS OF THE CASE, SERVICES RENDERED, EVIDENCES ADDUCED AND QUALIFICATION. 4. THAT THE LD. COMMISSIONER OF INCOME TAX HAS FURTHER ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING DISALLOWANCE OF RS.25,000/- OUT OF TRAVELLING EXPENSES WITHOUT APPRECIATING THE FACT THAT ALL THE EXPENSES AMOUNTING TO RS.3,75,936/- HAD BEEN INCURRED BY THE STAFF OF THE ASSESSEE COMPANY. 5. THAT THE LD. COMMISSIONER OF INCOME TAX HAS FURTHER ERRED IN LAW AS WELL AS ON FACTS IN NOT DIRECTING TO A.O. TO RECOMPUTE THE DEDUCTION U/S. 80IB OF THE ACT ON THE ENHANCED INCOME AS ASSESSED BY THE A.O AND AFTER CONSIDERING THE DISALLOWANCES OR ADDITION , IF ANY SUSTAINED. 6. THAT IN ANY CASE THE DISALLOWANCE AS CONFIRMED ARE BAD IN LAW AND ARE HIGHLY EXCESSIVE. 22. FIRST ISSUE VIDE GROUND NO. 1 RELATES TO THE DEDUCTION UNDER SECTION 80IB OF THE ACT ON ACCOUNT OF INTEREST ON FDRS. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE FILED RETURN OF INCOME ON 1.12.2003 DECLARING AN INCOME OF ` 25,76,100. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE EARNED INTEREST OF ` 1,74,329 ON FDRS :-13-: AND CLAIMED DEDUCTION UNDER SECTION 80IB OF THE ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE BY STATING THAT THE INTEREST EARNED ON BANK FDRS WAS ASSESSABLE AS INCOME FROM OTHER SOURCES. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT [2003] 262 ITR 278. 23. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE HAD NOT MADE INVESTMENT IN FDRS WITH ANY PROFIT OR INVESTMENT MOTIVE BUT THOSE HAD BEEN MADE UNDER COMPULSION AS PER REQUIREMENT OF THE GOVT. DEPARTMENTS TO KEEP AS SECURITY AGAINST TENDERS. THUS, THE PURPOSE OF INVESTMENT WAS TO ATTAIN BUSINESS AND NOT INVESTMENT. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT (SUPRA) HAS HELD THAT SUCH INCOME WAS NOT ELIGIBLE FOR DEDUCTION AS THE INCOME WAS NOT DERIVED FROM THE UNDERTAKING ITSELF. HE ACCORDINGLY CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 24. NOW THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 25. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN OUR OPINION, THE LD. CIT(A) WAS FULLY JUSTIFIED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER SINCE THE HON'BLE SUPREME COURT HAS SETTLED THIS CONTROVERSY IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER:- THAT INTEREST DERIVED BY THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE ON DEPOSITS MADE WITH THE ELECTRICITY BOARD FOR THE SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UNDERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSES OF THE SPECIAL DEDUCTION UNDER SECTION 80HH. :-14-: 26. IN THE PRESENT CASE ALTHOUGH THE ISSUE RELATES TO DEDUCTION UNDER SECTION 80IB OF THE ACT AND NOT DEDUCTION UNDER SECTION 80HH OF THE ACT, HOWEVER, THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE BECAUSE THE INCOME EARNED ON THE FDRS COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERTAKING ITSELF AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSES OF THE SPECIAL DEDUCTION UNDER SECTION 80IB OF THE ACT. WE, THEREFORE, DO NOT SEE ANY MERIT IN THIS GROUND OF THE ASSESSEES APPEAL. HENCE, GROUND NO. 1 TAKEN BY THE ASSESSEE IS DISMISSED. 27. GROUND NO. 2 RELATES TO THE NETTING OF INTEREST RECEIVED AND PAID ON CC LIMIT. THIS IS NOTICED THAT THIS ISSUE IS NOT ARISING OUT OF THE IMPUGNED ORDER. THEREFORE, THE SAME DESERVES TO BE DISMISSED. WE ORDER ACCORDINGLY. HENCE, GROUND NO. 2 IS DISMISSED. 28. THE NEXT ISSUE VIDE GROUND NO. 3 RELATES TO THE CONFIRMATION OF DISALLOWANCE OF ` 72,000 OUT OF SALARY PAID TO SMT. NEELAM MOORJANI. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS INVOLVED IN GROUND NO. 1 TAKEN BY THE ASSESSEE IN ITA NO. 272/LKW/2011 FOR ASSESSMENT YEAR 2002- 03 WHICH WE HAVE ALREADY ADJUDICATED UPON IN THE FORMER PART OF THIS ORDER AND HELD THAT SALARY @ ` 8,000 PER MONTH WOULD BE FAIR AND REASONABLE. WE, THEREFORE, MODIFY THE ORDER OF THE LD. CIT(A), WHO HAS ALLOWED SALARY TO SMT. NEELAM MOORJANI @ ` 5,000 PER MONTH, AND DIRECT THE ASSESSING OFFICER TO ALLOW THE SALARY @ ` 8,000 PER MONTH INSTEAD OF ` 5,000 PER MONTH. THE ASSESSEE WILL GET CONSEQUENTIAL RELIEF. HENCE GROUND NO. 3 IS PARTLY ALLOWED. 29. THE NEXT ISSUE VIDE GROUND NO. 4 RELATES TO THE CONFIRMATION OF DISALLOWANCE OF ` 25,000 OUT OF TRAVELLING EXPENSES. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE DEBITED A SUM OF ` 3,75,936 UNDER THE :-15-: HEAD TRAVELLING EXPENSES AS AGAINST ` 1,10,945 CLAIMED IN THE PRECEDING YEAR. THE ASSESSING OFFICER OBSERVED THAT THE EXPENDITURE CLAIMED WAS NOT FOUND SUPPORTED BY VOUCHERS COMPLETELY AND THAT THE BUSINESS NEXUS OF VARIOUS TRAVELLING, IN RESPECT OF WHICH EXPENDITURE WAS INCURRED AND CLAIMED, COULD NOT BE ESTABLISHED COMPLETELY. HE, THEREFORE, DISALLOWED A SUM OF ` 25,000 CONSIDERING POSSIBLE LEAKAGE. 30. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT COMPLETE DETAILS WERE FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS WITH NAME OF PERSON, PERIOD OF TRAVELLING, PLACE OF TRAVELLING, DAILY ALLOWANCE, FARE AND OTHER EXPENSES AND THAT THE EXPENSES HAD BEEN INCURRED BY THE STAFF ONLY AND VOUCHERS HAD BEEN PASSED AFTER DUE VERIFICATION OF THE EXPENSES WITH RESPECT TO THE VOUCHERS. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSING OFFICER HAD MADE NOMINAL AND REASONABLE DISALLOWANCE. HE, THEREFORE, CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 31. NOW THE ASSESSEE IS IN APPEAL. 32. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSING OFFICER FROM THE DETAILS FURNISHED BY THE ASSESSEE FOUND THAT THE EXPENSES WERE NOT SUPPORTED BY VOUCHERS COMPLETELY. HE, THEREFORE, TO COVER UP POSSIBLE LEAKAGE MADE DISALLOWANCE OF ` 25,000 WHICH IS LESS THAN 7% OF THE EXPENSES CLAIMED BY THE ASSESSEE. IN OUR OPINION, THE ASSESSING OFFICER WAS FAIR AND REASONABLE TO MAKE DISALLOWANCE OF ` 25,000 OUT OF ` 3,75,936 WHEN THE EXPENSES INCURRED BY THE ASSESSEE UNDER THE HEAD TRAVELLING WERE NOT FULLY VERIFIABLE. WE, THEREFORE, HOLD THAT THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER. HENCE, GROUND NO. 4 IS DISMISSED. 33. GROUND NO. 5 RAISED BY THE ASSESSEE READS AS UNDER:- :-16-: 5. THAT THE LD. COMMISSIONER OF INCOME TAX HAS FURTHER ERRED IN LAW AS WELL AS ON FACTS IN NOT DIRECTING TO A.O. TO RECOMPUTE THE DEDUCTION U/S. 80IB OF THE ACT ON THE ENHANCED INCOME AS ASSESSED BY THE A.O AND AFTER CONSIDERING THE DISALLOWANCES OR ADDITION , IF ANY SUSTAINED. 34. IT IS NOTICED THAT THE SAID GROUND IS NOT ARISING OUT OF THE ORDER OF THE LD. CIT(A), THEREFORE, IT DESERVES TO BE DISMISSED. WE ORDER ACCORDINGLY. 35. GROUND NO. 6 IS GENERAL IN NATURE, SO DOES NOT REQUIRE ANY COMMENTS ON OUR PART. 36. IN THE RESULT, BOTH THE APPEALS BY THE ASSESSEE ARE PARTLY ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 26.8.2011) SD/- SD/- [H. L. KARWA] [ N. K. SAINI] VICE PRESIDENT ACCOUNTANT MEMBER DATED: 26.8.2011 JJ:18-2508 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR