Miss Munmun Saha L/h of Tapan Kumar Saha (Deceased), Kolkata V. I.T.O.,Ward-51(4), Kolkata

ITA 315/KOL/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9867 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-09-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 21-02-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS
• Keywords: Fair market value; Commercial expediency
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH (SMC), KOLKATA [BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT (KZ)] I.T.A. NO. 315/KOL/2019 ASSESSMENT YEAR: 2013-14 TAPAN KUMAR SAHA (DECEASED)......................................................APPELLANT L/H. MISS MUNMUN SAHA, AG-33, SECTOR-II, SALT LAKE CITY, KOLKATA 700 091. [PAN: ALFPS 5333 J] VS ITO, WARD-51(4) KOLKATA.................................RESPONDENT KOLKATA. APPEARANCES BY: SHRI SOUMITRA CHOUDHURY, ADVOCATE APPEARING ON BEHALF OF THE ASSESSEE. SMT. RANU BISWAS, JCIT, SR. DR APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : SEPTEMBER 09, 2019 DATE OF PRONOUNCING THE ORDER : SEPTEMBER 25, 2019 ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) 15, KOLKATA DATED 12.12.2018. 2. GROUND NO. 1 RAISED BY THE ASSESSEE IN THIS APPEAL IS GENERAL WHICH DOES NOT CALL FOR ANY SPECIFIC ADJUDICATION WHILE THE ISSUE INVOLVED IN GROUND NO. 2 RELATES TO THE DISALLOWANCE OF RS. 32,038/- MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) OUT OF LABOUR CHARGES. 3. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUAL WHO IS ENGAGED IN THE BUSINESS OF TRADING IN COOKING GAS AND APPLIANCES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY HIM ON 28.09.2013 DECLARING A TOTAL INCOME OF RS. 5,58,970/-. IN THE P&L A/C FILED ALONG WITH THE SAID RETURN, A SUM OF RS. 3,20,382/- WAS DEBITED BY THE ASSESSEE ON ACCOUNT OF LABOUR CHARGES. DURING THE COURSE OF 2 I.T.A. NO. 315/KOL/2019 ASSESSMENT YEAR: 2013-14 TAPAN KUMAR SAHA (DECEASED), L/H. MISS MUNMUN SAHA ASSESSMENT PROCEEDINGS, THE CLAIM OF THE ASSESSEE FOR LABOUR CHARGES WAS EXAMINED BY THE AO AND ON SUCH EXAMINATION, HE FOUND THAT THE ENTIRE PAYMENT ON ACCOUNT OF LABOUR CHARGES WAS MADE BY THE ASSESSEE IN CASH AND THERE WERE NO BILLS OR VOUCHERS PRODUCED BY THE ASSESSEE TO SUPPORT AND SUBSTANTIATE THE SAID EXPENSES. THE AO, THEREFORE, TREATED THE EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF LABOUR CHARGES AS UNVERIFIABLE AND A DISALLOWANCE OF RS. 64,076/- WAS MADE BY HIM BEING 20% OF THE TOTAL LABOUR CHARGES CLAIMED BY THE ASSESSEE. ON APPEAL, THE LD. CIT(A) RESTRICTED THE SAID DISALLOWANCE MADE BY THE AO TO THE EXTENT OF 10%. 4. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ONUS TO SUPPORT AND SUBSTANTIATE HIS CLAIM FOR EXPENSES INCURRED ON LABOUR CHARGES WAS ON THE ASSESSEE AND SINCE THE ASSESSEE HAD FAILED TO DISCHARGE THE SAME BY PRODUCING THE RELEVANT DETAILS AND DOCUMENTS, THE AO TREATED THE EXPENSES CLAIMED BY THE ASSESSEE AS UNVERIFIABLE AND MADE A DISALLOWANCE AT 20% OF THE LABOUR CHARGES CLAIMED BY THE ASSESSEE WHICH THE LD. CIT(A) RESTRICTED TO 10%. KEEPING IN VIEW ALL THE FACTS AND CIRCUMSTANCES OF THE CASE INCLUDING ESPECIALLY THE FAILURE OF THE ASSESSEE TO PRODUCE THE RELEVANT DOCUMENTARY EVIDENCE IN THE FORM OF BILLS / VOUCHERS TO SUPPORT AND SUBSTANTIATE HIS CLAIM FOR LABOUR CHARGES, I AM OF THE VIEW THAT THE SAID EXPENSES WERE RIGHTLY TREATED BY THE AO AS UNVERIFIABLE AND SINCE THE DISALLOWANCE OF 20% MADE BY THE AO FOR SUCH UNVERIFIABLE ELEMENT INVOLVED IN THE LABOUR CHARGES CLAIMED BY THE ASSESSEE IS RESTRICTED BY THE LD. CIT(A) TO 10%, WHICH IS QUITE FAIR AND REASONABLE, I DO NOT FIND ANY JUSTIFIABLE 3 I.T.A. NO. 315/KOL/2019 ASSESSMENT YEAR: 2013-14 TAPAN KUMAR SAHA (DECEASED), L/H. MISS MUNMUN SAHA REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE. GROUND NO. 2 OF THE ASSESSEES APPEAL IS ACCORDINGLY DISMISSED. 5. THE COMMON ISSUE INVOLVED IN GROUND NO. 3 TO 5 RELATES TO THE DISALLOWANCE OF RS. 5,40,000/- MADE BY THE AO AND CONFIRMED THE LD. CIT(A) ON ACCOUNT OF SALARY PAID TO THE RELATED PERSON BY TREATING THE SAME AS EXCESSIVE AND UNREASONABLE BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 6. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE EXPENSES OF RS. 11,74,900/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF SALARY WERE EXAMINED BY THE AO AND ON SUCH EXAMINATION, HE FOUND THAT SALARY OF RS. 25,000/- PER MONTH EACH WAS PAID BY THE ASSESSEE TO HIS TWO DAUGHTERS AND ONE SON AGGREGATING TO RS. 9,00,000/-. SINCE THE SALARY SO PAID BY THE ASSESSEE TO HIS DAUGHTERS AND SON WAS EXCESSIVE AS COMPARED TO THE SALARY PAID TO THE OTHER EMPLOYEES IN THE RANGE OF RS. 3,500/- AND RS. 5,000/- PER MONTH, THE AO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXCESS SALARY ALLEGEDLY PAID TO THE RELATIVES SHOULD NOT BE DISALLOWED U/S 40A(2)(B) OF THE ACT. IN REPLY, THE FOLLOWING EXPLANATION WAS OFFERED BY THE ASSESSEE IN WRITING: THAT THE MANAGEMENT OF THE BUSINESS ALLOCATED BY THE ASSESSEE TO HIS TWO DAUGHTERS AND SON IS AS UNDER: A. MISS MUNMUN SAHA (DAUGHTER): SHE IS A GRADUATE AND LOOKING AFTER GODOWN KEEPING, MAINTENANCE OF STOCK OF CYLINDERS ETC. AND TO CONTACT IOC FOR DELIVERY OF GAS CYLINDERS. SHE HAS ALSO TENDED TO AGGRIEVED CUSTOMERS AS AND WHEN REQUIRED. B. MR. SOURAV SAHA (SON): HE IS A GRADUATE AND MANAGES THE REGULAR DELIVERY OF CYLINDERS, CHECKS THE CUSTOMERS BILLS AND OVER SUPERVISION OF DAY TO DAY ACCOUNTS OF THE BUSINESS. C. MISS SANJUKTA SAHA (DAUGHTER): SHE IS GRADUATE AND SHE LOOKS AFTER THE CUSTOMER CARES, RECEIVES COMPLAINTS OF CUSTOMERS, VISITS BANK REGULARLY FOR DEPOSITING THE CASH OUT OF CASH SALES. 4 I.T.A. NO. 315/KOL/2019 ASSESSMENT YEAR: 2013-14 TAPAN KUMAR SAHA (DECEASED), L/H. MISS MUNMUN SAHA APART FROM THOSE THEY HAVE ALSO MANAGED AND COORDINATED WITH DELIVERY MEN FOR SMOOTH SUPPLY OF GAS CYLINDERS. YOUR HONOUR IS THEREFORE REQUESTED TO CONSIDER THE SPECIAL APTITUDE, QUALIFICATIONS AND SPECIAL SERVICES RENDERED BY THEM AS EMPLOYEES AND AS SUCH, THEIR UNTIRING EFFORTS AND FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY THE PAYMENTS WHICH THEY EARNED AS EMPLOYEES CAN BE JUSTIFIED. THE AO DID NOT FIND MERIT IN THE EXPLANATION OFFERED BY THE ASSESSEE AS ABOVE. HE HELD THAT EVEN THOUGH THE ASSESSEE WAS A NEUROLOGICAL AND CARDIAC PATIENT AS CLAIMED, THERE WERE FIVE PERSONS TO RUN THE SHOP WHICH WAS COMPUTERIZED. HE ALSO NOTED THAT EACH AND EVERY SPECIFIC JOB INVOLVED IN THE BUSINESS OF ASSESSEE WAS ASSIGNED TO THE OTHER EMPLOYEES. HE HELD THAT THE EXORBITANT SALARY PAID BY THE ASSESSEE TO HIS CHILDREN FOR DOING THE SAME JOB THUS WAS EXCESSIVE AND UNREASONABLE AND ALLOWING THE SAME TO THE EXTENT OF RS. 10,000 PER MONTH EACH TO THE THREE CHILDREN OF THE ASSESSEE, HE DISALLOWED THE EXCESSIVE AMOUNT OF SALARY ALLEGEDLY PAID BY THE ASSESSEE TO HIS CHILDREN AMOUNTING TO RS. 5,40,000/- BY INVOKING SECTION 40A(2)(B). 7. THE DISALLOWANCE MADE BY THE AO U/S 40A(2)(B) WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE LD. CIT(A) AND THE SUBMISSIONS MADE BEFORE THE AO WERE REITERATED ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(A) IN SUPPORT OF HIS CASE ON THIS ISSUE. THE LD. CIT(A) DID NOT FIND MERIT IN THE SAID SUBMISSION AND PROCEEDED TO CONFIRM THE ADDITION MADE BY THE AO ON THIS ISSUE FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER: ACCORDING TO SECTION 40A(2)(B), AN EMPLOYER FIXING THE REMUNERATION, IS ENTITLED TO CONSIDER THE EXTENT OF BUSINESS, THE NATURE OF THE DUTIES TO BE PERFORMED, THE SPECIAL APTITUDE OF THE EMPLOYEES, FUTURE PROSPECTS OF THE EXTENSION F THE BUSINESS AND A HOST OF OTHER RELATED CIRCUMSTANCES. IT IS 5 I.T.A. NO. 315/KOL/2019 ASSESSMENT YEAR: 2013-14 TAPAN KUMAR SAHA (DECEASED), L/H. MISS MUNMUN SAHA ERRONEOUS TO THINK THAT INCREASED REMUNERATION CAN ONLY BE JUSTIFIED IF THERE IS A CORRESPONDING INCREASE IS THE PROFITS OF THE EMPLOYER. THE RELEVANT PROVISIONS OF SEC.40A 2(B) READ AS FOLLOWS: WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THE SUB-SECTION AND THE ASSESSING OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION. THEREFORE, IT IS CLEAR THAT THE EXPENDITURE MENTIONED THEREIN IS IN RELATION TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THE SUBSECTION AND THE EXPENDITURE HAS TO BE CONSIDERATION IN RELATION TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH THE PAYMENTS IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE THEREFROM. IT IS PERTINENT TO NOTE THAT EXCEPT FOR SON AND TWO DAUGHTERS OF THE APPELLANT WHO HAVE BEEN GIVEN SALARY OF RS. 25,000/-, THE SALARY OF ALL OTHER EMPLOYEES RANGE BETWEEN RS.3,500/- AND RS.5,000/-. THEREFORE, THE SALARIES PAID TO THE FAMILY' MEMBERS ARE AROUND 5 TO 6 TIMES THE SALARIES PAID TO THE OTHER EMPLOYEES OF THE APPELLANT. THE APPELLANT HAS NOT BEEN ABLE TO BRING ON RECORD ANY SPECIFIC OR SPECIAL SERVICES RENDERED BY THE FAMILY MEMBERS. IT IS RELEVANT HERE TO REFER TO THE CASE LAW OF GANAPATHY & CO. VS. CIT (2016) 283 CTR (SC) 121 WHEREIN IT HAS BEEN HELD THAT IT IS INCUMBENT ON THE PART OF THE ASSESSEE TO ADDUCE PROOF OF SUCH SERVICE HAVING BEEN RENDERED DURING THE PERIOD UNDER ASSESSMENT. AS THE ASSESSEE HAD NOT OFFERED ANY PROOF OF THE SERVICE RENDERED, THE SERVICE CHARGES PAID BY THE ASSESSEE WERE RIGHTLY DISALLOWED. THE A.O. HAS RESTRICTED THE SALARY OF THE FAMILY MEMBERS TO RS. 10,000/- PER MONTH, WHICH ACCORDING TO THE FACTS AND CIRCUMSTANCES IS REASONABLE AND JUSTIFIABLE. 6 I.T.A. NO. 315/KOL/2019 ASSESSMENT YEAR: 2013-14 TAPAN KUMAR SAHA (DECEASED), L/H. MISS MUNMUN SAHA 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DUE TO HIS ILLNESS WAS NOT IN A POSITION TO LOOK AFTER HIS BUSINESS AND, THEREFORE, THE SERVICES OF HIS CHILDREN WERE AVAILED BY HIM SO AS TO CARRY ON THE BUSINESS ACTIVITY EFFECTIVELY AND EFFICIENTLY. HE CONTENDED THAT THE NATURE OF THE SERVICES RENDERED BY EACH OF THE CHILDREN OF THE ASSESSEE WAS DULY EXPLAINED BEFORE THE AO AS WELL AS BEFORE THE LD. CIT(A) BUT STILL THEY ALLOWED THE SALARY PAID BY THE ASSESSEE TO HIS CHILDREN ONLY TO THE EXTENT OF RS. 10,000/- PER MONTH EACH AND DISALLOWED THE BALANCE AMOUNT OF RS. 15,000/- PER MONTH EACH BY TREATING THE SAME AS UNREASONABLE OR EXCESSIVE WITHOUT CITING ANY COMPARABLE CASE. HE CONTENDED THAT THE FACTUM OF SERVICES RENDERED BY THE CHILDREN OF THE ASSESSEE WAS NOT DISPUTED BY THE AO AS HE ALLOWED THE SALARY PAID TO THEM TO THE EXTENT OF RS. 10,000/- PER MONTH EACH AND THE BALANCE AMOUNT OF SALARY WAS DISALLOWED BY HIM BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) WITHOUT ESTABLISHING AS TO HOW THE SAME WAS EXCESSIVE OR UNREASONABLE. 9. THE LEARNED DR, ON THE OTHER HAND, STRONGLY RELIED ON THE ORDER OF THE AO AS WELL AS THAT OF THE LD. CIT(A) IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. HE CONTENDED THAT THE SALARY PAID BY THE ASSESSEE TO HIS CHILDREN WAS FOUND TO BE EXCESSIVE AS COMPARED TO THE SALARY PAID TO THE OTHER EMPLOYEES. HE CONTENDED THAT THE EXCESSIVE AND UNREASONABLE SALARY PAID BY THE ASSESSEE TO HIS CHILDREN THUS WAS DULY ESTABLISHED BY THE AO AND A DISALLOWANCE MADE BY HIM AND CONFIRMED BY THE LD. CIT(A) BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) IS FULLY JUSTIFIED. 7 I.T.A. NO. 315/KOL/2019 ASSESSMENT YEAR: 2013-14 TAPAN KUMAR SAHA (DECEASED), L/H. MISS MUNMUN SAHA 10. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE NATURE OF SERVICES RENDERED BY HIS CHILDREN FOR THE PURPOSE OF HIS BUSINESS WAS DULY EXPLAINED BY THE ASSESSEE AND THE SAME WAS NOT DISPUTED BY THE AO SINCE THE SALARY PAID BY THE ASSESSEE TO HIS CHILDREN WAS ALLOWED BY THE AO TO THE EXTENT OF RS. 10% PER MONTH EACH. HE HOWEVER DISALLOWED THE BALANCE PORTION OF SALARY @ 15,000/- PER MONTH EACH BY TREATING THE SAME AS EXCESSIVE OR UNREASONABLE BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B). FOR ARRIVING AT THIS CONCLUSION, HE REFERRED TO AND RELIED ON THE SALARY PAID BY THE ASSESSEE TO OTHER EMPLOYEES WHICH WAS IN THE RANGE OF RS. 3,500/- AND RS. 5,000/- PER MONTH EACH. IT IS HOWEVER OBSERVED THAT THE NATURE OF SERVICES RENDERED BY THE OTHER EMPLOYEES WAS DIFFERENT IN AS MUCH AS ALL OF THEM WERE WORKING IN THE BILLING DEPARTMENT WHILE THE NATURE OF SERVICES RENDERED BY THE CHILDREN OF THE ASSESSEE WAS ALTOGETHER DIFFERENT. A COMPARISON MADE BY THE AO TO TREAT THE SALARY PAID BY THE ASSESSEE TO HIS CHILDREN AS EXCESSIVE AND UNREASONABLE, THEREFORE, WAS NOT FAIR AND PROPER AND IN THE ABSENCE OF ANY COMPARABLE CASE CITED BY THE AO, I AM OF THE VIEW THAT THE DISALLOWANCE MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) WITHOUT ESTABLISHING SATISFACTORILY THAT THE SALARY PAID BY THE ASSESSEE TO HIS CHILDREN WAS EXCESSIVE AND UNREASONABLE IS NOT SUSTAINABLE. AS REGARDS THE RELIANCE PLACED BY THE LD. CIT(A) ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GANAPATHY & CO. (SUPRA) TO CONFIRM THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF SALARY PAID BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B), IT IS OBSERVED THAT THE SAME IS DISTINGUISHABLE ON FACT IN AS MUCH AS THE ASSESSEE THEREIN HAD FAILED TO OFFER ANY PROOF OF SERVICES RENDERED WHEREAS IN THE PRESENT CASE, THE ASSESSEE HAD NOT 8 I.T.A. NO. 315/KOL/2019 ASSESSMENT YEAR: 2013-14 TAPAN KUMAR SAHA (DECEASED), L/H. MISS MUNMUN SAHA ONLY EXPLAINED THE NATURE OF SERVICES RENDERED BY HIS CHILDREN BUT THE SAME WAS NOT DISPUTED BY THE AO. I, THEREFORE, DELETE THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) BY INVOKING THE PROVISIONS OF SECTION 40A(2)(B) AND ALLOW GROUND NO. 3 TO 5 OF THE ASSESSEES APPEAL. 11. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 6 RELATING TO LEVY OF INTEREST U/S 234B OF THE ACT, IT IS OBSERVED THAT THE SAME IS CONSEQUENTIAL IN NATURE. THE AO IS ACCORDINGLY DIRECTED TO ALLOW THE CONSEQUENTIAL RELIEF ON THIS ISSUE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH SEPTEMBER, 2019. SD/- (P.M. JAGTAP) VICE PRESIDENT DATED: 25/09/2019 BISWAJIT, SR. PS COPY OF ORDER FORWARDED TO: 1. TAPAN KUMAR SAHA (DECEASED), L/H. MISS. MUNMUN SAHA, AG-33, SECTOR-II, SALT LAKE CITY, KOLKATA 700 091. 2. ITO, WARD 51(4), KOLKATA. 3. THE CIT(A) 4. THE CIT 5. DR TRUE COPY, BY ORDER, ASSISTANT REGISTRAR / H.O.O. ITAT, KOLKATA