Manilal Jethalal Soni, Ahmedabad V. Income Tax Officer, Ward-5(2)(3), Ahmedabad

ITA 3270/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6099 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 20-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: A C SHAH
• Section: 143(3)

Judgement Text

ITA NO.3270/AHD/2015 ASSESSMENT YEAR : 2012-13 PAGE 1 OF 3 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD SMC BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM] ITA NO.3270/AHD/2015 ASSESSMENT YEAR: 2012-13 MANILAL JETHALAL SONI, .... ............................ APPELLANT 210, SUPER MALL, C.G. ROAD, NAVRANGPURA, AHMEDABD 380 009. [PAN : ACIPS 7509 L]. VS. INCOME TAX OFFICER, WARD 5(2)(3), AHMEDABAD. .............RESPONDENT APPEARANCES BY A.C. SHAH FOR THE APPELLANT PRASOON KABRA FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 05.12.2017 DATE OF PRONOUNCING THE ORDER : 14.02.2018 O R D E R 1. THIS APPEAL, FILED BY THE ASSESSEE, CHALLENGES C ORRECTNESS OF THE ORDER DATED 28 TH OCTOBER 2015, PASSED BY THE LEANED CIT(A), IN THE M ATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) , FOR THE ASSESSMENT YEAR 2012-13. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE: 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF SALARY OF RS.8,66,000/- TO EMPLOYEES ON THE GROUND THAT THEY ARE RELATIVES INASMUCH AS THE EMPLOYEES HAVE ACTUALLY WORKED IN THE SHOW ROOM OF THE ASSESSEE AND THEREFORE THE SALARY SO PAID IS FOR THE PURPOSE OF BUSINESS. 3. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE BEFORE ME IS A VERY SENIOR CITIZEN, IN HIS LATE 70S, AND IS ENGAGED IN THE BUS INESS OF GOLD, BULLION AND SILVER BARS AND JEWELLERY. THE ASSESSEE IS CARRYING OUT BUSINESS W ITH THE HELP OF EMPLOYEES ENGAGED BY HIM, INCLUDING SOME RELATIVES. DURING THE COURSE OF SCR UTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER DISALLOWED A LARGE PORTION OF SALARIES SO P AID TO THE CLOSE RELATIVES. HE HAD NOTED THAT AS AGAINST SALARY PAYMENT OF RS.7,54,526/- IN THE IMME DIATELY PRECEDING YEAR, THE SALARY PAYMENT IN THE CURRENT YEAR WAS RS.15,94,526/- EVEN THOUGH THE INCREASE IN TURNOVER WAS ONLY MARGINAL ITA NO.3270/AHD/2015 ASSESSMENT YEAR : 2012-13 PAGE 2 OF 3 RS.83,69,20,633/- IN THE CURRENT YEAR AS AGAINST RS.77,44,53,764/- IN THE IMMEDIATELY PRECEDING YEAR. THE HUGE INCREASE IN SALARIES, AS PER THE ASSESSING OFFICER, COULD NOT BE JUSTIFIED. HE ALSO NOTED THAT MOST OF THE SALARIES IS PAID ONLY TOWARDS THE FAG END OF THE YEAR. HE DISALLOWED ENTIRE SALARY OF RS.2,40,000/- TO SMT . HARSHABEN G SONI ON THE GROUND THAT SHE DID NOT HAVE ANY QUALIFICATIONS OR EXPERIENCE TO DO ACCOUNTS WORK. HE FURTHER DISALLOWED RS.2,00,000/-, OUT OF RS.4,16,000/- PAID TO SHRI NI LESHBHAI SONI, ON THE GROUND THAT SALARY OF RS.18,000/- P.M. IS REASONABLE. HE FURTHER DISALLO WED RS.84,000/-, OUT OF RS.1,68,000/- PAID TO SHRI GIRISH SONI, ON THE GROUND THAT RS.7,000/- P.M . WAS SUFFICIENT SALARY AS HE WAS NEW TO BUSINESS. OUT OF SALARIES OF RS.2,40,000/-, RS.2,1 0,000/- AND RS.2,10,000/- PAID TO VINIT SONI, SIMIT SONI AND ROMIT SONI, HE ALLOWED ONLY RS.1,20, 000/-, RS.99,000/- AND RS.99,000/-. THE BALANCE AMOUNT OF RS.3,42,000/- WAS DISALLOWED MAIN LY ON THE GROUND THAT THESE PERSONS WERE YOUNGSTERS AND THAT THEY DID NOT HAVE ANY QUALIFICA TIONS OR EXPERIENCE TO JUSTIFY THE SALARIES PAID TO THEM. ACCORDINGLY, A SUM OF RS.8,66,000/- WAS D ISALLOWED UNDER SECTION 40A(2)(B). AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE LEARNED CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN F URTHER APPEAL BEFORE ME. 4. I HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LE GAL POSITION. 5. AS FAR AS SALARY OF RS.2,40,000/- PAID TO SMT. H ARSHABEN SONI IS CONCERNED, I FIND THAT SHE IS WIFE OF THE ASSESSEE, HERSELF AN AGED LADY A ND DOES NOT POSSESS ANY QUALIFICATIONS SO AS TO JUSTIFY THE SALARY PAYMENT FOR DOING ACCOUNTING WORK. I, THEREFORE, UPHOLD THE DISALLOWANCE TO THAT EXTENT. HOWEVER, AS REGARDS THE REMAINING PER SONS, I HAVE NOTED THAT THE DISALLOWANCE IS ONLY A PARTIAL DISALLOWANCE AND NO REASONABLE JUSTI FICATION IS GIVEN FOR QUANTIFICATION OF THE DISALLOWANCE. HAVING PERUSED THE DETAILS FILED BY THE LEARNED COUNSEL AND BEARING IN MIND THE SUBMISSIONS MADE BY HIM, I DO AGREE THAT THE BASIS FOR PARTIAL DISALLOWANCE IS MERELY SURMISES AND CONJECTURES SOMETHING WHICH CANNOT MEET A JUD ICIAL SCRUTINY. ONCE IT IS ACCEPTED THAT THESE PERSONS HAVE RENDERED THE SERVICES, AS IS IMP LICITLY ACCEPTED IN THIS CASE, DISALLOWANCE CANNOT BE MADE UNLESS IT IS CLEARLY ESTABLISHED THA T THE PAYMENT IS EXCESSIVE OR UNREASONABLE. IN MY CONSIDERED VIEW, THERE IS NO COGENT MATERIAL TO JUSTIFY SUCH A CONCLUSION. IN VIEW OF THESE DISCUSSIONS AND BEARING IN MIND ENTIRETY OF THE CAS E, I UPHOLD THE DISALLOWANCE ONLY TO THE EXTENT OF RS.2,40,000/- AND THE BALANCE AMOUNT OF D ISALLOWANCE OF RS.6,26,000/- IS THUS DELETED. 6. GROUND NO.1 IS THUS PARTLY ALLOWED. 7. IN GROUND NO.2, THE ASSESSEE HAS RAISED THE FOLL OWING GRIEVANCE: ITA NO.3270/AHD/2015 ASSESSMENT YEAR : 2012-13 PAGE 3 OF 3 2. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST OF RS.1,44,862/- TO RELATIVES UNDER SECTION 40A(2)(B) ON THE GROUND THAT IT IS EXCESSIVE INASMUCH AS THE INTEREST PAID IS AT THE PREVAILING MARKET RATE AND NOT EXCESSIVE. 8. THE DISALLOWANCE HAS BEEN MADE AS THE ASSESSEE H AD PAID INTEREST @18% TO THE RELATIVES, WHEREAS ACCORDING TO THE ASSESSING OFFIC ER, INTEREST @ 12% WAS FAIR MARKET PRICE OF THE BORROWINGS. THE BASIS OF THE MARKET PRICE WAS SHORT TERM BORROWINGS BY THE ASSESSEE FROM OUTSIDERS. IT WAS IN THIS BACKDROP THAT INTEREST P AYMENT OF RS.1,44,862/- WAS DISALLOWED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE LEARNED CIT(A) BUT WITHOUT ANY SUCCESS. NOT SATISFIED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE ME. 9. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, I FIND THAT BORROWINGS @18% P.A. CANNOT BE SAID TO BE AT EXCESS IVE OR UNREASONABLE INTEREST. THE FACT THAT THE ASSESSEE HAS BEEN ABLE TO BORROW @12% FOR SOME SHORT PERIOD CANNOT BE PUT AGAINST HIM, BECAUSE UNLESS THE INTEREST @18% IS HELD TO BE EXCESSIVE OR UNREASONABLE, EVEN IF ASSESSEE IS ABLE TO BORROW AT A LOWER INTEREST RATE FROM UNRELATED PARTIES, DISALLOWANCE UNDER SECTION 40A(2)(B) CANNOT BE MADE. THAT, HOWEVER, I S PRECISELY THE CASE HERE. IN VIEW OF THEE DISCUSSIONS, I UPHOLD THE PLEA OF THE ASSESSEE AND DELETE THE IMPUGNED INTEREST DISALLOWANCE OF RS.1,44,862/-. 10. GROUND NO.2 IS THUS ALLOWED. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATE ABOVE. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF FEBRUARY, 2018. SD/- PRAMOD KUMAR (ACCOUNTANT MEMBER) DATED: AHMEDABAD, THE 14 TH DAY OF FEBRUARY, 2018. PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD