VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA -@ ITA NO. 339/JP/2014 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2010-11 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, AJMER. CUKE VS. M/S STANDARD ALLOYS (I) P. LTD., F-26, IND. AREA, PARBAT PURA, AJMER. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AACCS 0251 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI KAILASH MANGAL (JCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI AJAY SOMANI (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 28/10/2015 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 08/01/2016 VKNS'K@ ORDER PER T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 13/02/2014 OF THE LEARNED C.I.T.(A), AJMER FOR A.Y. 2010-11. THE RESPECTIVE GROUNDS OF APPEAL ARE REPRODUCED AS UNDE R:- IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A), AJMER HAS ERRED IN: 2 ITA NO. 339/JP/2014 ACIT VS M/S STANDARD ALLOYS (I) P. LTD. 1. DELETING THE ADDITION U/S 40A(2)(B) OF RS. 15,54 5/- MADE BY THE A.O., WITHOUT APPRECIATING THE FACTS OF THE CASE; 2. DELETING THE ADDITION ON ACCOUNT OF EXPENSES UND ER VARIOUS HEADS OF RS. 42,10,861/- MADE BY THE A.O., WITHOUT APPRECIATING THE FACTS OF THE CASE; 2. THE FIRST GROUND OF THE APPEAL IS AGAINST DELETIN G THE ADDITION MADE U/S 40A(2)(B) OF THE INCOME TAX ACT, 1961 (HEREINAFT ER REFERRED AS THE ACT) AT RS. 15,545/-. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CASTING, ALLOYS AND MECHANICAL SPA RES. THE ASSESSEE FILED ITS RETURN ON 07/08/2010 DECLARING TOTAL INCOME OF RS. 20,49,550/-. THE CASE WAS SCRUTINIZED U/S 143(3) OF THE ACT. THE LD AS SESSING OFFICER OBSERVED THAT THE ASSESSEE HAD PAID INTEREST OF RS. 4,78,314/-@ 15% ON DEPOSITS TO THE PERSONS COVERED U/S 40A(2)(B) AND P AID INTEREST TO THE BANK @ 11.75% ON CASH CREDIT LOAN. THUS THE INTEREST IN EXCESS OF 3.25% MORE THAN THE BANK RATE WAS PAID TO THE PERSONS COVE RED U/S 40A(2)(B) OF THE ACT. THEREFORE, HE GAVE SHOW CAUSE NOTICE ON THIS ISSUE. THE ASSESSEE ALSO REPLIED VIDE LETTER DATED 29/11/2012. AFTER CO NSIDERING THE ASSESSEES REPLY, THE LD ASSESSING OFFICER DISALLOWED THE INTER EST AT RS. 15,545/- UNDER THIS SECTION. 3 ITA NO. 339/JP/2014 ACIT VS M/S STANDARD ALLOYS (I) P. LTD. 3. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE THE MATTER BEFORE THE LD CIT(A), WHO HAD DELETED THE ADDITION BY OBSERVING AS UNDER:- 4.3 I HAVE CONSIDERED THE CONTENTIONS OF THE APPE LLANT AS WELL AS ASSESSMENT ORDER. IT IS SEEN THAT THE ASSESS EE HAS POINTED OUT THAT THE LOANS FROM THE PERSONS COV ERED U/S 40A(II)(B) WERE UNSECURED LOANS WHICH ARE NOT COMPARABLE WITH SECURED LOANS TAKEN FROM THE BANK. FURTHER, FOR THE BANK LOANS, THERE ARE INCIDENTAL C HARGES VIZ. PROCESSING FEES, INSURANCE CHARGES ETC. AND IN TEREST IS LEVIED BY THE BANK ON MONTHLY BASIS WHICH LEADS T O HIGHER RATE OF INTEREST THAN INTEREST RATE OF 11.75 % MENTIONED BY THE AO. IN VIEW OF ABOVE DISCUSSION AND SUBMISSIONS OF THE APPELLANT, THE DISALLOWANCE MADE BY THE AO OF RS. 15,545 IS DELETED. 4. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. AT TH E OUTSET, THE LD AR OF THE ASSESSEE HAS SUPPORTED THE ORDER OF THE LD CIT(A) AN D REITERATED THE ARGUMENTS MADE BEFORE HIM THAT THE BORROWINGS MADE F ROM THE RELATIVE WERE FULLY UTILIZED FOR THE PURPOSE OF BUSINESS AS T HE COMPANY WAS NEEDED ADDITIONAL FUNDS. THE BORROWINGS WERE UNSECURED WHERE AS BANK BORROWINGS WERE SECURED. THE RATE OF INTEREST PAID TO THE FAMILY MEMBERS WERE ON 4 ITA NO. 339/JP/2014 ACIT VS M/S STANDARD ALLOYS (I) P. LTD. ANNUAL BASIS. HOWEVER, IN CASE OF BANK, IT WAS PAID O N THE BASIS OF MONTHLY INTEREST RATE. THERE WERE OTHER HIDE CHARGES IN THE N AME OF SERVICE ALSO TO BE PAID TO THE BANK, THEREFORE, THERE IS NO DIFFERE NCE BETWEEN RATE OF INTEREST PAID TO THE RELATIVES. ACCORDINGLY, HE PRA YED TO UPHOLD THE ORDER OF THE LD CIT(A). 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AFTER VERIFICATIO N OF BOTH THE RATE OF INTEREST HARDLY ANY DIFFERENCE IS FOUND IN THE RATE OF INTEREST AS THE SECURED AND UNSECURED LOAN CANNOT BE COMPARED AS THEIR TERM S AND CONDITIONS ARE DIFFERENT. THE FINDING GIVEN BY THE LD CIT(A) HAS NOT BEEN CONTROVERTED BY THE LD DR, THEREFORE, WE UPHOLD THE ORDER OF THE LD CIT(A) ON THIS GROUND. 6. THE SECOND GROUND OF APPEAL IS AGAINST DELETING T HE ADDITION ON ACCOUNT OF EXPENSES UNDER THE VARIOUS HEADS AT RS. 42,10,861/-. THE LD ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DE BITED VARIOUS EXPENSES IN THE P&L ACCOUNT I.E. POWER AND FUEL EXPENSE, TRAV ELLING EXPENSES AND SALARIES AND WAGES. AS PER THE ASSESSING OFFICER THE SE EXPENSES HAD INCREASED SUBSTANTIALLY COMPARED TO PRECEDING YEAR, THEREFORE, HE GAVE REASONABLE OPPORTUNITY OF BEING HEARD, WHICH WAS AVA ILED BY THE ASSESSEE VIDE LETTER DATED 29/11/2012. THE ASSESSEES REPLY HAS BEEN REPRODUCED BY THE ASSESSING OFFICER AT PAGE 5 AND 6 OF THE ASSESS MENT ORDER FOR POWER 5 ITA NO. 339/JP/2014 ACIT VS M/S STANDARD ALLOYS (I) P. LTD. AND FUEL EXPENSES. THE LD ASSESSING OFFICER HAD HEL D THAT THE ASSESSEE HAD FAILED TO JUSTIFY THE INCREASE IN POWER AND FUEL EXP ENSES BY PRODUCING DOCUMENTARY EVIDENCE TO COMPARE THE PETROLEUM PRICE . THE ASSESSEE HAS ALSO INSTALLED NEW MACHINERY TO UPGRADE THE TECHNOLO GY. THE ASSESSEE IS THE SAME MANUFACTURING ACTIVITY AS WAS IN PAST. THE S ALES HAS BEEN SHOWN DECREASING FROM RS. 16.26 CRORES TO 14.99 CRORES CO MPARED TO PRECEDING ASSESSMENT YEAR. THEREFORE, THERE IS NO CORRELATION BETWEEN THE PRODUCTION AND EXPENSES CLAIMED BY THE ASSESSEE. SOME OF THE E XPENSES WERE INCURRED IN CASH, WHICH WAS NOT VERIFIABLE, THEREFOR E, HE DISALLOWED RS. 19,38,303 UNDER THE HEAD POWER AND FUEL EXPENSES. 6.1 SIMILARLY, THE LD ASSESSING OFFICER ALSO SOUGHT THE EXPLANATION FOR INCREASING THE EXPENSES UNDER THE HEAD TRAVELLING E XPENSES. THE ASSESSEES REPLY HAS BEEN REPRODUCED BY THE ASSESSING OFFICER ON PAGE 7 AND 8 OF THE ASSESSMENT ORDER. AFTER CONSIDERING THE ASSESSEES REPLY, THE LD ASSESSING OFFICER GAVE THE SAME OBSERVATION AS GIVEN UNDER TH E HEAD POWER AND FUEL EXPENSES. HE FOUND THE EXPLANATION OFFERED BY THE A SSESSEE WAS GENERAL IN NATURE. SOME OF THE INTERNAL VOUCHERS OF TRAVELLING WERE PREPARED ON THE BASIS OF CASH PAYMENT TO THE EMPLOYEES AND WITHOUT A NY CONCRETE EVIDENCE, WHICH WAS BROUGHT TO NOTICE OF THE AR OF TH E ASSESSEE. THE ASSESSEE HAD CLAIMED EXPENSES UNDER THIS HEAD AT RS .6,40,117/- WHEREAS 6 ITA NO. 339/JP/2014 ACIT VS M/S STANDARD ALLOYS (I) P. LTD. IN PRECEDING YEAR, IT WAS RS. 4,71,323/-, THEREFORE, THERE WAS AN INCREASE BY 35.81% WHEREAS THE SALES HAS REDUCED BY 7.8% COM PARED TO PRECEDING YEAR. THUS, HE DISALLOWED THE EXPENSES UNDER THIS HEA D AT RS. 1,68,494/-. 6.2 THERE WAS ALSO INCREASE IN THE SALARY AND WAGES CO MPARED TO PRECEDING YEAR. THE ASSESSING OFFICER PROVIDED OPPOR TUNITY TO THE ASSESSEE. THE ASSESSEES REPLY HAS BEEN REPRODUCED ON PAGE 9 O F THE ASSESSMENT ORDER. AFTER CONSIDERING THE ASSESSEES REPLY, THE ASSESSING OFFICER ANALYSED THE EXPENSES WITH THE SALE AND HELD THAT INCREASE IN SALARY AND WAGES BY 29.95% WAS FOUND AFTER GIVING INCREMENT TO THE EMPLO YEES. THE ASSESSEE HAD CLAIMED TOTAL SALARY DURING THE YEAR AT RS. 91. 26 LACS AGAINST RS. 70.22 LACS IN IMMEDIATE PRECEDING FINANCIAL YEAR. THE ASSE SSEE HAD FURNISHED ONLY DETAILS OF EMPLOYEES BUT FAILED TO PRODUCE EVEN A S INGLE EMPLOYEE FOR VERIFICATION. DURING THE YEAR UNDER CONSIDERATION S EVEN NEW EMPLOYEES WERE JOINED. THEY HAVE SUBMITTED TWO LINES JOINING REP ORT OF THREE PERSONS WITHOUT ANY IDENTITY OUT OF SEVEN NEW EMPLOYEES. HE ALSO VERIFIED THE SIGNATURE ON JOINING REPORT AND SALARY REGISTER AND NOTICED SUBSTANTIAL DIFFERENCE IN THE SIGNATURE. HE FOUND SALARY PAID U NREASONABLE. THEREFORE, HE DISALLOWED SALARY OF RS. 21,03,764/-. THUS, TOTAL DISALLOWANCE UNDER THREE HEADS WERE MADE AT RS. 42,10,861/-. 7 ITA NO. 339/JP/2014 ACIT VS M/S STANDARD ALLOYS (I) P. LTD. 7. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD ALLO WED THE APPEAL BY OBSERVING THAT THE ASSESSEE HAD PAID ELECTRICITY EX PENSES AT RS. 1,27,33,946/- TO AVVNL THROUGH ACCOUNT PAYEE CHEQUE S. THE PAYMENTS WERE SUPPORTED BY BILLS AND VOUCHERS. THE SALE OF HIG H VALUE PRODUCTS SUCH AS HRCS CASTINGS HAD DECREASED FROM RS. 4.11 CRORES TO RS. 2.87 CRORES WHILE SALE OF OTHER ITEMS HAVE REMAINED MORE OR LESS SIMILAR TO LAST YEAR. CONSUMPTION OF ELECTRICITY WAS MORE OR LESS WAS SAME. THIS WAS THE REASON FOR DECLINE IN SALE. THERE WAS A MARGINAL INCREASE IN THE TARIFF RATE DURING THE YEAR UNDER CONSIDERATION. THE DIESEL PRICE ALSO INCREASED BY 14.75%. THIS WAS THE REASON TO INCREASE IN FUEL EXPENSES. THE LD ASSESSING OFFICER HAD NOT FOUND ANY BOGUS EXPENSES, THEREFORE, IT IS ALLOWABLE U/S 37 OF THE ACT. 7.1 FURTHER HE HELD THAT THE ASSESSEE HAD EXPLAINED THAT TRAVELLING EXPENSES OF RS. 6,18,669/- WERE INCURRED FOR THE AC TUAL FARE, DAILY ALLOWANCES, HOTEL BILLS, LOCAL CONVEYANCE, TOLL TAXE S AND MISCELLANEOUS EXPENSES AND THE BILLS AND VOUCHERS FOR ALL THESE E XPENSES WERE PRODUCED BEFORE THE ASSESSING OFFICER. ONLY THE LOCAL CONVEY ANCE EXPENSES OF RS. 21,448/- PAID FOR AUTO RICKSHAW, TEMPO CHARGES WHICH WERE EVIDENCES BY CLAIMS OF THE EMPLOYEES WERE REIMBURSED TO THE EMPLO YEES. NO 8 ITA NO. 339/JP/2014 ACIT VS M/S STANDARD ALLOYS (I) P. LTD. EXPENDITURE HAS BEEN FOUND BY THE ASSESSING OFFICER AS NON-GENUINE AND NON-BUSINESS PURPOSES. THEREFORE, SAME ARE ALLOWABLE U/S 37 OF THE ACT. ACCORDINGLY HE DELETED THE ADDITION OF RS. 1,68,794 /-. 7.2 HE FURTHER HELD THAT UNDER THE HEAD SALARY AND WAGES THE SALARY OF THE DIRECTOR INCREASED BY 18 LACS AND OTHER EMPLOYE ES BY RS. 3,03,764/-. THE ASSESSEE HAD PRODUCED ATTENDANCE REGISTER, SALAR Y REGISTER, RESUME OF DIRECTOR, JOINING REPORT AND RESUME OF NEW APPOINTEE S, FORWARDING LETTER TO THE BANKER FOR MAKING SALARY PAYMENT TO THE EMPLOYE ES ETC. THOUGH THE ASSESSEE HAD NOT PRODUCED 58 EMPLOYEES, HOWEVER, ALL THE RELEVANT DETAILS REGARDING THEIR APPLICATION FORM ALONGWITH NAME AND ADDRESSES OF THE EMPLOYEES WERE AVAILABLE. REGARDING MISMATCH OF SIGN ATURE OF SHRI ISH GAMBHIR AND SHRI MANOJ PRAJAPATI, IT WAS FOUND BY TH E LD CIT(A) THAT THEY ARE THE OLD EMPLOYEES AND WORKING IN FACTORY. THE SA LARIES WERE MADE THROUGH CHEQUE FOR BOTH THE EMPLOYEES. THE SALARIES WERE NOT FOUND BOGUS BY THE ASSESSING OFFICER, THEREFORE, HE ALSO DELETE D THE ADDITION OF RS. 21,03,764/- MADE BY THE ASSESSING OFFICER. 8. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND AR GUED THAT THERE WAS NO JUSTIFICATION FOR INCREASE IN THE VARIOUS EXPENSES WITH REFERENCE TO DECLINE 9 ITA NO. 339/JP/2014 ACIT VS M/S STANDARD ALLOYS (I) P. LTD. OF SALE. THESE EVIDENCES WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER, THEREFORE ORDER OF THE ASSESSING OFFICER MAY PLEASE BE CONFIRMED. 9. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS VEH EMENTLY SUPPORTED THE ORDER OF THE LD CIT(A) AND ARGUED THAT THE COMPA NY IS A MANUFACTURER HAVING EXCISE LICENSE AND IS ALSO A REGISTERED SALE S TAX DEALER. THE GOODS WERE SUPPLIED TO THE BIG CEMENT COMPANY BUT THERE WAS DECLINE IN THE DEMAND. ACCORDINGLY THE SALE HAS BEEN GONE DOWN COMP ARED TO PRECEDING YEAR. THE LD ASSESSING OFFICER DISALLOWED THE EXPENSE S BY MAKING CASUAL REMARK THAT SOME OF THE EXPENSES ARE INCURRED IN CA SH, WHICH ARE NOT VERIFIABLE. THEREFORE, ADDITION MADE BY THE ASSESSIN G OFFICER ARE BASED ON A MERE CONJECTURE AND SURMISES. THE ELECTRIC EXPENS ES WERE PAID THROUGH ACCOUNT PAYEE CHEQUE AT RS. 1,23,33,940/- PAID THRO UGH BANKING CHANNEL TO THE AVVNL. THE CUSTOMER HAD PAID LESS PRICE COMPA RED TO PRECEDING YEAR. THE AR HAS DRAWN OUR ATTENTION ON COMPARATIVE C HART OF REDUCTION IN PRICES. THE PRICE OF FURNACE OIL INCREASED FROM 18,3 00/- PER M.T. TO RS. 28,548/- PER M.T. OF SAME GRADE AND MAXIMUM PURCHASE PRICE PAID DURING THE YEAR RS. 30,832/- PER M.T. REGARDING INCREASE IN THE TRAVELLING EXPENSES, HE ARGUED THAT THERE WAS A RECESSION, THEREFORE, THE COMPANY TRIED TO EXP LORE NEW CUSTOMER, SATISFY CUSTOMERS AND PERFORM AFTER SALES SERVICES ADDED EFFORTS ARE NEEDED 10 ITA NO. 339/JP/2014 ACIT VS M/S STANDARD ALLOYS (I) P. LTD. TO BOOST THE SALE. THE LD ASSESSING OFFICERS REMARK S ON TRAVELLING EXPENSES ARE GENERAL IN NATURE. HOWEVER, THE ASSESSEE HAS PRO DUCED ALL THE EVIDENCES BEFORE THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT. SIMILARLY, THE SALARY WAS INCREASED DUE TO PAYMENT MADE TO THE DIRECTOR UNDER THIS HEAD MORE BY RS. 18 LACS DURING THE YEAR UNDER CONSIDERATION. THEREFORE, HE PRAYED TO CONFIRMED THE ORDER OF THE LD CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE ASSESSEE H AD EXPLAINED THE REASONS FOR INCREASE IN THE EXPENSES UNDER ALL THE HEADS AND ALSO PRODUCED THE RELEVANT BILL VOUCHERS AT THE TIME OF ASSESSMEN T PROCEEDINGS. THE LD ASSESSING OFFICER HAD NOT FOUND ANY NON-GENUINE PAY MENT UNDER THESE HEADS, NO SPECIFIC DISCREPANCY HAS POINTED OUT IN T HE BILLS AND VOUCHERS MAINTAINED BY THE ASSESSEE. IT IS NOT NECESSARY THA T INCREASE IN EXPENSES AUTOMATICALLY RAISED THE SALES/PRODUCTION. THE ASSES SEE HAS EXPLAINED THE INCREASE IN THE EXPENSES ON THE BASIS OF EVIDENCE, WHICH HAS NOT BEEN CONTROVERTED BY THE LD DR. THE ASSESSEES MANUFACTUR ING ACTIVITIES COMES UNDER THE EXCISE ITEM AND ALSO HAD SALES TAX REGIST RATION. THE ASSESSEES CASE IS AUDITABLE IN THE INCOME TAX LAW AND NO QUAL IFYING REMARK HAD BEEN MADE BY THE AUDITOR ON EXPENSES CLAIMED BY IT. THE L D ASSESSING OFFICER 11 ITA NO. 339/JP/2014 ACIT VS M/S STANDARD ALLOYS (I) P. LTD. HAS NOT BROUGHT OUT ON RECORD ANY MATERIAL TO SUBST ANTIATE HIS ADDITION. THEREFORE, WE UPHOLD THE ORDER OF THE LD CIT(A). 11. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 08/01/2016. SD/- SD/- YFYR DQEKJ VH-VKJ-EHUK (LALIET KUMAR) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 08 TH JANUARY, 2016 RANJAN* VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE ACIT, CIRCLE-2, AJMER. 2. IZR;FKHZ @ THE RESPONDENT- M/S STANDARD ALLOYS (I) P. LTD., AJM ER. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 339/JP/2014) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR