Shiva Industrial Security Agency(Guj.), Surat V. The ACIt.,Circle-4, Surat

ITA 398/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9071 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 04-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H P MEENA SRDR
• Assessee Lawyers: HARDIK VO RRA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.398/AHD/2008 [ASSTT.YEAR 2004-05] SHIVA INDUSTRIAL SECURITY AGENCY -VS ACIT, CIRCLE -4, SURAT (GUJ), PVT. LTD., S.NO. 71, SAMEER COMPLEX, NAVSARJAN SOCIETY, PANDESARA, SURAT PAN NO.AFCS3845P (APPELLANT) (RESPONDENT) REVENUE BY : SHRI H.P. MEENA, SR-DR ASSESSEE BY: SHRI HARDIK VO RRA, AR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDE R OF COMMISSIONER OF INCOME-TAX ACT (APPEALS)-I, SURAT IN APPEAL NO.CAS- I/122/07-08 DATED 26/11/2007. THE ASSESSMENT WAS FRAMED BY ACIT, CIRC LE-4, SURAT U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) VIDE HIS ORDER DATED 29-12-2006 FOR ASSESSMENT YEAR 2004-05. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE MADE BY ASSESSING OFFIC ER ON ACCOUNT OF SALARY EXPENSES. FOR THIS, ASSESSEE HAS RAISED THE FOLLOWI NG EFFECTIVE GROUND NO.1 TO 3 :- 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE A S WELL AS LAW ON THE SUBJECT, THE LEARNED CIT(A)-I, SURAT HAS ERRED IN C ONFIRMING THE DISALLOWANCE OUT OF SALARY EXPENSES OF RS.47,47,188 /= MADE BY THE LEARNED ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE LEARNED ITA NO.398/AHD/2008 A.Y. 2004-05 S.I.S.A.(GUJ) PVT. LTD. V. ACIT, CIR-4, SRT PAGE 2 CIT(A)-I, SURAT FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE IN RIGHT PERSPECTIVE. 2. WHILE CONFIRMING THE DISALLOWANCE OF RS.47,47,18 8/=, THE LEARNED CIT(A)-I, SURAT FAILED TO APPRECIATE THE FACT THAT THE APPELLANT COMPANY HAD CLAIMED GENUINE EXPENSES IN AS MUCH AS THE INCO ME ATTRIBUTABLE TO THE SAID EXPENDITURE WAS CREDITED AND SHOWN IN THE APPELLANT COMPANY IN THE YEAR UNDER CONSIDERATION. HE FAILED TO CONSI DER THE FACT THAT THE APPELLANT HAD ESTABLISHED WITH DOCUMENTARY EVIDENCE THE CORRELATION BETWEEN THE CLAIM OF SALARY EXPENSES AND ITS CORRES PONDING INCOME FROM SECURITY CONTRACT. 3. THE LEARNED CIT(A)-I, SURAT, WHILE CONFIRMING TH E DISALLOWANCE, FAILED TO APPRECIATE THE REAL FACTS OF THE CASE AND RELEVA NT ACCOUNTING ENTRIES IN RIGHT PERSPECTIVE AND WRONGLY CONCLUDED THAT NO SUCH EXPENSES WERE INCURRED BY THE APPELLANT COMPANY. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PROVIDING INDUST RIAL SECURITY SERVICES IN DIFFERENT PARTS OF THE COUNTRY IN DIFFERENT STATES. THE ASSESSEE-COMPANY HAD FILED ITS RETURN OF INCOME ON 01-11-2004 SHOWING TO TAL INCOME AT RS.59,20,890/- ALONG WITH TAX AUDIT REPORT U/S.44AB . SUBSEQUENTLY, DURING ASSESSMENT PROCEEDINGS ASSESSEE FILED VARIOUS DETAI LS BEFORE ASSESSING OFFICER. THE ASSESSEE-COMPANY HAS ITS SISTER CONCER N, NAMELY, SIVA INDUSTRIAL SECURITY AGENCY (SISA IN SHORT) WHICH WAS A PROPRIE TARY CONCERN. DURING THE YEAR UNDER CONSIDERATION ONE OF THE CONTRACTEE COMP ANY HAD TRANSFERRED ITS CONTRACT FROM A PROPRIETARY CONCERN TO THE ASSESSEE -COMPANY. AT DIFFERENT CENTERS BUT THE MANAGER OF THAT CENTRE HAD DEPOSITE D SOME CHEQUES PERTAINING TO THE ASSESSEE-COMPANY INTO THE BANK AC COUNT OF THE SAID PROPRIETARY CONCERN. IN THE PROCESS, THE SALARY EXP ENSES TO THE TUNE OF RS.47,47,188/- RELATED TO PERSONS DEPUTED AT THE SI TE OF THE SAID CONTRACTEE WERE ALSO PAID AND DEBITED TO ITS ACCOUNT BY THE SA ID PROPRIETARY CONCERN. HOWEVER, LATER ON, THE CORRESPONDING INCOME AS WELL AS EXPENSES, WERE TRANSFERRED TO THE ASSESSEE-COMPANY AS ACTUALLY, AS PER CONTRACT, IT BELONGED TO THE COMPANY. ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS TREATED THAT THE SALARY EXPENSES TO THE TUNE OF RS.47,47,188/- ITA NO.398/AHD/2008 A.Y. 2004-05 S.I.S.A.(GUJ) PVT. LTD. V. ACIT, CIR-4, SRT PAGE 3 WERE NOT AT ALL INCURRED AND WERE WRONGLY CLAIMED A S EXPENSES BY THE ASSESSEE-COMPANY AND CONSIDERED THE EXPLANATION GIV EN BY ASSESSEE- COMPANY AS NOT TENABLE AND ASSESSED THE SAME AS INC OME AT RS.47,47,188/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF ASSESSING OFFICER BY GIVING FOLLOWING FINDINGS IN PARA-4 OF HIS APPELLATE ORDER:- 4.I HAVE CONSIDERED THE SUBMISSION MADE BY THE APP ELLANT AND OBSERVATION OF THE AO. THE FACTS IN THIS CASE ARE V ERY CLEAR. THE EXPENSES OF RS.47,47,188/- HAVE BEEN RIGHTLY DISALL OWED BY THE AO. NEITHER DURING THE APPELLATE PROCEEDINGS NOR DURING THE ASSESSMENT PROCEEDINGS THE APPELLANT HAS BEEN ABLE TO CORRELAT E THE INCOME WITH THE NAMES OF GUARDS DEPLOYED AND SALARY PAID TO THE M. IN THE ABSENCE OF SUCH ONE TO ONE CORRESPONDING NO EXPENDITURE CAN BE ALLOWED. THE APPELLANT HAS ARGUED THAT IT CANNOT EARN INCOME WIT HOUT PAYING WAGES. THIS POINT IS WELL TAKEN. AS STATED ABOVE, IT IS CL EAR THAT DURING THE YEAR THE APPELLANT HAS EARNED SECURITY INCOME OF RS.12.6 CRORES AND HAS PAID WAGES OF RS.10.97 CRORES. IN SUCH LARGE SUM IT CANNOT BE SAID THAT THE WAGES AND SALARY EXPENSES OF RS.47,47,188/- PER TAINED TO THE SAID INCOME. THE APPELLANT HAS IN SOME MANNER TRANSFERRE D THE WAGS AND SALARY EXPENDITURE FROM ITS SISTER CONCERN SISA TO ITSELF BY WAY OF JOURNAL ENTRIES. THIS FACT IS NOT DENIED. IT IS THE ONUS OF THE APPELLANT COMPANY TO ESTABLISH THAT THIS EXPENDITURE PERTAINE D TO SUCH EMPLOYEES WHO WERE DEPLOYED BY THE APPELLANT COMPANY OR WERE DEPLOYED ON BEHALF OF THE ASSESSEE COMPANY IN RESPECT OF WHICH SUCH INCOME HAS BEEN EARNED. THIS HAS TO BE ESTABLISHED WITH DOCUME NTARY EVIDENCE BY SHOWING CORRELATION FROM THE DOCUMENTS. SIMPLY SAYI NG THAT THE WAGES HAVE BEEN PAID TO THE EMPLOYEES WHO WERE DEPLOYED F OR EARNING INCOME FROM SO AND SO PARTIES IS NOT ENOUGH. ALL TH AT THE APPELLANT HAS STATED IS THAT IT HAD PAID SALARY AND WAGS IN RESPE CT OF THOSE SITES AS IS MENTIONED IN THE TABLE ABOVE IN RESPECT OF INCOME E ARNED FROM THE SIX SITES. THIS IS NOT ENOUGH. HOW DOES IT ESTABLISH TH AT FOR EARNING THE INCOME OF RS.55,587 LACS IT HAS DEBITED WAGES AND C LAIM SUCH HUGE AMOUNT OF RS. 10.97 CRORES. IN VIEW OF THESE REASON S THE CLAIM OF RS.47,47,188/- IS NOT AT ALL ESTABLISHED AND HENCE THE DISALLOWANCE OF THE AO IS CONFIRMED AND THIS GROUND OF APPEAL IS DI SMISSED. AGGRIEVED, NOW ASSESSEE CAME IN SECOND APPEAL BEFOR E US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT DURING THE COURSE OF ASSESSMENT ITA NO.398/AHD/2008 A.Y. 2004-05 S.I.S.A.(GUJ) PVT. LTD. V. ACIT, CIR-4, SRT PAGE 4 PROCEEDINGS AS WELL AS DURING APPELLATE PROCEEDINGS THE ASSESSEE MADE SUBMISSIONS THAT TOTAL SECURITY INCOME DURING THE Y EAR IS RS.12.60 CRORES AND TOTAL EMPLOYEES EXPENSES DEBITED ARE AT RS11.15 CRO RES OUT OF SALARY AND WAGES IS RS.10.97 CRORES AND UNIFORM EXPENSES ARE R S.0.17 CRORES. IT WAS FURTHER STATED THAT ASSESSEE-COMPANY HAD RECEIVED T HE SECURITY CONTRACT FROM RELIANCE GROUP AT VARIOUS CENTRES IN SOUTH INDIA AN D OTHER PLACES AND THE WORK ORDER WAS ISSUED IN FAVOUR OF THE ASSESSEE-COM PANY I.E. SISA PVT. LTD. IN THE EARLIER YEARS THIS WORK WAS RECEIVED BY ITS SISTER CONCERN WHICH IS ACTUALLY A FIRM KNOWN BY SIMILAR NAME AND HEREAFTER IT IS CALLED AS SISA. THIS WAS A PROPRIETARY CONCERN OF MAJOR S.K. SHARMA. SIS A WAS ENGAGED IN SIMILAR LINE OF BUSINESS OF PROVIDING SECURITY SERVICES. IN THE YEAR UNDER CONSIDERATION, DUE TO OPERATIONAL INCONVENIENCE AND LACK OF KNOWLE DGE ON THE PART OF MANAGERS AT VARIOUS CENTRES, SALARY PAYMENT OF DIFF ERENT SERVICE GUARDS WAS MADE BY SISA, WHEREAS THE INCOME WAS RECEIVED BY SI SA PVT. LTD BUT WORK ORDERS WERE ACTUALLY IN THE NAME OF THE ASSESSEE-CO MPANY AND IT WAS EXECUTED BY THE ASSESSEE-COMPANY. THE INCOME WAS AC COUNTED BY THE ASSESSEE-COMPANY BUT THE SALARY PAYMENTS WERE MADE BY SISA AND THEREFORE IT WAS TRANSFERRED TO THE BOOKS OF ACCOUN T OF THE ASSESSEE AS THESE EXPENSES WERE ACTUALLY PERTAINING TO THE ASSESSEE-C OMPANY AS UNDER:- SR. NAME OF THE SITE PERIOD WAGES 1. HAZIRA JANUARY 04 4,27,916 2. NDHRA PRADESH JANUARY 04 10,84,696 3. KARNATAKA NOVEMBER 04 13,21,656 4. ANDHRA PRADESH NOVEMBER 04 11,77,333 5. DAHEJ IPCL NOVEMBER 03 2,99,844 6. HAZIRA AUGUST 03 4,35,743 THE RESPECTIVE PAYMENTS OF WAGES WERE CORRELATED WA GES REFERRED BY THE APPELLANT-COMPANY AND THE APPELLANT-COMPANY HAS RAI SED BILLS AS PER THE FOLLOWING DETAILS:- ITA NO.398/AHD/2008 A.Y. 2004-05 S.I.S.A.(GUJ) PVT. LTD. V. ACIT, CIR-4, SRT PAGE 5 SR. NAME OF THE SITE PERIOD WAGES 1. HAZIRA JANUARY 04 5,62,312 2. ANDHRA PRADESH JANUARY 04 13,63,059 3. KARNATAKA NOVEMBER 04 15,10,798 4. ANDHRA PRADESH NOVEMBER 04 14,86,398 5. DAHEJ IPCL NOVEMBER 03 3,98,405 6. HAZIRA AUGUST 03 5,36,267 TOTAL 58,57,239 ACCORDING, IT WAS CONTENTED THAT IT HAD ALREADY CRE DITED INCOME OF RS.58,57,239/- AND DEBITED THE CORRESPONDING EXPEND ITURE OF RS.47,47,188/- BY TRANSFERRING THE SAME FROM SISA. THE ASSESSEE FI LED VARIOUS DETAILS OF SALARY EXPENSES SITE-WISE AND STATED THAT THE ENTIR E ASSESSMENT HAS BEEN FRAMED WITHOUT EXPLAINING THE FACTS OF THE CASE AND ALSO WITHOUT UNDERSTANDING THE ACCOUNTING ENTRIES PASSED IN RESPECTIVE BUSINES S. IT HAS BEEN STATED THAT THE FOLLOWING TYPES OF ENTRIES HAS BEEN PASSED IN T HE BOOKS OF ACCOUNT. SALARY EXPENSES DR. RS.XXX TO SISA ACCOUNT CR. RS. XXX AT THE SAME TIME THE FOLLOWING ENTRIES WERE PASSED IN THE BOOKS OF SISA FOR TRANSFERRING THE EXPENSES AND RECOVERING THE AMOUNT PAID BY IT ON BEHALF OF SISA PVT. LTD. SISA PVT. LTD. A/C DR. RS. XXX TO SECURITY INCOME CR. RS.XXX SECURITY INCOME DR. RS.XXX TO SALARY ACCOUNT CR. RS.XXX 5. WE FIND FROM THE ABOVE FACTS THAT THE ASSESSEE H AS CO-RELATED THE EXPENSES WITH THE INCOME AS NOTED ABOVE IN THE ARGU MENTS OF THE LD COUNSEL FOR THE ASSESSEE. THE ASSESSEE HAS CREDITED THE INC OME OF RS.58,57,239/- AND CORRESPONDINGLY DEBITED THE EXPENDITURE OF RS.4 7,47,188/- BY TRANSFERRING THIS EXPENDITURE FROM PROPRIATORY CONCERN OF SHIR S .K.SHARMA, SISA. AS THIS ITA NO.398/AHD/2008 A.Y. 2004-05 S.I.S.A.(GUJ) PVT. LTD. V. ACIT, CIR-4, SRT PAGE 6 FACT HAS BEEN BROUGHT BEFORE US, WE ARE NOT AWARE W HETHER THIS FACT WAS BEFORE THE ASSESSING OFFICER OR NOT, THIS FACT NEED S VERIFICATION. IF THIS IS A FACT THAT THE ASSESSEE HAS CREDITED INCOME OF RS.58,57,2 39/- AND DEBITED THE CORRESPONDING EXPENDITURE OF RS.47,47,188/- BY TRAN SFERRING THE SAME FROM SISTER CONCERN, THE AO WILL ALLOW THE CLAIM OF THE ASSESSEE. ACCORDINGLY, THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED FOR STATISTIC AL PURPOSES. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED ON THIS DAY OF 24 TH DEC,2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 24/12/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-I, SURAT 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD