M/s Kansal sons Steel Ltd, Mandi Gobindgarh V. ITO, Mandi Gobindgarh

ITA 485/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5349 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 06-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL,SMC BENCH,CH ANDIGARH BEFORE SHRI D K SRIVASTAVA, ACCOUNTANT MEMBER ITA NO. 485/CHD/2011 ASSESSMENT YEAR: 2007-08 M/S KANSAL SONS STEEL LTD., V. ITO WARD-1, E-43, FOCAL POINT, MANDI GOBINDGARH MANDI GOBIND GARH PAN: AACCK-2905K APPELLANT BY: S/SHRI SUDHIR SEHGAL & ASHOK GOYA L RESPONDENT BY: SMT.JAISHREE SHARMA ORDER THE APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(APPEALS) ON 25.02.2011 ON THE FOLLOWING GRO UNDS: 1. THAT THE LD. CIT(A) PATIALA HAS ERRED I N HOLDING ADDITION OF RS.3,60,000/- MADE BY THE AO AFTER DISALLOWING 50% OF SALARY PAID TO SH VIPAN KUMAR SHRI AJAY KUMAR AND SHRI RIPAN KU MAR WHO ARE LOOKING AFTER THE AFFAIRS OF THE COMPANY, HOLDING T HE SAME AS BEING EXCESSIVE U/S 40A(2)(H) OF THE ACT. 2. THAT THE LD. CIT(A) PATIALA WHILE DISALLOWING SA LARY HAS NOT CONSIDERED THE FACT THAT THESE PERSONS HAD EXTENSIV E EXPERIENCE IN THE STEEL TRADE, DOING LOT OF TOURING JOBS MAKING S ALES COLLECTIONS FROM DIFFERENT STATES, LOOKING AFTER FINANCIAL TRAN SACTIONS OF THE COMPANY AND ENJOYED THE TRUST AND FAITH OF MANAGEME NT, WHICH CANNOT BE COMPARED WITH SALARY PAID TO ACCOUNTANT A ND OTHER PERSONS AND ESPECIALLY WHEN SUCH SALARY HAS ALSO BE EN ACCEPTED IN THE PAST. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME ON 28.10.2007 RETURNING TOTAL INCO ME AT RS.1,07,020/-. THE RETURN FILED BY THE ASSESSEE WAS TAKEN UP FOR S CRUTINY. THE ASSESSEE IS ENGAGED IN TRADING OF IRON AND STEEL GOODS. DURING THE COURSE OF SCRUTINY, THE AO NOTICED THAT THE ASSESSEE HAD PAID SALARY @ RS.20,000/- P.M. EACH TO SHRI VIPAN KANSAL, SHRI AJAY KANSAL AND SHRI RIP AN KANSAL. THE AO CONSIDERED THE PAYMENT OF SALARY @ RS.20,000/- P.M. EXCESSIVE AND ACCORDINGLY RESTRICTED THE SAME TO RS.10,000/- P.M. RESULTANTLY, HE DISALLOWED SALARY PAYMENTS TO THE EXTENT OF RS.3,60 ,000/- WITH THE FOLLOWING OBSERVATIONS: THE SUBMISSIONS MADE BY THE ASSESSEE HAVE B EEN CONSIDERED. IT IS NOTICED THAT THEY ARE NOT QUALIFI ED PROFESSIONAL AND ARE EVEN UNDER GRADUATE. IT IS SEEN THAT SALARY PAID TO SHRI RAVINDER KUMAR, ACCOUNTANT, WITH THE ASSESSEE WHO I S A QUALIFIED ITA 485/CHD/2011 M/S KANSAL SONS STEEL LTD. 2 PERSON IN ACCOUNTS IS RS.6000/- PER MONTH. SALARY T O SHRI RAMAN DEEP, WHO LOOKED AFTER BANKING TRANSACTION, HAS BEE N PAID @ RS.5500/- PER MONTH. CONSIDERING THE SALARY PAID AT THE RELEVANT TIME TO OTHER PERSONS, SALARY OF RS.20,000/- PER MO NTH TO THE ABOVE RELATIVES IS CONSIDERED VERY EXCESSIVE AND UN REASONABLE. CONSIDERING THE FACTS OF THE CASE AND THE SERVICES RENDERED BY THESE PERSONS AND KEEPING IN VIEW THE LOYALTY OF RE LATED PERSONS WITH THE COMPANY, SALARY IS RESTRICTED TO RS.10,000 /- PER MONTH TO EACH. ACCORDINGLY OUT OF TOTAL SALARY OF RS.7,20 ,000/- 50% THEREOF I.E. RS.3,60,000/- IS DISALLOWED U/S 40A(2) (A) OF I.T.ACT. SINCE THE EXCESS SALARY HAS BEEN PAID TO DEVIATE TH E INCOME OF THE ASSESSEE COMPANY, PENALTY PROCEEDINGS U/S 271(1 )(C) ARE INITIATED SEPARATELY. 3. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE ORDE R PASSED BY THE AO WITH THE FOLLOWING OBSERVATIONS: IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND RIVAL SUBMISSIONS OF THE COUNSEL IT IS SEEN THAT UNDER SU B-SECTION (2) OF SECTION 40A THE EXPENDITURE INCURRED IN A BUSINE SS OR PROFESSION FOR WHICH PAYMENT HAS BEEN PAID TO THE T AX PAYERS RELATIVES IS LIABLE TO BE DISALLOWED IN COMPUTING T HE PROFITS OF BUSINESS OR PROFESSION TO THE EXTENT THE EXPENDITUR E HAS BEEN CONSIDERED TO BE EXCESSIVE OR UNREASONABLE. THE AO HAS RIGHTLY JUDGED THE REASONABLENESS OF THE SALARY AID TO THE RELATIVES HAVING REGARD TO FAIR MARKET VALUE OF THE SERVICES FOR WHICH THE PAYMENTS HAVE BEEN MADE. THE AO EXERCISED THIS JUDG MENT IN A FAIR MANNER AND THE DISALLOWANCE MADE FOR THE EXCES SIVE SALARY DOES NOT CALL FOR ANY INTERFERENCE. THE ADDITION MA DE IS THEREFORE, UPHELD. 4. AGGRIEVED BY THE ORDER PASSED BY THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. IN SUPPORT OF APPEAL, IT WAS SUBMITTED THAT ALL THE AFORESAID THREE PERSONS WERE WORKING FULL TIME FOR THE ASSESSEE- COMPANY ONLY AND FOR NOBODY ELSE. HE SUBMITTED THAT PAYMENT OF SIMILAR SALARY IN THE PAST WAS ACCEPTED BY THE DEPARTMENT. HE ALSO SUBMITTED THAT THE ACTIVITIES PERFORMED BY THEM REQUIRED EXTENSIVE TOURING. ACCORDING TO HIM, ALL THE THREE PERSONS HAD EXTENSIVE TRAINING A ND EXPERIENCE IN THE STEEL TRADE THOUGH THEY DID NOT HAVE ANY FORMAL TEC HNICAL QUALIFICATION. HE SUBMITTED THAT PAYMENT OF SALARY @ RS.20,000/- PER MONTH TO EACH ONE OF THEM WAS QUITE REASONABLE AND THEREFORE THE SAME SH OULD BE ALLOWED. 5. IN REPLY, THE LD. DR SUPPORTED THE ORDER PASSED BY THE AO/CIT(A). ITA 485/CHD/2011 M/S KANSAL SONS STEEL LTD. 3 6. I HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONS IDERED SUBMISSIONS. THE SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE ASS ESSEE HAVE NOT BEEN REBUTTED BY THE DEPARTMENT. ON THE FACTS BROUGHT O N RECORD, PAYMENT OF SALARY @ RS.20,000/- PER MONTH TO EACH ONE OF THEM CANNOT BE SAID TO BE EXCESSIVE. AS ALREADY SUBMITTED BY THE LD. COUNSEL, SIMILAR SALARY PAYMENTS WERE ALLOWED BY THE DEPARTMENT IN THE PAST. IN THIS VIEW OF THE MATTER, THE IMPUGNED DISALLOWANCE IS DELETED. APPEAL FILED BY T HE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 30 TH JUNE, 2011. SD/- (D K SRIVASTAV A) ACCOUNTANT MEMBER DATED: THE 30 TH JUNE 2011 POONAM COPY TO: 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE CIT(A), 4. THE CIT 5. THE D.R, INCOME-TAX DEPARTMENT, CHANDIGARH ASSISTANT REGISTRAR, ITAT, CHANDIGARH