SHMBHU DAYAL AGARWAL (LATE), NEWAI, TONK V. INCOME TAX OFFICER, WARD, TONK

ITA 527/JPR/2018

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 0647 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 18-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI JCIT DHK
• Assessee Lawyers: G M MEHTA
• Keywords: Business expenditure; Corroborative evidences

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,OA JH FOE FLAG ;K NO ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA NO. 527/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2013-14. SHAMBHU DAYAL AGARWAL (LATE), BADA BAZAR, NEWAI, TONK. CUKE VS. THE INCOME TAX OFFICER, WARD TONK. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ABFPA 0159 G VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI G.M. MEHTA (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI J.C. KULHARI (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 25.09.2018. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 28/09/2018. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 5 TH MARCH, 2018 OF LD. CIT (A)-3, JAIPUR FOR THE ASSESSMENT YEAR 2013-14. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- (1) THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN NOT CONSIDERING FROM THE BASIC DOCUMENTS (RETURN OF INCOME, FORM NO. 35 & POWER OF ATTORNEY) SO ALSO FROM THE S TATEMENT OF LEGAL HEIR SHRI KAILASH CHAND RECORDED DU5RINF THE COURSE OF ASSESSMENT PROCEEDINGS THAT DUE TO DEATH OF THE ASS ESSEE (DATE OF DEATH: 04.02.2013), THESE WERE SIGNED BY HIS LEG AL HEIR AND THEREFORE ASSESSMENT / APPEAL ORDER (S) IN NAME OF DECEASED IS VOID AB-INITIO. (2) WITHOUT PREJUDICE TO GROUND NO. (1), LD. CIT (A ) WAS NOT JUSTIFIED IN SUSTAINING FOLLOWING ADDITIONS/DISALLO WANCES THOUGH PROVISIONS OF SECTION 145(3) OF IT ACT WERE NOT APP LIED : 2 ITA NO. 527/JP/2018 SHRI SHAMBHU DAYAL AGARWAL, TONK. (I) ADDITION OF RS. 5,11,840/- ON ACCOUNT OF UNDER VALU ATION OF CLOSING STOCK, THOUGH THE BASIS OF SUCH ADDITIONS, BEING MULTIPLICATION OF QUANTITY WITH FIFO RATES WAS A WR ONG CALCULATION. (II) RS. 54,000/- ON ACCOUNT OF SALARY PAYMENT TO EMPLOY EES, BEING FAMILY MEMBERS, WHOSE SALARY WAS ENHANCED AFTER THR EE YEARS. (III) DISALLOWANCE OF RS. 26,369/- UNDER FOUR DIFFERENT H EAD OF BUSINESS EXPENSES ON MERE ESTIMATION/GUESS WORK, WI THOUT POINTING OUT ANY UN-VOUCHED NATURE OR DISALLOWABLE NATURE OF EXPENSES. GROUND NO. 1 IS REGARDING NON BRINGING THE LEGAL HE IRS OF THE ASSESSEE ON RECORD. 2. AT THE TIME OF HEARING, THE LD. A/R OF THE ASSES SEE HAS STATED AT BAR THAT THE ASSESSEE DOES NOT PRESS GROUND NO. 1 ALONG WITH AN APPLICATION FILED UNDER RULE 29 OF THE ITAT RULES FOR ADMISSION OF THE SAID GROUND AS AN ADDITIONAL GROUND. HENCE, IN VIEW OF THE STATEMENT OF THE LD. A/R, THE GROUND NO. 1 AS WELL AS THE APPLICATION UNDER RULE 29 OF THE ITAT RULES ARE DISMISSED BEING NOT PRESSED. GROUND NO. 2(I) IS REGARDING ADDITION ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. 3. THE ASSESSEE IS TRADING IN AGRICULTURAL COMMODIT IES AND FILED RETURN OF INCOME ON 30 TH OCTOBER, 2013 THROUGH HIS LEGAL HEIR AS THE ASSESS EE WAS EXPIRED ON 04.02.2013. IN THE SCRUTINY ASSESSMENT, THE AO NOT ED THAT THE ASSESSEE HAS VALUED CLOSING STOCK OF TIL (SESAME) OF 12,946.80 KG AT RS . 10,23,080/-. THIS VALUATION WAS DONE BY THE ASSESSEE ON AVERAGE COST BASIS. HOWEVER , THE AO NOTED THAT AS PER THE AUDIT REPORT, THE VALUATION OF CLOSING STOCK HAS TO BE DONE ON MARKET PRICE OR COST PRICE WHICHEVER IS LOWER. SIMILARLY, THE CLOSING ST OCK OF SOUF (FENNEL SEED) OF 76,004 KG WAS VALUED AT RS. 29,60,979/-. THE VALUATION OF CLOSING STOCK OF URAD OF 8,942.90 3 ITA NO. 527/JP/2018 SHRI SHAMBHU DAYAL AGARWAL, TONK. KG WAS SHOWN AT RS. 2,31,985/-. THE AO APPLIED FEF O METHOD FOR VALUATION OF CLOSING STOCK OF THESE THREE COMMODITIES AND CONSEQ UENTLY MADE AN ADDITION OF RS. 5,11,840/- ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A) BUT COU LD NOT SUCCEED. 4. BEFORE US, THE LD. A/R OF THE ASSESSEE HAS SUBMI TTED THAT THE ASSESSEE HAS BEEN FOLLOWING THE AVERAGE COST METHOD FOR VALUATIO N OF CLOSING STOCK CONSISTENTLY FOR THE LAST SEVERAL YEARS AND THE AO HAS NEVER DIS TURBED THE METHOD ADOPTED BY THE ASSESSEE IN THE PAST PRECEDING YEARS. HE HAS R EFERRED TO THE ASSESSMENT ORDERS FOR THE ASSESSMENT YEARS 2010-11 AND 12-13. HE HAS FURTHER CONTENDED THAT THE AO HAS SELECTED ONLY 3 COMMODITIES FOR REVALUATION OF CLOSING STOCK OUT OF 9 AND, THEREFORE, APPLYING THE FEFO METHOD ON THE 3 SELECT ED COMMODITIES AND ACCEPTING THE VALUATION FOR THE REMAINING 6 COMMODITIES ON TH E BASIS OF AVERAGE COST PRICE IS NOT PERMISSIBLE. HE HAS POINTED OUT THAT EVEN IF T HE FEFO METHOD IS APPLIED FOR VALUATION OF CLOSING STOCK FOR ALL THE 9 COMMODITIE S, THEN NO ADDITION IS REQUIRED AS THE VALUATION WOULD RESULT LESS THAN THE VALUE ASSI GNED BY THE ASSESSEE TO THE CLOSING STOCK OF ALL THE COMMODITIES. HENCE, THE L D. A/R HAS SUBMITTED THAT THE AO IS NOT JUSTIFIED IN SELECTING ONLY FEW COMMODITIES WHOSE MARKET PRICE WAS COMPARATIVELY HIGHER AT THE END OF THE FINANCIAL YE AR RELEVANT TO THE ASSESSMENT YEAR AND IGNORING THE REST OF THE CLOSING STOCK IS AN AR BITRARY EXERCISE ON THE PART OF THE A.O. HE HAS RELIED UPON THE DECISION OF HONBLE GU JARAT HIGH COURT IN THE CASE OF VOLTAMP TRANSFORMERS LTD. VS. CIT, 327 ITR 360 (GUJ .) AS WELL AS THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF KARNATA KA BANK LTD. VS. ACIT, 356 ITR 549 (KAR.). THE LD. A/R HAS ALSO RELIED UPON THE D ECISION OF COORDINATE BENCH OF THE TRIBUNAL DATED 28 TH FEBRUARY, 2007 IN THE CASE OF ACIT VS. KALSAN ENGG . INDIA PVT. 4 ITA NO. 527/JP/2018 SHRI SHAMBHU DAYAL AGARWAL, TONK. LTD. IN ITA NO. 518/JP/2004. THE LD. A/R HAS SUBMI TTED THAT DISTURBING THE CLOSING STOCK WITHOUT GIVING EFFECT TO THE OPENING STOCK WI LL DISTORT THE RESULT AND, THEREFORE, IS NOT PERMITTED. 5. ON THE OTHER HAND, THE LD. D/R HAS RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE IN THE AUDIT REPORT HAS STATED THAT THE CLOSING STOCK IS VALUED AS PER COST OR MARKET PRICE WHICHEVER IS LESS, HENCE THE AO HAS RIGHTLY APPLIED THE FIFO METHOD FOR THE PURPOSE OF VALUATION OF CLOSING STOCK WHICH HAS RESULTED IN ADDITION ON ACCOUNT OF UNDER VALUATION SHOWN BY THE ASSESSEE. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AS PER THE DET AILS OF CLOSING STOCK AS ON 31 ST MARCH, 2013 THERE ARE 10 COMMODITIES WHICH ARE SHOW N AS PART OF THE CLOSING STOCK AND VALUED ON THE BASIS OF AVERAGE COST OR MARKET P RICE WHICHEVER IS LESS. THE AO IN THE ASSESSMENT PROCEEDINGS HAS SELECTED ONLY 3 C OMMODITIES FOR REVALUATION OF CLOSING STOCK AND APPLIED FIFO METHOD WHICH HAS RES ULTED IN ADDITION OF RS. 5,11,840/-. IT IS ALSO NOT IN DISPUTE THAT THE ASS ESSEE HAS BEEN CONSISTENTLY FOLLOWING THE AVERAGE COST METHOD FOR VALUATION OF CLOSING STOCK AND, THEREFORE, WHEN THE OPENING STOCK OF THE ASSESSEE IS BASED ON THE AVERAGE COST THEN VALUING THE CLOSING STOCK BY APPLYING A DIFFERENT METHOD WI LL DISTORT THE RESULT. THE AO HAS NOT DISTURBED THE METHOD ADOPTED BY THE ASSESSEE IN PRECEDING YEARS AND THE ASSESSMENT YEAR UNDER CONSIDERATION IS THE FIRST YE AR IN WHICH THE AO HAS APPLIED A DIFFERENT METHOD AND THAT TOO ONLY FOR VALUATION OF THE CLOSING STOCK OF SELECTED 3 COMMODITIES, NAMELY, TIL (SESAME), SOUF (FENNEL SEE D) AND URAD DAL. WE FIND THAT THE ACTION OF THE AO IN APPLYING FIFO METHOD ONLY O N SELECTED 3 COMMODITIES IS HIGHLY ARBITRARY AND AGAINST THE PRINCIPLE OF CONSI STENCY. EVEN IF THE AO FINDS THAT 5 ITA NO. 527/JP/2018 SHRI SHAMBHU DAYAL AGARWAL, TONK. THE ASSESSEE HAS DELIBERATELY UNDERVALUED THE CLOSI NG STOCK, THEN THE VALUATION OF THE ENTIRE CLOSING STOCK OF THE ASSESSEE WAS REQUIR ED TO BE DONE BY THE AO BY APPLYING A CONSISTENT METHOD. HENCE, THIS ACTION O F THE AO IN APPLYING A DIFFERENT METHOD FOR SELECTED COMMODITIES AND REMAINING CLOSI NG STOCK WAS VALUED ON THE BASIS OF A DIFFERENT METHOD BEING AVERAGE COST METH OD APPLIED BY THE ASSESSEE IS NOT PERMISSIBLE. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF VOLTAMP TRANSFORMERS LTD. VS. CIT (SUPRA) HAS HELD IN PARA 11 TO 15 AS UNDER :- 11. IN THE FACTS OF THE PRESENT CASE THE AUTHORITIES H AVE APPROACHED THE ISSUE, TO SAY THE LEAST, IN A CONFUSED MANNER. AFTER DISCARDING T HE MARKET VALUE ADOPTED BY THE ASSESSEE THE AUTHORITIES HAVE, MORE PARTICULARLY, T HE CIT(A) AND THE TRIBUNAL, PROCEEDED TO ADOPT COST PRICE AS THE VALUE OF THE C LOSING STOCK. THERE IS NO BASIS, THERE IS NO EVIDENCE TO DISCARD THE MARKET VALUE SHOWN BY THE ASSESSEE MERELY BECAUSE SUCH A VALUE IS 1/3RD OF THE SALE PRICE. THE SALE PRICE WOULD NOT INDICATE IN ANY MANNER THAT THE MARKET PRICE SHOWN BY THE ASSESSEE WAS NOT THE MARKET PRICE AS ON 30TH JUNE, 1983 I.E. LAST DAY OF THE ACCOUNTING PERIOD MERELY BECAUSE S UBSEQUENTLY HIGHER SALE PRICE HAS BEEN REALISED. THE TRIBUNAL HAS ALSO FAIL ED TO APPRECIATE THAT EVEN THE CIT(A) HAD AFTER DISTURBING THE VALUATION PUT ON TH E CLOSING STOCK DIRECTED THE AO TO ADOPT THE SAME VALUATION OF THE OPENING STOCK OF TH E NEXT YEAR. THE TRIBUNAL WAS DUTY-BOUND, IN THE CIRCUMSTANCES, TO ASCERTAIN WHET HER DISTURBING OF THE VALUATION PUT ON THE CLOSING STOCK DURING THE YEAR UNDER CONSIDER ATION WOULD HAVE ANY REAL EFFECT WHEN THE SAME VALUATION WOULD BE REFLECTED BY OPENI NG STOCK OF THE IMMEDIATELY NEXT ACCOUNTING PERIOD. 12. IN THE CIRCUMSTANCES ONE MAY FRUITFULLY REPRODUCE WHAT THE APEX COURT HAS STATED IN THE CASE OF CHAINRUP SAMPATRAM AS TO WHAT IS THE PURPOSE OF VALUING THE CLOSING STOCK: 'IT IS WRONG TO ASSUME THAT THE VALUATION OF THE CL OSING STOCK AT MARKET RATE HAS, FOR ITS OBJECT, THE BRINGING INTO CHARGE ANY APPRECIATI ON IN THE VALUE OF SUCH STOCK. THE TRUE PURPOSE OF CREDITING THE VALUE OF UNSOLD STOCK IS TO BALANCE THE COST OF THOSE GOODS ENTERED ON THE OTHER SIDE OF THE ACCOUNT AT T HE TIME OF THEIR PURCHASE, SO THAT THE CANCELLING OUT OF THE ENTRIES RELATING TO THE S AME STOCK FROM BOTH SIDES OF THE ACCOUNT WOULD LEAVE ONLY THE TRANSACTIONS ON WHICH THERE HAVE BEEN ACTUAL SALES IN THE COURSE OF THE YEAR SHOWING THE PROFIT OR LOSS A CTUALLY REALISED ON THE YEAR'S TRADING. AS POINTED OUT IN PARA 8 OF THE REPORT OF THE COMMITTEE ON FINANCIAL RISKS ATTACHING TO THE HOLDING OF TRADING STOCKS, 1919. ' AS THE ENTRY FOR STOCK WHICH APPEARS IN A TRADING ACCOUNT IS MERELY INTENDED TO CANCEL THE CHARGE FOR THE GOODS PURCHASED WHICH HAVE NOT BEEN SOLD, IT SHOULD NECES SARILY REPRESENT THE COST OF THE GOODS. IF IT IS MORE OR LESS THAN THE COST, THEN TH E EFFECT IS TO STATE THE PROFIT ON THE GOODS WHICH ACTUALLY HAVE BEEN SOLD AT THE INCORREC T FIGURE..... FROM THIS RIGID 6 ITA NO. 527/JP/2018 SHRI SHAMBHU DAYAL AGARWAL, TONK. DOCTRINE ONE EXCEPTION IS VERY GENERALLY RECOGNISED ON PRUDENTIAL GROUNDS AND IS NOW FULLY SANCTIONED BY CUSTOM, VIZ . THE ADOPTION OF MARKET VALUE AT THE DATE OF MAKING UP ACCOUNTS, IF THAT VALUE IS LESS THAN COST . IT IS OF COURSE AN ANTICIPATION OF THE LOSS THAT MAY BE MADE ON THOSE GOODS IN THE FOL LOWING YEAR, AND MAY EVEN HAVE THE EFFECT, IF PRICES RISE AGAIN, OF ATTRIBUTING TO THE FOLLOWING YEAR'S RESULTS A GREATER AMOUNT OF PROFIT THAN THE DIFFERENCE BETWEEN THE AC TUAL SALE PRICE AND THE ACTUAL COST PRICE OF THE GOODS IN QUESTION' (EXTRACTED IN PARA 281 OF THE REPORT OF THE COMMITTEE ON THE TAXATION OF TRADING PROFITS PRESEN TED TO BRITISH PARLIAMENT IN APRIL, 1951). WHILE ANTICIPATED LOSS IS THUS TAKEN INTO ACCOUNT, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO THE ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASED P ROFIT BEFORE ITS ACTUAL REALISATION. THIS IS THE THEORY UNDERLYING THE RULE THAT THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS THE LOW ER, AND IT IS NOW GENERALLY ACCEPTED AS AN ESTABLISHED RULE OF COMMERCIAL PRACT ICE AND ACCOUNTANCY. AS PROFITS FOR INCOME-TAX PURPOSE ARE TO BE COMPUTED IN CONFOR MITY WITH THE ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING UNLESS OF COURS E, SUCH PRINCIPLES HAVE BEEN SUPERSEDED OR MODIFIED BY LEGISLATIVE ENACTMENTS, U NREALISED PROFITS IN THE SHAPE OF APPRECIATED VALUE OF GOODS REMAINING UNSOLD AT THE END OF AN ACCOUNTING YEAR AND CARRIED OVER TO THE FOLLOWING YEAR'S ACCOUNT IN A B USINESS THAT IS CONTINUING ARE NOT BROUGHT INTO THE CHARGE AS A MATTER OF PRACTICE, TH OUGH, AS ALREADY STATED, LOSS DUE TO A FALL IN PRICE BELOW COST IS ALLOWED EVEN IF SU CH LOSS HAS NOT BEEN ACTUALLY REALISED.... AGAIN, IT IS MISCONCEPTION TO THINK THAT ANY PROFIT S 'ARISES OUT OF THE VALUATION OF THE CLOSING STOCK' AND THE SITUS OF ITS ARISING OR ACCR UAL IS WHERE THE VALUATION IS MADE. AS ALREADY STATED, VALUATION OF UNSOLD STOCK AT THE CLOSE OF AN ACCOUNTING PERIOD IS A NECESSARY PART OF THE PROCESS OF DETERMINING THE TRADING RESULTS OF THAT PERIOD, AND CAN IN NO SENSE BE REGARDED AS THE 'SOURCE' OF SUCH PROFITS.' 13. IF THE TRIBUNAL HAD BORNE THE AFORESAID PRINCIPLES IN MIND WHILE DETERMINING THE CONTROVERSY BEFORE IT THE TRIBUNAL WOULD NOT HAVE C OMMITTED AN ERROR IN LAW WHICH THE TRIBUNAL HAS COMMITTED. THE PURPOSE OF VALUATIO N OF THE CLOSING STOCK IS NOT FOR WORKING OUT ANY PROFIT ON THE BASIS OF SUCH VALUATI ON AS STATED BY THE APEX COURT. THE VALUATION OF UNSOLD STOCK AT THE CLOSE OF ACCOUNTIN G PERIOD IS A NECESSARY REQUIREMENT OF COMMERCIAL ACCOUNTING, A PART AND PARCEL OF DETE RMINING THE TRADING PROFITS OF THE ACCOUNTING PERIOD BY ENSURING THAT THE EXPENSES WHI CH HAVE ACTUALLY BEEN INCURRED IN THE PRODUCTION OF GOODS WHICH REMAINED UNSOLD AT TH E END OF THE YEAR, ARE SQUARED OFF TO REFLECT THE CORRECT TRADING PROFITS OF THE GOODS WHICH HAVE BEEN SOLD DURING THE YEAR. 14. IN THE AFORESAID SET OF FACTS AND CIRCUMSTANCES OF THE CASE, THE APPROACH OF THE TRIBUNAL IN DISTURBING THE VALUATION OF THE CLOSING STOCK AS ON 30TH JUNE, 1983 IN RELATION TO THE TWO TRANSFORMERS CANNOT BE SUSTAINE D. THE QUESTION REFERRED FOR THE OPINION OF THIS COURT IS ACCORDINGLY ANSWERED IN TH E AFFIRMATIVE I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 15. REFERENCE STANDS DISPOSED OF ACCORDINGLY WITH NO O RDER AS TO COSTS. 7 ITA NO. 527/JP/2018 SHRI SHAMBHU DAYAL AGARWAL, TONK. THUS ONCE THE ASSESSEE HAS BEEN FOLLOWING THE CONSI STENT METHOD OF VALUATION OF CLOSING STOCK WHICH IS ONE OF THE RECOGNIZED METHOD AND WAS ALSO ACCEPTED BY THE AO IN THE PRECEDING YEARS THEN WITHOUT ANY COGENT A ND MATERIAL EVIDENCE BROUGHT ON RECORD TO SHOW THAT THE METHOD ADOPTED BY THE AS SESSEE DOES NOT REFLECT ALL THE COMPONENTS OF THE COST OF GOODS FORMING PART OF THE CLOSING STOCK, THE AO CANNOT SUBSTITUTE SUCH METHOD APPLIED BY THE ASSESSEE. AC CORDINGLY IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT T HE AO HAS ACTED IN AN ARBITRARY MANNER WITHOUT BRINGING ANY EVIDENCE THAT THE ASSES SEE HAS SUPPRESSED THE MATERIAL FACTS REGARDING THE VALUATION OF CLOSING S TOCK. HENCE WE DELETE THE ADDITION MADE BY THE AO ON THIS ACCOUNT. GROUND NO. 2(II) IS REGARDING DISALLOWANCE OF SALAR Y PAYMENT TO THE EMPLOYEES WHO ARE FAMILY MEMBERS OF THE ASSESSEE. 7. THE AO NOTED THAT THE ASSESSEE HAS PAID A SALARY OF RS. 3 LACS EACH TO HIS THREE FAMILY MEMBERS IN COMPARISON TO THE SALARY PA ID IN THE EARLIER YEARS OF RS. 2,40,000/- EACH. THUS THE AO WAS OF THE VIEW THAT THE ENHANCEMENT IN THE SALARY EXPENSES OF RS. 1,80,000/- TO THESE THREE FAMILY ME MBERS IS WITHOUT ANY JUSTIFICATION. ACCORDINGLY THE AO AFTER ALLOWING T HE ENHANCEMENT OF 10% IN THE SALARY PAID TO THE FAMILY MEMBERS, HAS DISALLOWED T HE BALANCE OF RS. 1,08,000/-. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT (A). THE LD. CIT (A) HAS RESTRICTED THE DISALLOWANCE TO 50% OF THE AMOUNT DI SALLOWED BY THE AO WHICH COMES TO RS. 54,000/-. 8. BEFORE US, THE LD. A/R HAS SUBMITTED THAT THE AO HAS MADE THE DISALLOWANCE WITHOUT CONSIDERING OR GIVING A FINDING THAT THE SA LARY PAID TO THE EMPLOYEES WHO ARE FAMILY MEMBERS OF THE ASSESSEE IS EXCESSIVE IN COMP ARISON TO THE FAIR MARKET PRICE 8 ITA NO. 527/JP/2018 SHRI SHAMBHU DAYAL AGARWAL, TONK. OF THE SERVICES. THUS THE LD. A/R HAS SUBMITTED TH AT THE AO WITHOUT CONSIDERING THE PROVISIONS OF SECTION 40A(2)(B) OF THE IT ACT HAS M ADE AN ADHOC DISALLOWANCE OF SALARY EXPENDITURE. HE HAS FURTHER CONTENDED THAT THE SALARY WAS PAID TO THE SON AND GRANDSONS OF THE DECEASED ASSESSEE WHO ARE LOOK ING AFTER THE ENTIRE BUSINESS AFFAIRS OF THE ASSESSEE. SINCE THE ASSESSEE HAD AL READY DIED AT THE OLD AGE AND, THEREFORE, THE ENTIRE BUSINESS WAS BEING LOOKED AFT ER BY THE SON AND GRANDSONS, HENCE THE DISALLOWANCE MADE BY THE AO AND SUSTAINED BY THE LD. CIT (A) IS NOT JUSTIFIED. 9. ON THE OTHER HAND, THE LD. D/R HAS RELIED UPON T HE ORDERS OF THE LD. CIT (A) AND SUBMITTED THAT THE LD. CIT (A) HAD ALREADY GRAN TED SUBSTANTIAL RELIEF ON THIS ISSUE. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS THE RELEVANT MATERIAL ON RECORD. THE DETAILS OF THE SALARY PAID DURING THE YEAR UNDER CONSIDERATION AS WELL AS IN THE EARLIER YEARS ARE AS UNDER :- S.NO. NAME & PARENTAGE A.Y.2011 - 12 A.Y. 2012 - 13 A.Y. 2013 - 14 1. KAILASH CHAND AGARWAL S/O LATE SHAMBHU DAYAL 2,40,000 2,40,000 3,00,000 2. RAVINDRA KUMAR AGARWAL S/O KAILASH CHAND AGARWAL 2,40,000 2,40,000 3,00,000 3. SUNIL KUMAR AGARWAL S/O KAILASH CHAND AGARWAL 2,28,000 2,40,000 3,00,000 THUS IT IS CLEAR THAT THE SALARY IS BEING PAID TO T HREE FAMILY MEMBERS OF THE ASSESSEE WHO HAD ALREADY EXPIRED ON 4 TH FEBRUARY, 2013 AT THE AGE OF 85 YEARS. THE AO HAS ALLOWED THE ENHANCEMENT OF THE SALARY AT 10% AND CO NSEQUENTLY DISALLOWED THE BALANCE AMOUNT OF RS. 1,08,000/- OUT OF THE TOTAL E NHANCEMENT OF RS. 1,80,000/-. WE FIND THAT ONCE THE ASSESSEE WAS AT THE ADVANCE A GE OF 85 YEARS AND FINALLY DIED 9 ITA NO. 527/JP/2018 SHRI SHAMBHU DAYAL AGARWAL, TONK. ON 4 TH FEBRUARY, 2013, THEN IT IS APPARENT THAT THESE THR EE FAMILY MEMBERS OF THE ASSESSEE WERE LOOKING AFTER THE ENTIRE BUSINESS AFF AIRS OF THE ASSESSEE. THE FACT OF SERVICES RENDERED BY THESE THREE FAMILY MEMBERS HAS NOT BEEN DISPUTED BY THE AO. FURTHER THE AO HAS NOT DONE THE EXERCISE OF ASCERTA INING THE FAIR MARKET PRICE/SALARY FOR THE SERVICES RENDERED BY THESE THREE RELATED PA RTIES AND HAS MADE AN ADHOC DISALLOWANCE OF SALARY PAID TO THESE FAMILY MEMBERS OF THE DECEASED ASSESSEE. THOUGH SECTION 40A(2)(B) ENVISAGES THE DISALLOWANCE OF EXCESS PAYMENT TO THE RELATED PARTIES, HOWEVER, TO ASCERTAIN THE FACT WHE THER THE PAYMENT IS EXCESSIVE OR NOT, THE AO WAS REQUIRED TO FIRST DETERMINE THE FAI R MARKET PRICE/SALARY OF THE SERVICES RENDERED BY THE RELATED PARTIES AND THEN O NLY MAKE THE DISALLOWANCE, IF ANY. IN THE CASE IN HAND, WHEN THESE THREE FAMILY MEMBER S OF THE ASSESSEE WERE MANAGING AND DOING ALL THE BUSINESS AFFAIRS OF THE ASSESSEE, THEN IN THE ABSENCE OF ANY FINDING ON THE PART OF THE AO THAT THE SALARY P AID TO THESE PERSONS IS EXCESSIVE IN COMPARISON TO THE FAIR MARKET PRICE/SALARY, THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT (A) IS NOT SUSTAINABLE. W E, ACCORDINGLY, DELETE THE DISALLOWANCE OF RS. 54,000/- MADE ON ACCOUNT OF SAL ARY PAID TO THE FAMILY MEMBERS. GROUND NO. 2(III) IS REGARDING DISALLOWANCE OF BUSI NESS EXPENSES FOR WANT OF SUPPORTING EVIDENCE BEING VOUCHERS. 11. THE AO NOTED THAT THE ASSESSEE HAS CLAIMED VARI OUS EXPENSES ON ACCOUNT OF SHOP EXPENSES, TRAVELLING EXPENSES, PETROL EXPENSES , WAGES EXPENSES. HOWEVER, NO PROPER VOUCHERS WERE PRODUCED BY THE ASSESSEE IN SU PPORT OF THE EXPENSES CLAIMED. ACCORDINGLY, THE AO MADE A DISALLOWANCE OF 20% OF T HESE EXPENSES AMOUNTING TO RS. 52,738/-. ON APPEAL, THE LD. CIT (A) HAS SUSTA INED THE DISALLOWANCE AT 10% OF THE EXPENSES INSTEAD OF 20% MADE BY THE AO. 10 ITA NO. 527/JP/2018 SHRI SHAMBHU DAYAL AGARWAL, TONK. 12. WE HAVE HEARD THE LD. A/R AS WELL AS THE LD. D/ R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT DESPITE THE SPECI FIC QUERY RAISED BY THE AO FOR PRODUCTION OF SUPPORTING VOUCHERS IN RESPECT OF VAR IOUS EXPENSES CLAIMED, THE ASSESSEE FAILED TO PRODUCE THE SAME. THE ONLY EXPL ANATION PUT FORTH BY THE ASSESSEE IS THAT THE EXPENSES CLAIMED ARE REASONABL E HAVING REGARD TO THE TURNOVER OF THE ASSESSEE. THUS THERE IS A CLEAR FAILURE ON THE PART OF THE ASSESSEE TO DISCHARGE ITS ONUS OF PROVING THE EXPENSES WERE INC URRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AS THE SUPPORTING EVIDENCE WAS NOT PRODUCED BY THE ASSESSEE. THOUGH THE EXPENSES CLAIMED BY THE ASSE SSEE MAY NOT BE EXCESSIVE KEEPING IN VIEW OF THE TURNOVER, HOWEVER, ONCE THE ASSESSEE HAS FAILED TO PRODUCE THE SUPPORTING EVIDENCE, THEN THE DISALLOWANCE SUST AINED BY THE LD. CIT (A) AT 10% OF THE EXPENSES IS JUSTIFIED. HENCE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE LD. CIT (A). 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 28/09/ 2018. SD/- SD/- ( FOE FLAG ;KNO ) ( FOT; IKY JKWO (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 28/09/2018. DAS/ 11 ITA NO. 527/JP/2018 SHRI SHAMBHU DAYAL AGARWAL, TONK. VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- SHRI SHAMBHU DAYAL AGARWAL, TONK. 2. THE RESPONDENT THE ITO, WARD TONK. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 527/JP/2018) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 12 ITA NO. 527/JP/2018 SHRI SHAMBHU DAYAL AGARWAL, TONK.