Optival Health Solutions Private Limited, Hyd, Hyderabad V. ITO, Ward-16(1), Hyderabad, Hyderabad

ITA 620/HYD/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4421 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 29-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U MINICHANDRAN
• Keywords: Depreciation; Business expenditure; Principle of natural justice; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 620/HYD/2016 ASSESSMENT YEAR: 2011-12 OPTIVAL HEALTH SOLUTIONS PVT. LTD., HYDERABAD. PAN AAACO 7727M VS. INCOME-TAX OFFICER, WARD 16(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DHANESH BAFNA REVENUE BY : SMT. U. MINICHANDRAN DATE OF HEARING 23-11-2016 DATE OF PRONOUNCEMENT 30-11-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF CIT(A)-4, HYDERABAD, DATED 22/02/2016 FOR AY 201 1-12. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF RETAIL TRADE IN PHARMACEUTICALS AND OTHER RELATED ITEMS, FILED ITS RETURN OF INCOME FOR THE AY 2011-1 2 ON 27/09/2011 DECLARING AN INCOME OF RS. NIL. THE CASE WAS SELECT ED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S 143(3) OF THE IT A CT, ON 28/02/2014 BY MAKING AN ADDITION OF RS. 1,06,05,930 /- ON ACCOUNT OF SALARY EXPENSES PAID TO THE TRAINEES IN CASH. AO A SSESSED THE TOTAL INCOME AT RS. 67,98,923/- AFTER REDUCING THE BROUGH T FORWARD DEPRECIATION LOSS. 3. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERR ED AN APPEAL BEFORE THE CIT(A). 2 ITA NO. 620/H/16 OPTIVAL HEALTH SOLUTIONS PVT. LTD. 4. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND REMAND REPORT OF THE AO CONFIRMED THE ADDITION MADE BY THE AO BY OBSERVING THAT ASSESSEES EXPLANATION IS VERIFIE D AND NOT ACCEPTED SINCE ASSESSEE FAILED TO EXPLAIN WHY THERE ARE 1114 PERSONS AS AGAINST 48 TO 101 PERSONS AND ALSO FOR NOT SUBMITTI NG ANY PROOF FOR CASH PAYMENTS. HE FURTHER OBSERVED THAT KEEPING IN VIEW OF THE VOLUMINOUS EXPENDITURE INVOLVED OF RS. 31,02,39,924 /-, AO HAS RIGHTLY DISALLOWED AN AMOUNT OF RS. 1,06,05,930/- AS CASH P AYMENTS AS A REASONABLE AMOUNT TO COVER UP THE DISCREPANCIES. IT WAS ALSO OBSERVED THAT IT CAN ALSO BE SEEN FROM THE EARLIER FY THAT SALARIES CLAIMED THEREOF RS. 27,09,48,045/- AS AGAINST THE I NCOME OF RS. 3,48,42,02,931/-, THEREFORE, THERE WAS A HUGE INCRE ASE IN SALARIES THIS YEAR. IN VIEW OF THE ABOVE OBSERVATIONS, CIT(A) HEL D THAT THE DISALLOWANCE AS AGAINST SALARIES IS REASONABLE AND ACCORDINGLY CONFIRMED. 5. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE IS IN A PPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE ASSESSMENT MADE IS VERY HIGHLY EXCESSIVE AND CONTRA RY TO FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE AND FAIR PLAY . 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASEAND IN LAW, THE HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) _ 5 [' CIT(A)'] ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSES SING OFFICER ('LD. AO') IN DISALLOWING THE SALARY EXPENSES PAID TO THE TRAINEES AMOUNTING TO RS. 1,06,05,930/-. 3. IN DOING SO, THE HON'BLE CIT(A)/ LD. AO ERRED IN : 3.1 MAKING THE ADDITION SOLELY BASED ON SURMISES/ C ONJECTURES WITHOUT APPRECIATING THE SUBMISSIONS MADE BY THE AP PELLANT IN- SUPPORT OF ITS CLAIM; 3.2 NOT TAKING COGNIZANCE OF THE VARIOUS DOCUMENTS FILED TO SUBSTANTIATE THE CLAIM OF THE APPELLANT; 3.3 MAKING THE ADDITION WITHOUT INVOKING ANY SPECIF IC SECTION UNDER THE INCOME-TAX ACT, 1961; 3 ITA NO. 620/H/16 OPTIVAL HEALTH SOLUTIONS PVT. LTD. 3.4 NOT APPRECIATING THE COMMERCIAL CONSIDERATIONS UNDER WHICH THE PAYMENTS TO TRAINEES WERE MADE BY THE APPELLANT ; 3.5 NOT TAKING COGNIZANCE OF THE FACT THAT THE AUDI TORS OF THE APPELLANT-COMPANY HAVE CERTIFIED THAT THERE ARE ADE QUATE INTERNAL CONTROLS IN PLACE COMMENSURATE WITH THE SI ZE OF THE COMPANY THE APPELLANT PRAYS THAT THE AFORESAID ADDITION MAD E BY THE AO BE DELETED. 6. LD. AR OF THE ASSESSEE SUBMITTED THAT ASSESSEE H AS INCURRED RS. 31,02,39,924/- AS EXPENDITURE ON SALARIES OUT O F WHICH AN AMOUNT OF RS. 2,79,10,501/- WAS PAID TO TRAINEES EMPLOYED DURING THE CURRENT AY, OUT OF WHICH ASSESSEE HAS PAID RS. 1,69,14,626/ - BY CHEQUE AND RS. 1,06,05,930/- IN CASH. HE SUBMITTED THAT AO HAS NOT DOUBTED THE PERSONS OF TRAINEES IN THE COMPANY BUT CHOSE TO DIS ALLOW ONLY CASH PORTION OF THE SALARY PAID TO TRAINEES. HE FURTHER SUBMITTED THAT AO/CIT(A) MADE THE ADDITION SOLELY BASED ON THE CON JECTURES AND SURMISES WITHOUT APPRECIATING THE SUBMISSIONS MADE BY THE ASSESSEE. HE SUBMITTED THAT ALL THE RELEVANT DOCUME NTS RELATING TO EMPLOYEES AND PAYMENT DETAILS WERE SUBMITTED BEFORE THE AO. HE FURTHER SUBMITTED THAT THE AO HAS DISALLOWED THE EX PENDITURE WITHOUT CLARIFYING ON WHICH SPECIFIC SECTION UNDER THE INCO ME-TAX ACT, THE ADDITION WAS MADE. ALL THE PAYMENTS WERE MADE TO TR AINEES ARE ON THE BASIS OF COMMERCIAL EXPEDIENCY ONLY AND WHICH ARE DEDUCTIBLE AS BUSINESS EXPENDITURE. 6.1 LD. AR DURING THE APPEAL PROCEEDINGS SUBMITTED DETAILS OF PAYMENTS TO TRAINEES, BY WAY OF STATEMENT, LIKE NU MBER OF TRAINEES, PAYMENTS TO TRAINEES THROUGH BANK, PARTLY BY BANK A ND PARTLY BY CASH AND PAYMENTS TO TRAINEES ONLY BY CASH. THE DETAILS ARE AS UNDER: PARTICULARS NO. OF TRAINEES BANK CASH TOTAL NO OF TRAINEES PAID THROUGH BANK 185 6,423,807 - 6,423,807 4 ITA NO. 620/H/16 OPTIVAL HEALTH SOLUTIONS PVT. LTD. NO OF TRAINEES INITIAL MONTH CASH PAYMENT AND REMAINING MONTH BANK PAYMENT 493 6,432,980 8,024,222 14,457,202 NO OF TRAINEES PAID THROUGH CASH 190 - 2,581,708 2,581,708 EMPLOYEES CONTINUED IN PAY SHEET WITH ZERO WORKING DAYS 29 - - 389,945 REGULAR EMPLOYEES 217 4,057,839 - 4,057,839 TOTAL 1,114 16,914,626 10,605,930 27,910,501 6.2 HE FURTHER BROUGHT TO OUR NOTICE VARIOUS PAPERS SUBMITTED BEFORE THE AO IN WHICH DETAILS OF EMPLOYEES, DATE O F RECRUITMENT, DETAILS OF SALARIES, ETC. WHICH WERE PLACED AS PART OF PAPER BOOK. HE SUBMITTED THAT THERE IS PROPER INTERNAL CONTROLS AR E AVAILABLE IN RECRUITMENT, CALCULATION AND DISTRIBUTION OF SALARI ES TO VARIOUS EMPLOYEES OF THE ORGANIZATION. 7. LD. DR, ON THE OTHER HAND, VEHEMENTLY ARGUED THA T ASSESSEE HAS NOT EXPLAINED THE PAYMENT OF SALARIES TO TRAINE ES IN CASH AND FURTHER HE RELIED ON THE ORDERS OF REVENUE AUTHORIT IES. 8. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. AS PER THE RECORDS PRODUCED BEFORE US, T HE ASSESSEE HAS INCURRED SALARY EXPENDITURE OF RS. 2,79,10,501/- WH ICH WAS PAID TO VARIOUS TRAINEES EMPLOYED IN THE BUSINESS. FROM THE DETAILS, IT CAN BE SEEN THAT SOME OF THE TRAINEES WERE PAID ONLY BY CH EQUE AND FOR SOME OF THE EMPLOYEES IN THE INITIAL PERIOD OF APPO INTMENT PAID IN CASH AND LATER PAID BY CHEQUE AND FOR SOME OF THE TRAINEES THE SALARIES WERE PAID EXCLUSIVELY IN CASH. FROM THE LI ST, IT CAN BE SEEN THAT 190 EMPLOYEES WERE PAID ONLY IN CASH AND 493 E MPLOYEES WERE PAID BOTH IN CASH AND BY CHEQUE. WE FIND THAT THE AO HAS DISALLOWED ONLY CASH PORTION OF THE SALARY AND HAS NOT EXPLAIN ED ON WHAT GROUND HE HAS DISALLOWED THE CASH PORTION OF THE SALARY. A O HAS DISALLOWED 5 ITA NO. 620/H/16 OPTIVAL HEALTH SOLUTIONS PVT. LTD. THE CASH PORTION OF THE SALARY TO COVER UP THE DISC REPANCY OF MISMATCH OF NUMBER OF PERSONS EMPLOYED IN THE COMPA NY AND THE DETAILS SUBMITTED BEFORE ESI AND THE PROFESSIONAL TAX AUTHORITIES. IN OUR CONSIDERED VIEW, THE PAYMENT OF CASH WAS PAID W HICH DOES NOT CONTRAVENE THE RULE 6DD NOR TDS PROVISIONS AS PER T HE RECORD SUBMITTED BEFORE US BY THE ASSESSEE. WE FAIL TO UND ERSTAND THAT IN SOME OF THE TRAINEES CASE THE PAYMENT MADE IN CHEQ UE IS ALLOWED AS SALARIES AND NOT THE CASH PORTIONS. EVEN THE SAL ARIES PAID TO TRAINEES IN CASH, NONE OF THESE AMOUNTS WERE MORE T HAN RS. 20,000/- PER EMPLOYEE. THE RECORD SUBMITTED BEFORE US, WHICH HAS DETAILS OF SALARY PAYMENTS AND RELEVANT VOUCHERS ON SAMPLE BAS IS, SHOWS THAT THE COMPANY HAS PROPER INTERNAL CONTROL. WE ARE OF THE VIEW THAT AO CANNOT DISALLOW BASED ON THE MISMATCH OF RECORD SUB MITTED BEFORE VARIOUS OTHER AUTHORITIES. WHAT IS RELEVANT IS WHET HER THE EXPENDITURE WAS INCURRED FOR THE BUSINESS AND WHETHER IT FULFIL LS THE CRITERIA, GENUINENESS, WHICH IS SUPPORTED BY PROPER RECORD. IN VIEW OF THE ABOVE OBSERVATIONS, THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A), IS HEREBY DELETED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2016 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 30 TH NOVEMBER, 2016 KV 6 ITA NO. 620/H/16 OPTIVAL HEALTH SOLUTIONS PVT. LTD. COPY TO:- 1) OPTIVAL HEALTH SOLUTIONS PVT. LTD. C/O GSR ESTATES, III FLOOR, # 11-6-56, SURVEY NO. 257/258/1, OPPOSITE IDPL RAILWAY SIDING, BALANGAR, HYDERA VAD 500 0-37 2) ITO, WARD 16(1), HYDERABAD 3) CIT(A) - 4, HYDERABAD 4 PR. CIT 4, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE .