M/s. Gokaldas Gulabchand & Co., Panchmahal V. The Income Tax Officer, Ward-1, Godhra

ITA 984/AHD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5822 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 08-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K N SHAH
• Section: 194C

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , D BENCH, AHMEDABAD BEFORE SHRI R. P. TOLANI, VICE PRESIDENT AND SHRI AMARJIT SINGH , ACCOUNTANT MEMBER ./ ITA.NO. 98 4 / AHD /201 4 / ASSTT. YEAR: 2010 - 2011 M/S.GOKALDAS GULABCHAND & CO. HPCL DEALER, STATION LUNAWADA, DIST. PANCHMAHAL - 389230. PAN NO.AACFM4059P VS . ITO WARD - 1, GODHRA (APPLICANT) (RESPONENT) ASSESSEE BY : SHRI K.N. SHAH, A R REVENUE BY : SHRI MUKESH SHARMA, SR.DR / DATE OF HEARING : 0 8 / 05 / 201 7 / DATE OF PRONOUNCEMENT: 18 / 05 /201 7 / O R D E R PER AMARJIT SINGH, ACCOUNTANT MEMBER : PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE L D.CIT(A) - VI, BARODA DATED 21.02.2014 PASSED FOR THE ASSTT.YEAR 2010 - 11 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: I) THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDI TION OF RS.3,12,662/ - . II) THE ID. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE U/S.40A(2)(B) OF THE ACT, SALARY OF RS.1,87,102/ - PAID TO THE SPECIFIED PERSONS OUT OF TOTAL SALARY OF RS.4,10,800/ - ITA NO. 984 /AHD/201 4 ASSTT. YEAR2010 - 11 2 III) THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE U/S.40(A)(IA) OF THE ACT, REMUNERATION OF RS.51,000/ - PAID FOR DOING COMPUTERIZED ACCOUNTING WORK ON PART TIME BASIS AND RS.51,000/ - PAID TO A PART TIME CLERK, ON THE GROUND OF NON DEDUCTION OF TDS U/S.194J OF THE ACT. . IV) THE LEARNED CIT (APPEA LS) HAS ERRED IN CONFIRMING THE ADDITION OF ELECTRICITY BILL OF RS.23,560/ - PAID BY CASH TO GEB U/S.40A(3) OF THE ACT . 2. IN THIS CASE RETURN OF INCOME DECLARING INCOME OF RS. 3,35,350 / - WAS FILED ON 04/09/2010 . THEREAFTER, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING NOTICE U/S.143(2) OF THE ACT ON 10/09/2012 . THE FACTS OF CASE ARE DISCUSS ED AS UNDER DIFFERENT GROUNDS OF APPEAL OF THE ASSESSEE. 3 . APROPOS TO GROUND NO.1 THE LEARNED COUNSEL HAS NOT PRESSED GROUND NO.1 THEREFORE, THE SAME IS DISMISSED. 4. APRO POS TO GROUND NO.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS PAID SALARIES TO THE PERSONS SPECIFIED U/S.40A(2)(B) OF THE ACT AS REPRODUCE BELOW: NAME OF THE PERSON SHRI QUALIFICATION AMOUNT OF SALARY PAID (RS) NEWEST D. DOSHI F.Y.B.COM 1,10,500/ - KETAN A. DOSHI S.Y. B.SC. 1,98,330/ - NIRAV D. DOSHI B.COM 4,10,800/ - TOTAL 4,10,800/ - THE ASSESSING OFFICER HAS OBSERVED THAT THE PAYMENT OF SALARY TO THE ABOVE SPECIFIC PERSONS WAS ON THE HIGHER SIDE, THEREFORE, ASSESSEE WAS ASKED TO PROVIDE EXPLANATION REGARDING SALARY GIVEN TO THESE SPECIFIC PERSONS. THE ASSESSEE EXPLAI NED THAT SALARY HAS BEEN GIVEN AFTER LOOKING TO THE ITA NO. 984 /AHD/201 4 ASSTT. YEAR2010 - 11 3 SERVICES PROVIDED BY THE EMPLOYEE AND SALARY WAS ALSO PAID IN EARLIER YEARS TO THE EMPLOYEE S . THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE AND CONCLUDED THAT SALARY PAID TO THE ABOVE MENTIONED SPECIFIC PERSONS COVERED U/S.40A( 2)(B) OF THE ACT WAS EXCESSIVE. T HE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION AND STATED THAT ALL THE THREE PERSON HAVE ATTENDED SIMILAR TYPE OF WORK , THEREFORE , HE MADE AN DISALLOWANCE OF SALARY EXPENSES TO THE EXTENT OF RS.1,87,102/ - AND ADDED TO THE INCOME OF ASSESSEE. 5. APROPOS TO GROUND NO.3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS MADE PAYMENT OF RS.51,000/ - EACH TO TWO PERSON HANDLING COMPUTERIZED ACCOUNTING WORK . THE ASSESSING O FFICER T REATED THIS PAYMENT AS PROFESSIONAL FEES AND DISALLOWED THE SAME U/S.40(A)(IA) OF THE ACT FOR NON - DEDUCTION OF TAX. 6. APROPOS TO GROUND NO.4. DURING THE ASSESSMENT PROCEEDING ASSESSING OFFICER FOUND THAT ASSESSEE HAS PAID ELECTRICITY BILL OF RS.23,560/ - O N 13/05/2009 IN CASH , THEREFORE HE APPLIED PROVISIONS U/S.40A(3) OF THE ACT AND DISALLOWED AMOUNT OF RS.23,560/ - AND ADDED TO THE RETURN OF INCOME OF THE ASSESSEE. 7. AGGRIEVED AGAINST THE DECISION OF THE ASSESSING OFFICER ASSESSEE FILED APPEAL BEFORE LD. CIT(A). 8. REGARDING ASSESSEE S GROUND NO.2 PERTAINING TO DISALLOWANCE OF SALARY U/S.40A(2)(B) OF THE ACT . THE LD.CIT(A) HAS SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER: ITA NO. 984 /AHD/201 4 ASSTT. YEAR2010 - 11 4 8.3 I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, THE OBSERVATIONS OF THE AO, THE SUBMISSIONS OF THE ASSESSEE AND THE MATERIAL AVAILABLE ON THE RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAD INCREASED THE SALARY OF SHR I NIRAV DOSHI BY 81% (FROM 56.400/ - TO 45.600/ - ) WITHIN A PERIOD OF 4 YEARS AND THE SALARY OF SHRI NEWESH DOSHI WAS INCREASED BY 49% (FROM 74,4007 - TO 1,10,000/ - ) WITHOUT ANY COMMENSURATE INCREASE IN THEIR RESPONSIBILITIES OR QUALIFICATIONS. THE ASSESSEE H AS SUBMITTED THAT SHRI KETAN DOSHI HAD WIDE BUSINESS EXPERIENCE, BUT HAS SUBMITTED NO EVIDENCE TO SUPPORT THIS STATEMENT. HE WAS APPOINTED IN F.Y. 2008 - 09 AT A SALARY OF RS. 1.40 LAC AND WITHIN A YEAR, HIS SALARY WAS INCREASED BY RS. 58.330/ - (41.7%). THE ASSESSEE HAS FAILED TO JUSTIFY ITS CLAIM OF SHRI KETAN POSSESSING SPECIALIZED KNOWLEDGE/SKILL FOR THE BUSINESS. THE ASSESSEE HAS FAILED TO JUSTIFY THE HUGE INCREMENTS TO THE SALARY OF THE THREE RELATIVES OF THE PARTNERS. THE ASSESSING OFFICER HAS BEEN FAIR AND JUDICIOUS IN HIS APPROACH, AS FAR AS THIS ISSUE IS CONCERNED. HE HAS GIVEN DETAILED WORKING OF FAIR REMUNERATION ALLOWABLE TO THESE THREE PERSONS, SPECIFIED U/S 40A(2)(B) OF THE ACT IN PARA 6.3 OF HIS ORDER AND I AGREE WITH HIS REASONING FOR CALCULATI ON OF SALARY ALLOWABLE U/S 40A(2)(B) OF THE ACT. IN VIEW OF THIS, I ENDORSE THE ORDER OF THE ASSESSING OFFICER IN THIS REGARD AND CONFIRM THE ADDITION OF RS. 1,87,102/ - TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE FAILS ON THIS GROUND OF APPEAL. 9. REGARDING GROUND NO.3 U/S. 40(A) (IA) OF THE ACT THE LD.CIT(A) HAS ALSO SUSTAINED THE ADDITION BY OBSERVING AS UNDER: 9.3 I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, THE OBSERVATIONS OF THE AO, THE SUBMISSIONS OF THE ASSESSEE , MATERIAL AVAILABLE ON RECORD AND THE JUDICIAL PRONOUNCEMENTS ON THE SUBJECT. THE PERUSAL OF THE RECORDS CLEARLY INDICATES THAT THE ASSESSEE HAD CONTRACTED TWO PERSONS J ON PART - TIME BASIS, ON ANNUAL CONSIDERATION OF RS. 51,000/ - EACH FOR COMPUTER AND MIS CELLANEOUS WORK RESPECTIVELY. ASSESSEE'S CLAIM THAT THESE PERSONS WERE 'EMPLOYED' BY HIM AND HE WAS PAYING 'SALARY' TO THESE PERSONS IS NOT BORNE OUT FROM THE CONDUCT OF BOTH THE PARTIES. IT IS A CLEAR CASE WHERE THERE WAS A ORAL CONTRACT BETWEEN THESE PER SONS AND THE ASSESSEE, TO DO SPECIFIED WORK DURING THE YEAR, AT AN AGREED CONSIDERATION AND BOTH THE PARTIES TO BOTH THE CONTRACTS (BETWEEN ASSESSEE AND SHRI DHARMESH PANDYA AND THE ASSESSEE AND SHRI KETAN SHIVSHANKAR) HAVE HONOURED THEIR PART OF THE CONTR ACT. IT IS A CLEAR CASE OF DEDUCTION OF TAX U/S 194C AND NOT 194J, AS ASSERTED BY THE ASSESSING OFFICER. ASSESSEE'S CONTENTION THAT THESE PERSONS WERE EMPLOYEES IS NOT FOUND TO BE CORRECT IN VIEW OF THE FACT THAT HE HAS FAILED TO DEMONSTRATE EMPLOYER - EMPLO YEE RELATIONSHIP BETWEEN THE ASSESSEE AND THESE TWO PEOPLE. FURTHER, THE PAYMENT WAS A LUMP - SUM PAYMENT AT THE END OF THE YEAR AND BELIES REGULARITY OF SALARY PAYMENTS. IT IS OBVIOUS FROM THE CONDUCT OF THE PARTIES THAT THERE WAS AN ORAL AGREEMENT TO RENDE R CERTAIN SERVICES AT SPECIFIED CONSIDERATION AND IT IS A CLEAR CASE OF IMPLIED CONTRACT BETWEEN THE ASSESSEE AND THE TWO PERSONS AND THEREFORE, THE PROVISIONS OF SECTION 194C WERE APPLICABLE TO THE.FACTS OF THE CASE. SINCE THE ASSESSEE HAD FAILED TO DEDUC T TAX AT SOURCE U/S 194C OF THE ACT ON THE CONTRACTUAL PAYMENTS MADE TO SHRI DHARMESH PANDYA AND SHRI KETAN SHIVSHANKAR, THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE TO THE ITA NO. 984 /AHD/201 4 ASSTT. YEAR2010 - 11 5 RELEVANT EXPENSES. IN VIEW OF THE ABOVE, ADDITION OF RS. 1,02,000/ - U/S 40(A) (IA) IS CONFIRMED. THE ASSESSEE FAILS ON THIS GROUND OF APPEAL. 10. THE GROUND 4 REGARDING MAKING OF PAYMENT ON CASH TO GEB THE LD.CIT(A) HAS ALSO SUSTAINED THE ADDITION BY OBSERVING AS UNDER: DURING THE COURSE OF THE APPELLATE PROCEEDINGS, THE ASSESEE SU BMITTED THAT GEB IS A GUJARAT COMPANY, THEREFORE, THE EXPENDITURE SHOULD BE ALLOWED. HOWEVER, THE ASSESSEE HAS FAILED TO ADDUCE ANY EVIDENCE TO PROVE THAT PAYMENT TO GEB TENTAMOUNTS TO PAYMENT TO GUJARAT GOVERNMENT. IN VIEW OF THIS, ASSESSEES CONTENTION C ANNOT BE ACCEPTED AND THE ORDER OF THE ASSESSING OFFICER IS CONFIRMED. THE ASSESSEE FAILS ON THIS GROUND OF APPEAL. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE HAVE NOTICED THAT ASSESSEE HAS DEPLOYED TWO EMPLOY EE SHRI NE WEST D. DOSHI AND SHRI NIRAV D. DOSHI SINCE LONG TIME AND BOTH OF THEM HAVING WIDE EXPERIENCE IN THE BUSINESS OF RUNNING PETROL PUMP . WE HAVE ALSO NOTICED THAT EVEN DURING THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 THE THIRD PERSON SHRI KETAN A. DOHSI WAS LOOKING AFTER FIN ANCE ACCOUNTS TAXATION DUTY AND COORDINATION WITH HPCL BECAUSE OF WHICH HE WAS PAID MORE SALARY THAN THE OTHER TWO EMPLOYEE S . WE FIND THAT LOWER AUTHORITIES HAVE NOT DISPROVE D THE FACTS AND REASON STATED BY THE ASSESSEE ON THE BASIS OF WHICH SALARIES WERE PAID TO THE SPECIFIC PERSONS AS MENTIONED IN THIS ORDER . W E FIND THAT LD.CITA HAS NOT JUSTIFI ED IN SUSTAINING THE ADDITION ON ACCOUNT OF PAYMENT OF EX CESS SALARY. THEREFORE APPEAL OF THE ASSESS EE ON THIS GROUND IS ALLOWED. 12. REGARDING GROUND NO.3 ISSUE OF DISALLOWANCE OF RS.51,000/ - PAID TO THE TWO PART TIME CLERK UNDER SECTION 40(A)(IA) OF THE ACT , WE NOTICE D THAT ASSESSEE HAS SUBMITTED THAT THESE TWO PERSON WERE PERFORMING THE CLERICAL WORKS ON PART TIME BASIS RELATING TO ACCOUNTING ON COMPUTER . W E FIN D THAT IT WAS NOT PROVE D BY THE ASSESSING OFFICER THAT THE S E TWO PERSON WERE PERFORMING ANY PROFESSIONAL SERVICES OTHER THAN THE ACCOUNTING WORK. W E CONSIDER ED THAT P ART TIME WORK OF CLERICAL NATURE CANNOT BE CONSIDERED AS PROFESSIONAL SERVICES , THERE FORE , WE ALLOW THE APPEAL OF THE ASSESS EE ON THIS GROUND ALSO ITA NO. 984 /AHD/201 4 ASSTT. YEAR2010 - 11 6 13. GROUND NO.4 REGARDING PAYMENT OF RS.23 , 560 / - MADE BY THE ASSESSEE THROUGH CASH T O THE CENTRAL GUJARAT ELECT RICITY BOARD WE FIND THAT THE ASSESSING OFFICER AND LD.CIT(A) HA VE NOT GIVEN ANY CONTRADICTORY FINDINGS THAT GEB WAS NOT A GUJARAT GOVERNMENT COMPANY, THEREFORE WE ALLOW THE APPEAL OF THE ASSESSEE. 14 . THE GROUND NO.1 OF THE ASSESSEE IS NOT PRESSED, THE SAME IS DISMISSED. 15 . IN THE RESULT , APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 18 TH MAY , 2017 AT AHMEDABAD. SD/ - SD/ - ( R.P. TOLANI ) VICE PRESIDENT ( AMARJIT SINGH ) ACCOUNTANT MEMBER TRUE COPY AHMEDABAD; DATED 18 / 05 /2017 MANISH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , / DR, ITAT, 6. / GUARD FILE . / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD