Income Tax Appellate Tribunal - Pune
Assistant Commissioner Of ... vs S.B. Reshellers Pvt. Ltd.,, Kolhapur on 5 September, 2017
आयकर अपीलीय अिधकरण,
अिधकरण पुणे यायपीठ "बी
बी"
बी पुणे म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
ी डी.
डी. क णाकरा राव , लेखा सद य
एवं ी िवकास अव थी,
अव थी याियक सद य के सम
BEFORE SHRI D.KARUNAKARA RAO, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No. 1172/PUN/2015
िनधा रण वष / Assessment Year : 2010-11
ACIT, Circle-1, .......... अपीलाथ /Appellant
Kolhapur
बनाम v/s
S.B. Reshellers Pvt. Ltd., .......... थ /Respondent
392, E-Ward, Shahupuri,
Kolhapur
PAN : AAACT9142M
Assessee by : None
Revenue by : Shri Ajay Modi
सुनवाई क तारीख / घोषणा क तारीख /
Date of Hearing : 05.09.2017 Date of Pronouncement: 05.09.2017
आदेश / ORDER
PER D. KARUNAKARA RAO, AM :
This appeal is filed by the Revenue against the order of CIT(A)-1 & 2, Kolhapur dated 02-06-2015 for the Assessment year 2010-11.
2. Revenue raised the following grounds :
"1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not appreciating the fact that payment of ex-gratia of Rs.65,00,000/- is clearly covered under expenditure incurred by the assessee company and payment is made to person specified in section 40A(2)(b)(ii) of the Income Tax Act, 1961, and the payment of ex-gratia can't be covered under section 43B of the Income Tax Act, 1961, as held by the Ld.CIT(A).
2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the assessee's appeal against the addition made by the AO on account of disallowance of Rs.10,34,075/- on account of melting loss."
3. Briefly relevant facts are that the assessee is a company engaged in the business of manufacturing of CI, CS and CG castings, sugar mill rollers, shells, re- 2 ITA No.1172/PUN/2015
S.B. Reshellers Private Limited shelling of sugar mill rollers etc. Assessee filed the return of income declaring total income of Rs.4.97 crores (rounded off). During the course of assessment proceedings, AO determined the assessed income at Rs.5,76,61,020/-. Apart from others, AO made addition on account of disallowance of additional Ex-gratia paid to Directors amounting to Rs.65 lakhs and also disallowance on account of melting loss amounting to Rs.10,34,075/-. The CIT(A) deleted both the additions and therefore the Revenue is in appeal before us with the grounds extracted above.
4. Relevant facts relating to the first ground include that the assessee reported payment of substantial Ex-gratia and Additional Ex-gratia to the Managing Director, Executive Director and other Directors. The payments are comparatively higher when compared with the payments made in the past. In response to the query from the AO, the assessee furnished reply justifying the said payment of Ex-gratia qua the earning of the assessee. He submitted that the said payments are in proportion with the financial results of the company. AO did not accept the same and found the payments were in excess in respect of the persons covered u/s.40A(2)(b) of the Act. He disallowed a total sum of Rs.65 lakhs paid to the 5 Directors as excessive and unreasonable. At no point of time, AO brought any comparable instances in support of his decision to make such addition. The CIT(A) was critical of the order of the AO and mentioned that the AO failed to bring any comparable instances and wrongly invoked the provisions of section 40A(2)(b) of the Act. He also noticed the fact that the company passed a resolution in support of the said payments as per the discussion given in Para No.7 and the CIT(A) deleted the entire addition on this issue.
5. Before us, there is none to represent the case of the assessee despite the issue of notice as per the procedure laid down in the Tribunal. However, the Ld. 3 ITA No.1172/PUN/2015 S.B. Reshellers Private Limited Departmental Representative for the Revenue explained the facts of the case and relied heavily on the order of the AO.
6. We heard the Ld. Departmental Representative for the Revenue and perused the orders of the AO and the CIT(A). After going through the contents of Para 4 to 6 of the order of CIT(A), we find it is an undisputed fact that at no point of time the AO discharged the onus by bringing in any comparable instances to establish the payments of Ex-gratia and Additional Ex-gratia amount paid by the assessee to the Directors, i.e. MD, ED and others as excessive and unreasonable. From this point of view, we find merit in the decision of the CIT(A). For the sake of completeness, we proceed to extract operational Para No.7 and the same reads as under :
"7. In fine, first the payment in question cannot be considered under section 40A(2)(b) and second, if at all it is considered under the said section, the assessing officer must provide the comparable instances to establish that the payment was excessive. Therefore, the ground taken by the appellant company is allowed and the addition made by assessing officer is deleted.'
7. It is a trite law that the onus is on the assessee in matters relating to the invoking of provisions of section 40A(2)(b) of the Act. Further, it is an undisputed fact that the AO failed to bring any comparable instances to demonstrate that the payments are excessive and unreasonable within the meaning of the said provisions. Considering the above, we are of the considered opinion that the order of the CIT(A) is fair and reasonable and does not call for any interference.
8. Referring to Ground No.2 relating to the disallowance on account of melting loss. The facts are that the assessee reported melting loss @7.78% for this year and the same is said to be marginally higher when compared to that of the 3 preceding years, i.e. A.Yrs. 2007-08 to 2009-10. Corresponding melting loss reported for the 3 years are 7.25%, 6.88% and 7.05% respectively. The average melting loss of these 3 years works out to 7.06%. In the assessment, AO came to 4 ITA No.1172/PUN/2015 S.B. Reshellers Private Limited the conclusion that there is requirement of disallowing melting loss corresponding to 0.72% (7.78% - 7.06%) which works out to Rs.10,34,075/-.
9. During the First Appellate proceedings, it was demonstrated the fact that the AO failed to find defect in the books of account, raw material, stock register etc. Assessee also furnished the booklet containing the copy of the reply furnished by the assessee to the AO. Assessee also maintained the documents relating to the quantity-wise material used, consumption of pig iron, manganese, silicon, MS scrap, CI scrap, SMR boring, SMR, coke BH, limestone, ferro black and resulting poured metal etc. This data was not disturbed by the AO. He merely took the adhoc approach for making the above said disallowance. CIT(A) did not approve the said line of making adhoc disallowance and deleted the addition eventually.
10. Before us, as stated above, there is none to represent the case of the assessee. Ld. Departmental Representative for the Revenue explained the above facts of the case and relied heavily on the order of the AO.
11. On hearing the Ld. Departmental Representative for the Revenue, we find the contents of Para No.10 are relevant and the same is required to be extracted as under :
"10. From the above facts it is seen that as per the assessing officer, although the appellant has furnished details of working of melting loss, however, no relevant evidences were furnished. This observation has been made in paragraphs 4.3, 4.5 and 4.7. During the appellate proceedings, appellant has submitted the booklet containing copy of reply furnished to the assessing officer. One of the documents is heat wise record on various dates. This record consists of details of quantity wise material used, including pig iron, manganese, silicon, MS scrap, CI scrap, SMR boring, SMR, coke BH, limestone, ferro black and resulting poured metal. Quantity of poured metal has been deducted from total input to compute the melting loss. These sheets are melted date wise. Another document is about manufacturing details which contains the details of opening stock, quantity and amount, VAT, transport, net amount and issue amount. Assessing Officer has not brought out any defect in these data, which are the day to day record of manufacturing process of assessee company from which melting loss is computed. When quantity wise details of all batches are available and heat wise quantitative details were furnished from which sheet, melting loss is worked out, what more documents were needed has not been specified by the assessing 5 ITA No.1172/PUN/2015 S.B. Reshellers Private Limited officer. I ding that these are sufficient documents for working out the loss. In absence of any defect/discrepancy in these workings, I hereby direct the assessing officer to accept the loss claimed by the assessee and delete the addition."
12. During the assessment proceedings, AO investigation merely revolved around the Gross Profit rates of the assessee. No incriminating material is brought to the records on account of the manufacturing activity of the assessee. Therefore, it is a case that AO failed to find defect in documents furnished by the assessee. While accepting the data maintained by the assessee making such adhoc disallowance conveniently by the AO is not warranted. Therefore, we are of the opinion that the finding of the CIT(A) on this issue is fair and reasonable and no interference is warranted.
13. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on this 5th day of September, 2017.
Sd/- Sd/-
(VIKAS AWASTHY) (D. KARUNAKARA RAO)
याियक सद य /JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
पुणे Pune; दनांक Dated : 05th September, 2017.
सतीश
आदेश क ितिलिप अ िे षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. The CIT(A)-1 & 2, Kolhapur
4. CIT-1 & 2, Kolhapur
5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, "B Bench"
Pune;
6. गाड फाईल / Guard file.
आदेशानुसारार/ BY ORDER,स
स यािपत ित //True Copy//
//True Copy// Senior Private Secretary
आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune