Income Tax Appellate Tribunal - Ahmedabad
Susha Founders & Engineers, Surat vs Department Of Income Tax on 22 December, 2006
IN THE INCOME TAX APPELLATE TRIBUNAL : D' BENCH : AHMEDABA D
Camp at Surat
(Before Hon'ble Shri T.K. Sharma, J.M. & Hon'ble Shri D.C. Agrawal , A.M.)
I.T.A. Nos. 969 & 3315/AHD./2007
Assessment Years : 2003-2004 & 2004-2005
Assistant Commissioner of Income Tax, -vs.- M/s. Susha Founders & Engineers, Surat
Circle-6, Surat (PAN : AAJFS 6039 E)
(Appellant) (Respondent)
Appellant by : Shri Sanjeev Kashyap, Sr. D.R.
Respondent by : Shri Rasesh Shah
ORDER
Per Shri T.K. Sharma, Judicial Member :
These two appeals filed by the Revenue are against two separate orders dated 22.12.2006 and 24.05.2007 of Learned Commissioner of Income Tax(Appeals)-IV, Surat for the assessment years 2003-04 & 2004-05 respectively. Both these appeals were heard on the same date, argued by the common ld. representative, therefore, these are decided by this common order for the sake of convenience.
2. Various grounds raised by the Revenue in its appeal being ITA No. 969/AHD/2007 for the assessment year 2003-04 are as under :-
(1) On the facts and in the circumstances of the case and in law, the ld. CIT(A.), Surat has erred in restricting the disallowance of Rs.3,47,256/- instead of Rs.13,78,332/- made on account of bogus wages and salary paid. (2) The ld. CIT(A.) has not appreciated the fact that the disallowance was made on account of defects found in the two registers of wages discussed in the order passed u/s. 143(3) of the I.T. Act in detail.
(3) On the facts and in the circumstances of the case and in law, the ld. CIT(A.), Surat has erred in deleting the addition of Rs.4,75,691/- made out of commission payment made to Mr. Manoj Sharma.
(4) The ld. CIT(A.) has not appreciated the fact that the assessee failed to establish the nature of services rendered by Shri Manoj Sharma.2
ITA No.969 & 3315/AHD/2007 (5) On the facts and in the circumstances of the case, and in law, the ld. CIT(A.), Surat ought to have upheld the order of the Assessing Officer.
3. Brief facts relating to controversy involved in Grounds No. 1 & 2 of this appeal are that the assessee-firm is engaged in the business of manufacturing of foundry machines and also in manufacturing of machineries on job work basis. For the assessment year under appeal, the assessee declared total income of Rs.41,50,070/- alongwith auditor's report under section 44AB of the Income Tax Act. During the course of assessment proceedings, the Assessing Officer found that the assessee-firm has incurred total expenses of Rs.68,38,719/- on wages and job work payment to workers. The firm had also claimed salary expenses of Rs.13,04,293/- paid to employees looking after sales, marketing and servicing. Before the Assessing Officer, on behalf of the assessee it was explained by the ld. counsel that wages have been paid to permanent employees of the firm and job work charges were paid to the outside parties. The assessee-firm engaged outside parties on job work basis and had also purchased ancillary components from outside parties and used the same in manufacturing of machineries. The Assessing Officer issued letters under section 133(6) of the Income Tax Act to some of the parties to whom the assessee made payment for job work charges and replies were received confirming the payment for job work done by them.
4. Further, in order to verify the genuineness of payment of wages and salaries paid to employees employed by the assessee, the Assessing Officer requested the assessee to produce all wages and salary registers. These were produced before the Assessing Officer and the Assessing Officer thoroughly examined the same. The Assessing Officer found that these were not properly maintained. They were incorrect, incomplete with overwriting on the registers. The assessee could not explain the defects pointed out by the Assessing Officer. The Assessing Officer concluded that two registers produced for wages paid to the unskilled temporary workers were bogus in nature and the payment of Rs.13,78,332/- claimed to have been made to temporary workers does not give sanctity to its claim of genuineness on account of bogus payment for wages and salary for the reasons discussed in the order passed under section 143(3) of the Income Tax Act.
5. On appeal, in the impugned order the Learned Commissioner of Income Tax(Appeals) restricted the disallowance of Rs.3,47,256/- for which no supporting evidence was made 3 ITA No.969 & 3315/AHD/2007 available and granted relief of Rs.10,31,076/- after considering the reason recorded in the impugned order. The reasoning given by the Learned Commissioner of Income Tax(Appeals) is contained in page-4, which reads as under :-
"I have considered the submissions and have gone through the copies of registers filed before me. At the outset, it is important to see that during the last 10 years the percentage of wages to turnover has been from 2.59% to 5% depending on the total turnover. It is seen that in accounting year 2000-01, this percentage was 5% on a turnover of Rs.3.08 crores, in the year 2001-02 the percentage dropped to 4.82% on a turnover of Rs.3.29 crores whereas in the year under consideration the percentage is 3.64% on a turnover of 5.28 crores which shows that in spite of a huge increase in turnover the wages have actually decreased compared to the last two years. The A.O. has basically doubted the genuineness of two registers which are register no. 4 & register no. 5. The register No. 4 contains the account of wages paid, leave salary paid and stipend paid whereas the register no. 5 in respect of salary paid to regular staff adding upto Rs.2,77,350/-. Even if it is assumed that these two registers were not prepared regularly during the course of year and were written in one go as due to the reason that these were destroyed as claimed by the appellant, it is a fact that professional tax has been deducted regularly through out the year on wages paid totaling Rs.5,51,135/- and duly deposited in the Govt. Treasury for which the evidence is available with the appellant. Therefore, I have no doubt in my mind that any prudent businessman would not claim a bogus deduction if he has deducted and paid professional tax on such wages. In view of this, despite the defects enumerated by the A.O. there is no doubt about the genuineness of such payment having been made,. However, regarding wages from which professional tax has not been deducted adding upto Rs.3,47,256/-, there could be no corroborative evidence regarding the genuineness of such claim since neither the workers have been produced for verification nor any positive evidence is available for payment being made. Thus the A.O.'s action in disallowing the said amount of Rs.3,47,256/- is in order. Further, the wages register no. 4 also records leave salary paid to permanent employers from which PF has also been deducted. This payment would obviously be made only to permanent workers and evidence of PF having been deposited has also been furnished by the appellant. I therefore, find no justification of disallowance of appellant's claim on this account which adds up to Rs.1,12,767/-. Further, the same register also contains details of stipend totaling Rs.20,556/- paid to the students of ITIs regarding genuineness of which there could be no doubt. Further, it is seen that salary register no. 5 is in respect of salary paid to permanent employees totaling Rs.2,77350/- which obviously is genuine since statutory deductions have been made from the amount evidence for which has been furnished by the appellant. In view of this, I am of the considered view that the disallowance of the claim of the appellant cannot be doubted except for payment of Rs.3,47,256/- for which no corroborative evidence is available. Therefore, the disallowance is directed to be restricted to this amount only".4
ITA No.969 & 3315/AHD/2007 Aggrieved by the order of Learned Commissioner of Income Tax(Appeals), the revenue is in appeal before the Tribunal.
6. Shri Sanjeev Kashyap, Sr. D.R. appearing on behalf of the Revenue pointed out that the registers for wages and salary were not properly maintained by the assessee. The two registers were produced before the Assessing Officer for verification were found incorrect, incomplete and overwriting in the registers which the assessee could not explain satisfactorily to the Assessing Officer. The Learned Commissioner of Income Tax(Appeals) in the impugned order wrongly considered the payment made to the workers on the ground that professional tax and payment of PF are genuine to prove the expenditure. Therefore, the decision of the Learned Commissioner of Income Tax(Appeals) is based on fictional observation and without going into the real facts of the case. The ld. D.R. suggested that the addition made by the Assessing Officer be restored.
7. On the other hand, Shri Rasesh Shah, ld. counsel appearing on behalf of the assessee vehemently supported the order of Learned Commissioner of Income Tax(Appeals).
8. After hearing both the sides, we have carefully gone through the orders of authorities below. The two salary registers on the basis of which the Assessing Officer made the addition, were not produced before us. Be that as it may be, after carefully going through the reasoning given by the Learned Commissioner of Income Tax(Appeals), we are convinced that he has rightly restricted the disallowance of Rs.13,78,332/- to Rs.3,47,256/-. We, therefore, incline to uphold the order of Learned Commissioner of Income Tax(Appeals). Resultantly, Grounds No. 1 & 2 are rejected.
9. The facts relating to Grounds No. 3 & 4 of the appeal are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee had debited Rs.9,81,250/- on account of sales/ commission expenses. The Assessing Officer asked the assessee to explain the nature of commission paid. Before the Assessing Officer, the assessee submitted that the sales commission paid to Mr. Manoj Sharma was paid for the orders received from him. The assessee further stated that payment of commission to Mr. Manoj Sharma was made by account payee cheques only. The assessee filed the details of commission paid to Mr. Manoj Sharma attached with the return of income filed by him in support of commission paid. The Assessing Officer on verification of details filed with the copy of the return of income of Mr. Manoj Sharma by the assessee, the Assessing Officer found that the assessee had paid 5 ITA No.969 & 3315/AHD/2007 Rs.7,42,766/- as against its claim of Rs.9,81,250/-.The Assessing Officer made an addition of Rs.4,75,691/- after disallowing 25% of total commission of Rs.7,42,766/- paid during the year and difference on account of Rs.9,81,250/- claimed and commission payment made to Mr. Manoj Sharma in absence of any concrete material evidence in respect of service rendered by him after discussing the facts of the case in the order passed under section 143(3) of the Income Tax Act.
10. On appeal, in the impugned order the Learned Commissioner of Income Tax(Appeals) deleted the disallowance of commission for the detailed reasons given in page 6 which reads as under :-
"I have considered the submissions and I am inclined to agree with the appellant on this account. There is no requirement in the eyes of law that there has to be a written agreement between the parties for payment of expenditure. The agreement could be very well be oral and from the increase in turnover of the appellant year after year, the payment of commission would also increase. The A.O. has basically doubted the genuineness of such payment only on the ground that no concrete evidence of services rendered by the said person was furnished. I do not understand as to what evidence could be furnished for such commission payment other than the fact that the list of orders procured by the appellant through Shri Manoj Sharma was available. The name of the commission agent in such cases is never mentioned on the bills raised by the appellant or payments made by the purchasers. The appellant's argument regarding justification of such payment appeared to be in order and disallowance made on this account is purely on the basis of conjectures and surmises. The same is, therefore, directed to be deleted".
Aggrieved by the order of Learned Commissioner of Income Tax(Appeals), the revenue is in appeal before the Tribunal.
11. At the time of hearing, the ld. D.R. pointed out that the Learned Commissioner of Income Tax(Appeals) deleted the disallowance on the basis of furnishing of list of orders, mode of payment of commission and services rendered by commission agents. He pointed out that before the Assessing Officer, the assessee failed to prove the nature of actual services rendered by the agent, therefore, the disallowance of commission of Rs.4,75,691/- be restored.
12. On the other hand, the ld. counsel on behalf of the assessee vehemently supported the order of Learned Commissioner of Income Tax(Appeals). He further pointed out that if the Assessing Officer was having any doubt about the genuineness of expenses or nature of services rendered, he should have made a cross verification directly to Mr. Manoj Sharma. No such 6 ITA No.969 & 3315/AHD/2007 exercise was done by the Assessing Officer. The ad hoc disallowance of 25% of the commission is not maintainable and was rightly deleted by the Learned Commissioner of Income Tax(Appeals).
13. Rival submissions were considered. In the impugned order, the Learned Commissioner of Income Tax(Appeals) has mentioned that disallowance is made by the Assessing Officer purely on the basis of conjectures and surmises. We are in agreement with this finding of Learned Commissioner of Income Tax(Appeals) that the Assessing Officer disallowed 25% of the commission. Therefore, it cannot be said that Shri Manoj Sharma has not rendered any services. After considering the totality of the facts and circumstances of the case, we are convinced that the Learned Commissioner of Income Tax(Appeals) is legally and factually correct in deleting the ad hoc disallowance of commission amounting to Rs.4,75,691/-. We, therefore, incline to uphold the order of Learned Commissioner of Income Tax(Appeals). This ground of appeal is rejected.
14. The various grounds raised by the Revenue in its appeal being ITA No. 3315/AHD/2007 are as under :-
(1) On the facts and in the circumstances of the case and in law, the ld. Learned Commissioner of Income Tax(Appeals)-IV, Surat has erred in deleting the disallowance of Rs.6,60,350/- made out of commission payment made to Shri Manoj Sharma and Shri Gurinder Singh.
(2) On the facts and in the circumstances of the case and in law, the ld. CIT(A.)-
IV, Surat has erred in restricting the disallowance of Rs.20,000/- instead of Rs.1,46,555/- made on account of office expenses, travelling expenses and staff welfare expenses.
(3) The ld. CIT(A.)-IV, Surat has not appreciated the fact that the assessee failed to establish the nature of service rendered by Mr. Manoj Sharma and Mr. Gurinder Singh.
15. The facts relating to controversy involved in Ground Nos. 1 & 3 are that the assessee has debited Rs.6,60,350/- towards sales commission expenses. According to Assessing Officer, the sales commissions are allowable, only if there has been perceptible and visible rise in sales solely due to the service rendered by the person receiving the commission. The Assessing Officer asked the assessee to furnish copy of agreement to whom commission were claimed to have been paid. No agreement was produced by the assessee. No evidences, according to Assessing Officer have 7 ITA No.969 & 3315/AHD/2007 been furnished by the assessee suggesting that the orders were brought specifically by the specified commission agent, on which the commission was paid. The Assessing Officer took the view that since the assessee failed to establish the exact nature of services provided by the commission agents, he disallowed the same. On appeal, in the impugned order, the Learned Commissioner of Income Tax(Appeals) deleted the addition on the ground that the Assessing Officer basically doubted the genuineness of commission payments made to Shri Manoj Sharma and Shri Gurinder Singh on the ground that no concrete evidences of services rendered by them was furnished. The reasoning given by the Learned Commissioner of Income Tax(Appeals) is that this issue was decided in favour of the appellant in the assessment year 2004-05. Thus he has followed his order for the assessment year 2004-05. Aggrieved by the order of Learned Commissioner of Income Tax(Appeals), the revenue is in appeal before the Tribunal.
16. It is pertinent to note that this appeal was heard along with the appeal for the assessment year 2003-04. In the assessment year 2003-04 also, the Assessing Officer disallowed commission expense amounting to Rs.4,76,691/-. These were deleted by the Learned Commissioner of Income Tax(Appeals). On further appeal by the Revenue, we have upheld the order of Learned Commissioner of Income Tax(Appeals) (supra). We, therefore, following our order for the assessment year 2003-04 upheld the view taken by the Learned Commissioner of Income Tax(Appeals) deleting the disallowance of commission payment amounting to Rs.6,60,350/-. Resultantly, the grounds No. 1 & 3 of appeal are rejected.
17. The facts relating to Ground No. 2 is that in the assessment order, the Assessing Officer disallowed 25% of office expenses, travelling expenses and staff welfare expenses. These were deleted by the Learned Commissioner of Income Tax(Appeals) following his order for the assessment year 2003-04. On appeal in the impugned order, the Learned Commissioner of Income Tax(Appeals) restricted the disallowance to Rs.20,000/- for the detailed reasons given on page 2 of his impugned order, which reads as under :-
"I have gone through the details and the copies of bills & vouchers filed before me. It cannot be expected that proper bills could be obtained from small time vendors like tea & coffeewalas and vendors of snacks, nor could the payment be made by account payee cheques to them. These expenses have to be incurred in cash and for obvious reasons would be through self-generated vouchers. In respect of travelling expenses, it is seen that it is only reimbursement of expenditure incurred by the employees 8 ITA No.969 & 3315/AHD/2007 and does not call for any adverse inference. In view of this, I am of the view that the disallowance is unreasonable. However, it would be fair and just, if a token amount of disallowance is made considering the possibility that some of these would not be properly vouched for. Therefore, the disallowance is directed to be restricted to Rs.20,000/- only".
Aggrieved by the order of Learned Commissioner of Income Tax(Appeals), the Revenue is in appeal before us.
18. At the time of hearing before us, the ld. D.R. relying on the reasoning given by the Assessing Officer in the assessment order contended that 25% of office expenses, travelling expenses and staff welfare expenses was rightly made by the Assessing Officer because before the Assessing Officer, the assessee could not prove the genuineness as it has furnished only self- generated vouchers which did not bear the identity of the recipient.
19. On the other hand, the ld. counsel of the assessee submitted that in the impugned order, the Learned Commissioner of Income Tax(Appeals) after verifying the vouchers and ascertaining its true nature deleted the disallowance. Therefore, the view taken by the Learned Commissioner of Income Tax(Appeals) be upheld.
20. Rival submissions were considered. Before the Learned Commissioner of Income Tax(Appeals), the assessee has produced bills and vouchers. After verifying the same, the Learned Commissioner of Income Tax(Appeals) observed that it is not possible to obtain proper bills from small time vendors like tea & coffeewalas and vendors of snacks. Further payment to these vendors cannot be made through account payee cheques. The travelling expenses were reimbursed to the employees. Considering these facts, we are of the view that the Learned Commissioner of Income Tax(Appeals) has rightly made the ad hoc disallowance of 25% of office expenses, travelling expenses and staff welfare expenses. We, therefore, decline to interfere with the view taken by Learned Commissioner of Income Tax(Appeals). This ground of appeal is rejected.
21. In the result, both the appeals filed by the Revenue are rejected.
The Order was pronounced in the Court on 30.07.2010
Sd/- Sd/-
(D.C. Agrawal) (T.K. Sharma)
Accountant Member Judicial Member
DATED : 30/ 07 / 2010
9
ITA No.969 & 3315/AHD/2007
Copy of the order is forwarded to :
1) The Assessee
(2) The Department.
3) CIT(A) concerned, (4) CIT concerned, (5) D.R., ITAT, Ahmedabad.
True Copy By Order Deputy Registrar, ITAT, Ahmedabad Laha/Sr.P.S.