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3. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the disallowances of excessive employee benefit expenses of Rs. 6,12,140/- only.

4. The facts in brief are that the assessee is a public limited company and engaged in the business of trading of aluminum foil, flexible lamination paper, coated material etc which are used in manufacturing of packing materials. The AO during the assessment proceedings found that the employees benefit expenses for the year under consideration increased form Rs. 5,29,824/- to Rs. 15,30,350/- as compared to immediate previous assessment year whereas, the turnover of the assessee decreased from Rs. 42.44 crore to 34.79 core. The AO also found that the assessee has not filed return of income and audit report of last two immediate previous assessment years. Accordingly, the AO held that the assessee submission that expenses increased due to hiring of additional employee cannot be accepted in ITA no.311/AHD/2020 A.Y. 2016-17 absence of supporting material such as list of employee, addition therein and details of monthly salary etc. Thus the AO disallowed 40% of employee benefit expenses amounting to Rs. 6,12,140/- holding as excessive and added to the total income of the assessee.

ITA no.311/AHD/2020 A.Y. 2016-17

9. We have heard the rival contentions of both the parties and perused the materials available on record. We find that the AO has disallowed 40% of employees benefit expenses, being excessive, on adhoc basis for the reason that the turnover of the assessee has decreased whereas employee benefit expenses has been doubled up as compared to immediate previous assessment year. The AO also alleged that no return and audit report was filed for the last two immediate previous assessment year being A.Y. 2014-15 and 2015-16 and details such as list of employee, their monthly salary and details of hiring of new employee were not provided. However the learned CIT(A) while deleting the addition made by the AO found that the assessee has furnished details of salary, therefore he provided benefit of doubt to the assessee.

9.1 On perusal of the order of the AO, we note that it was alleged therein that the assessee has not furnished the details of the employees along with the salary. But we find that the assessee has furnished the necessary details about the name of the employees, addition of the employees and salary paid to them in the year under consideration viz a viz in the immediate preceding assessment year. No doubt, the salary paid to the employees by the assessee has increased manifolds in comparison to the earlier assessment year. But to our understanding, the revenue cannot enter in the shoes of the assessee to decide the quantum of salary to be paid by the assessee. It is the prerogative of the assessee to increase or decrease the salary of the employees. Nothing has been brought on record by the revenue suggesting that the salary was not paid by the assessee in the course of the business. Moving further, the amount of salary is generally fixed in nature, meaning thereby, it cannot be linked with the turnover of the assessee company. In other words, the amount of salary cannot increase and decrease in proportion to the turnover of the assessee. Thus, to our understanding, the reasoning given by the AO for making the disallowance of the salary that the salary of the assessee has increased whereas the turnover of the assessee has decreased does not seem to be tenable. Likewise, there was not filed any audited financial statements by the ITA no.311/AHD/2020 A.Y. 2016-17 assessee in the earlier assessment years cannot be a ground for making the disallowance. It is for the reason that if the assessee has not filed the audited financial statements, there are separate proceedings provided under the provisions of the Act which has to be initiated against the assessee. However we find that there is no whisper in the assessment order whether such proceedings have been initiated against the assessee. So on this reasoning as well, there cannot be any disallowance of the expenses as made by the AO.

ITA no.311/AHD/2020 A.Y. 2016-17

17. The next issue raised by the Revenue is that learned CIT (A) erred in deleting the addition of Rs. 6,29,89,149/- and 2,23,50,00/- made on account of difference in the opening stock and closing stock.

18. The AO during the assessment proceedings observed that the assessee has shown opening stock of Rs. 6,29,89,149/- whereas as no return and tax audit report furnished for the last 2 immediate preceding assessment years i.e. A.Y. 2014-15 and 2015-16. In the last return for the A.Y. 2013-14 the closing stock was shown at Nil. The AO furthered found the turnover of the assessee decreased and similarly the GP ratio of the assessee also decreased as compared to immediate previous year from 10.31 % to 1.88% in current year.