Income Tax Appellate Tribunal - Ahmedabad
Ashapuri Exim Pvt.Ltd.,, Surat vs Department Of Income Tax on 22 February, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH - AHMEDABAD
(BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL, AM)
ITA No.1288/Ahd/2010
A.Y.: 2007-08
The DCIT, Circle-1, Vs M/s. Ashapuri Exim Pvt. Ltd.,
Room No.108, 201, Sumangal Apartment,
Aayakar Bhavan, Jada Khadi, Mahidharpura,
Majura Gate, Surat Surat
PA No. AADCA 7724 K
(Appellant) (Respondent)
Appellant by Shri K. M. Mahesh, DR
Respondent by None
ORDER
PER BHAVNESH SAINI: This appeal by the Revenue is directed against the order of the learned CIT(A)-I, Surat dated 22-02-2010 for assessment year 2007-08 on the following ground:
"1. On the facts and circumstances of the case and in law the learned CIT(A)- 1, Surat has erred in deleting the addition of Rs.26,67,501/- made on account of disallowance out of salary and wages".
2. In the assessment order the AO noted that there is an abnormal increase in the labour charges and salary and wages. The assessee explained that there is a direct nexus of labour expenses with manufactured quantities. The AO considered the above explanation and stated that the assessee's explanation with respect of increase in labour charges is acceptable. But the assessee has not offered any explanation with respect to salary and wages. The payment of salary and wages are under direct control of management which can be manipulated by the ITA No.1288/Ahd/2010 2 DCIT, Cir-1,Surat Vs M/s. Ashapuri Exim Pvt. Ltd.
assessee. The salary and wages are not directly related to turnover. The increase in salary and wages of more than two times was, therefore, not justifiable. The AO stated that there is an increase in the turnover by 2.72% and therefore, the salary and wages can be taken to have increased to that amount. The AO further stated that that there may be increase in 10% due to cost of living inflation and annual increment. Therefore, reasonable salary during the year would be Rs.32,04,743/-. The assessee on the contrary had claimed Rs.58,72,244/-. The AO accordingly disallowed balance amount as excessive and unreasonable and not genuine and made the disallowance of Rs.26,67,501/-. It was submitted before the learned CIT(A) that salary and wages do not depend upon the turnover of the assessee company but it depends upon the production in terms of unit which is not considered by the AO. In unit terms the assessee's production has increased more than 50%. The AO did not consider the fact that increase in salary and wages was due to starting of manufacturing activities. The assessee has given complete details of all the employees. The payment has been made through corporate banking account and 94% of the salary has been paid by way of bank account. Complete details of the employees with their names and addresses, photographs and employees register were filed. In the financial year 2005-06 the assessee discontinued trading business and in the current year the management took steps for starting manufacturing activities of its own which was started in November, 2006. Therefore, salary and wages expenses were more. The details were filed before the learned CIT(A) which are incorporated in the impugned order. It was further explained that due to the above fact there was increase in the salary because of manufacturing activities started. It was submitted that disallowance has been made on mere conjecture and surmises. The learned CIT(A) considering the submissions of the assessee noted that the AO was not justified in comparing the expenditure with turnover but quantity manufactured. If the quantity ITA No.1288/Ahd/2010 3 DCIT, Cir-1,Surat Vs M/s. Ashapuri Exim Pvt. Ltd.
manufactured is compared with the last year then differences are not much (which is Rs.705.59 per carrat to 669.56 per carrat). The salary increased due to assessee started manufacturing activities and the average manufacturing cost is in fact increased as noted above. The learned CIT(A) also noted that the AO has not brought any evidence on record to show if any bogus salary and wages claim or expenses inflated. Therefore, disallowance on ad hoc basis is not justified. Addition was accordingly deleted and the appeal of the assessee was allowed.
3. The learned DR relied upon the order of the AO. However, none appeared on behalf of the assessee despite service of notice.
4. On consideration of the above facts, we are of the view that the learned CIT(A) was justified in deleting the entire addition. First of all there could not be a comparison of expenditure with earlier years and further the AO has not brought any evidence on record to show if the assessee claimed any bogus salary and wages and that any expenditure has been inflated by the assessee. Therefore, the AO was not justified in making the ad hoc addition on this issue. Further, the learned CIT(A) found that payment of substantial salary and wages have been made through banking channel and complete details of the employees have been filed. In fact, average manufacturing cost has decreased in the assessment year in question, because of the assessee started its own manufacturing activities. Therefore, salary and wages have increased. It cannot be compared with the earlier years. Considering the facts and circumstances noted above, we do not find it to be a fit case for interference. We confirm the findings of the learned CIT(A) and dismiss this ground of appeal of the Revenue.
5. As a result, the departmental appeal is dismissed.
ITA No.1288/Ahd/2010 4DCIT, Cir-1,Surat Vs M/s. Ashapuri Exim Pvt. Ltd.
Order pronounced in the open Court on 9-07-2010 Sd/- Sd/ (D. C. AGRAWAL) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Date : 9-07-2010 Lakshmikant/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File BY ORDER Dy. Registrar, ITAT, Ahmedabad