2020 (7) TMI 48 - AT - Income Tax

Addition u/s 68 - Addition on account of confirmations not received from creditors - HELD THAT - It is an undisputed fact that the AO has simply added the balance as on 31.3.2004 without realizing that the entire credit balance were the outcome of the purchases made during the year. It is also undisputed that in the immediately succeeding years the outstanding have been paid by the assesee. Addition on account of failure on the part of assessee in submitting confirmations regarding the reimbursement of Duty Draw Back - HELD THAT - Assessee has furnished the complete details supported by vouchers. We find that the Duty Draw Back has been reimbursed by the assessee to supporting manufacturers through account payee cheques. We also find that during the assessment proceedings, the AO had issued the notices u/s 133(6) of the I.T. Act to the persons whose names were not therein in the list of Duty Draw Back. Therefore, there was no question of them confirming the transactions. The notices to 02 parties were sent correctly. The confirmations and the transaction considering the facts in hand in totality and in light of voluminous documentary evidences, we do not find any error or infirmity in the finding of the Ld. CIT(A), hence, we decline to interfere with the finding of the Ld. CIT(A). Accordingly, the ground no. 1 raised by the Revenue is dismissed. Excessive payment of salary to Director covered under section 40(A)(2)(b) - HELD THAT - The undisputed fact is that the AO has not brought any comparable case to demonstrate that the payments made by the assessee were excessive/ unreasonable. A plain reading of Section 40A(2)(b) show that onus has been cast upon the AO to bring on record comparable cases to demonstrate that the transactions made by the assessee with the related parties are unreasonable and excessive. The AO has failed to bring such comparable case on record. Payees are also assessed to tax at the same rate of tax. The CBDT Circular No. 6-P dated 06.07.1968 states that no disallowance is to be made u/s. 40A(2) in respect of the payments made to the relatives and sister concerns where there is no attempt to evade tax. This Circular has been considered by the Hon ble Bombay High Court in the case of CIT vs. Indo Saudi Services (Travel) P. Ltd. 2008 (8) TMI 208 - BOMBAY HIGH COURT . - Considering the totality of the facts in light of the CBDT Circular (Supra), we do not find any reason to interfere with the findings of the Ld. CIT(A). Accordingly, the Ground No. 3 raised by the Revenue is dismissed. Additional ground - Revenue has challenged the admission of additional evidences by the Ld. CIT(A) which is in violation of Rule 46A of the IT Rules - HELD THAT - We do not find any merit in this challenge of the Revenue. Since the additional evidences were transmitted to the AO and the AO responded the same by submitting 02 Remand Reports, therefore, it cannot be said that AO was not given any opportunity of being heard.

Summary

Issues Involved:
1. Disallowance of ?10,167,885/- due to non-receipt of confirmations from creditors.
2. Addition of ?20.15 crores for failure to submit confirmations regarding Duty Draw Back reimbursement.
3. Addition of ?56,00,000/- for excessive payment of salary to Director under section 40(A)(2)(b).

Detailed Analysis:

1. Disallowance of ?10,167,885/- due to non-receipt of confirmations from creditors:
The Assessee's appeal (ITA No. 5568/Del/2011) and Revenue’s appeal (ITA No. 5877/Del/2011) were heard together. The Assessee contested the disallowance upheld by the CIT(A) due to non-receipt of confirmations from creditors. The AO had added ?146,925,493/- due to non-compliance with notices issued under section 133(6) of the I.T. Act, 1961. The CIT(A) deleted most of the disallowance, retaining only ?10,167,885/- for APL Delhi and APL Mumbai due to lack of confirmations and verification details. The Tribunal found that the AO added the balances without considering that they were outcomes of genuine purchases made during the year, which were paid off in subsequent years. Citing the ITAT, Delhi Bench 'A' (Special Bench) case of Manoj Aggarwal vs. Dy. CIT, the Tribunal concluded that the addition by the AO was unjustified and directed the deletion of the entire addition. Thus, the Assessee’s appeal was allowed, and Revenue’s ground was dismissed.

2. Addition of ?20.15 crores for failure to submit confirmations regarding Duty Draw Back reimbursement:
The Revenue's appeal (Ground No. 1) challenged the deletion of the addition made by the AO for the Assessee's failure to submit confirmations regarding Duty Draw Back reimbursement. The AO had added ?20,15,27,543/- due to lack of evidence of reimbursement to suppliers. The Assessee provided complete details and vouchers before the CIT(A), who found that the AO had sent notices to incorrect parties not listed in the Duty Draw Back. The CIT(A) deleted the disallowance after verifying the evidence. The Tribunal upheld the CIT(A)’s findings, noting that the AO did not request complete details during the assessment and the Assessee had furnished all necessary evidence. Thus, the Tribunal dismissed the Revenue’s ground.

3. Addition of ?56,00,000/- for excessive payment of salary to Director under section 40(A)(2)(b):
The Revenue’s appeal (Ground No. 3) contested the deletion of the addition of ?56,00,000/- made by the AO for excessive salary payments to Directors. The AO had restricted the remuneration to ?50 lacs, treating the balance as income. The CIT(A) deleted the addition, stating the AO failed to provide any comparable cases or evidence to show the payments were excessive. The Tribunal agreed, noting the onus was on the AO to demonstrate unreasonableness, which was not done. Additionally, the payees were taxed at the same rate, and no tax evasion was attempted, as per CBDT Circular No. 6-P dated 06.07.1968. The Tribunal found no reason to interfere with the CIT(A)’s findings and dismissed the Revenue’s ground.

Additional Ground:
The Revenue challenged the admission of additional evidence by the CIT(A) as a violation of Rule 46A of the IT Rules. The Tribunal found no merit in this challenge, noting that the AO was given opportunities to respond through Remand Reports. Thus, the Tribunal dismissed the Revenue’s appeal.

Conclusion:
The Assessee’s appeal was allowed, and the Revenue’s appeal was dismissed. The Tribunal directed the deletion of all additions made by the AO and upheld the CIT(A)’s findings. The order was pronounced on 30.06.2020.