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TMI Blog2011 (2) TMI 1618X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case as well as on the subject, the learned CIT (Appeals) has erred in partly confirming the action of the Assessing officer by sustaining the addition of Rs.39,20,000/- out of total of Rs.55,20,000/- on account of unexplained cash credits u/s 68 of the I.T.Act. 2. On the facts and circumstances of the case as well as on the subject, the learned CIT (Appeals) has erred in partly confirming the action of the Assessing officer in disallowing the sum of Rs.3,30,000/- on account of alleged excessive payment made to relatives u/s 40A(2)(b) of the I. T. Act. ITA No. 3655/Ahd./08 : Assessment Year 2004-05 3.1 This appeal by the Revenue is against the order of the Learned Commissioner of Income Tax(Appeals)-II, Surat for the assessment year 2004-05, wherein the Revenue has taken the following grounds: [1] On the fact and circumstances of the case and in law, the learned CIT(A]- IT, Surat has erred in holding that the assessee had discharged the onus lies upon him to prove the identity of the creditors, credit worthiness of the creditors and genuineness of the transaction, hut has ignored the facts that the assessee had neither produced the creditors in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment under section 143(3) on 29.12.2006 determining the total income of Rs.1,66,41,730/-, after making the following additions: a. Rs.55,20,000/- on account of unexplained cash credit u/s 68 b. Rs.75,54,740/- on account of disallowance of commission c. Rs.3,30,000/- on account of disallowance u/s 40A(2)(b) of the I.T.Act 5. On appeal, in the impugned order, the Learned Commissioner of Income Tax(Appeals) confirmed the addition of Rs.39,20,000/- out of addition of Rs.55,20,000/-. The disallowance of commission was totally deleted. The Learned Commissioner of Income Tax(Appeals) confirmed the disallowance of Rs.3,30,000/- under section 40A(2)(b) on account of salary payment. 6. Aggrieved with the above order of the Learned Commissioner of Income Tax(Appeals), the assessee is in appeal against the addition confirmed by the Learned Commissioner of Income Tax(Appeals) and revenue preferred the appeal against the relief allowed by the Learned Commissioner of Income Tax(Appeals). 7. Ground no.1 of Assessee s appeal is against sustaining the addition of Rs.39,20,000/- out of total addition of Rs.55,20,000/- on account of unexplained credit under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit in the name of these seven creditors on the ground that cash was depo.sited in the bank account of those parties on the same day or just one day before the date of clearance of cheque given to the assessee. The Counsel of the assessee submitted that all the seven creditors filed confirmation, acknowledgement of return, bank statement, balance-sheet, capital account and cash flow statement. The relevant papers are available at page nos. 21 to 75 of the paper book. With regard to all these depositors, it was contended that all the seven creditors are regularly assessed to income tax and relevant deposits were duly shown in their balance-sheet on assets side. The copies of the balance-sheet were furnished during the course of assessment proceedings. The assessee has paid the interest to all the seven parties. With regard to source of cash deposited in the bank account of respective creditors, the Counsel of the assessee submitted that sources of deposits are reflected in the cash flow statement certified by respective Chartered Accountants of the depositors. The closing balance in the cash flow working is tallied with the closing balance of cash in the balance sheet produced by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted by the Assessing Officer because amount of deposit was greater than their own capital. It was submitted that the confirmation of all the six parties with acknowledgement of return of income, balance-sheet, capital account and bank statement was furnished before the Assessing Officer. These papers are available at page nos. 146 to 183 of the paper book. The amount shown in the balance-sheet of the assessee tallied with the amount shown in the balance sheet of the creditors. The mere fact that deposit is greater than their capital is no ground to disbelieve the genuineness of the credit. The Learned Commissioner of Income Tax(Appeals) has deleted the addition of Rs.16 lakhs on the basis of finding at para no.7.3 of the impugned order. The view taken by the Learned Commissioner of Income Tax(Appeals) in this regard be upheld. 8.5 After narrating the aforesaid facts, Counsel of the Assessee submitted that the assessee received all the loans through account payee cheque and the assessee filed the confirmation, PAN details, balance sheet, capital account and bank statement in case of creditors categorized in second, third and fourth group. In case of loan categorized in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the fourth group, it was contended that the amount advanced to the assessee is greater than their own capital. Therefore, creditworthiness of the creditors is doubtful and addition of Rs.16 lakhs was rightly made by the Assessing Officer under section 68 of the I.T.Act, 1961 and the Learned Commissioner of Income Tax(Appeals) is not justified in deleting the same. 10. After hearing both the sides, we have carefully gone through the orders of the authorities below. It is pertinent to note that the Learned Commissioner of Income Tax(Appeals) remanded this issue to the file of the Assessing Officer vide letter dated 19.07.2007. In the remand report, the Assessing Officer has stated that the signature on the confirmation letters, which were furnished on the last day, did not tally with the signatures of the same persons on cheques issued by them. In the course of remand proceedings, the assessee was asked to provide specimen signature of the said persons. This was not complied by the assessee on the ground that both the firms M/s. Dana Textiles and M/s. Noori Processors had been closed. The Assessing Officer conducted the field enquiries and found that none of the parties were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.4,08,000/- and Mrs. Dipti Maheswari of Rs.2,52,000/-. Since these payments were covered under section 40A(2)(b), the Assessing Officer has asked the assessee to furnish the nature of work done by these individuals and asked the assessment to show cause why the payments should not be considered as excessive and unreasonable as per the provisions contained in section 40A(2)(b) of the Act. To this query, the assessee replied that Shri Sanjay Maheswari is elder brother of the assessee. He is B.E. and controlled total purchase of the yarn from outside India and monitored custom clearances at various ports in India. He is having good knowledge of quality of yarn and all formalities of import and export business, which helped the assessee a lot. Salary paid to him is fair and reasonable, looking to the services rendered by him. With regard to salary of Rs.2,52,000/- paid to Smt. Dipti Maheswari, it was explained that she is an M.B.A. in finance and monitored total finance of the firm with bankers/financiers and monitored the accounts. Salary paid to her is very reasonable, considering her services. Therefore, the same should be allowed, after considering the aforesaid submissions, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal. 14. At the time of hearing before us, Counsel of the assessee, relying on the submissions made before the authorities below, contended that salary paid to both the relatives, looking to the educational qualification and services rendered by both of them is fair and reasonable. Hence, disallowance to the extent of Rs.3,30,000/- being 50% be deleted. 15. On the other hand, Shri K.Madhusudan vehemently supported the order of the Learned Commissioner of Income Tax(Appeals). The ld. D.R. pointed out that there is hardly any requirement of services from B.E. and M.B.A. in the line of business carried on by the assessee. This clearly indicates that huge salary paid to them was due to some other consideration and 50% allowed by the Assessing Officer is fair and reasonable. Therefore, the view taken by both the departmental authorities below be upheld. 16. Having heard both the sides, we have carefully gone through the orders of the authorities below. It is pertinent to note that in the immediately preceding assessment year, the assessee has paid salary amounting to Rs.2,40,000/- to Shri Sanjay Maheswari and Rs.1,80,000/- to Mrs. Dipti Maheswari. It was allowed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment order also, the brokerage of Rs.25,00,774/- was paid on sales of Rs.3,95,02,878/- which, in terms of percentage, comes to 6.33%. As against this, in the assessment year under appeal, a brokerage of Rs.90,65,688/- was paid on sales of Rs.34,98,13,407/- which works out to 2.59%. Thus, relatively, the brokerage paid in the assessment year under appeal is less, despite the fact that sales increased by almost ten times. It was further submitted that there was no bad debts because the services rendered by the brokers were efficient. It was further submitted that the Assessing Officer issued letter under section 133(6) of the I.T. Act to all the brokers and most of them have complied with. This fact was not mentioned by the Assessing Officer in the assessment order. 21.1 With regard to brokerage paid to M/s. Polylace India Pvt. Ltd. amounting to Rs.60,03,844/-, it was contended that the assessee company has confirmed the payment. The name of the parties transacted through them and amount of transaction have been submitted. It was further submitted that the registered office of the company Polylace India Ltd. is in Delhi but said company is rendering services all over I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts had increased by only 3.5 times in absolute terms, while as a percentage to the total turnover, it was only 2.59% as compared to 6.33% in preceding year. Other expenses such as salary, telephone and conveyance had increased only marginally. These facts and figures clearly provided evidence of the service rendered by the brokers, especially when it is considered that there was no bad debt. The Assessee had also provided details of the parties to whom sales were affected through the brokers, as also the calculation of the brokerage payable on each transaction. The names and addresses of the brokers were provided in the very beginning. It is seen from the submission of the AR that the AO had issued letters u/s.133(6) of the IT Act to all the brokers and most of them had been complied with. Unfortunately, the AO failed to make any mention of the enquires made by him, and the result of such enquires. In any case, it is perhaps because of such enquiries and the confirmations furnished by the brokers that the AO was forced to accept the genuineness of the payments made, and therefore, had to confine himself only to the rate at which the payments were made. However, as has already been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artly confirmed by Learned Commissioner of Income Tax(Appeals) vide the separate appellate passed by Learned Commissioner of Income Tax(Appeals) in the matter u/s 154 of the I.T.Act. ITA No. 3656/Ahd./08 : Assessment Year 2005-06 25.1 This appeal by the Revenue is against the order of the Learned Commissioner of Income Tax(Appeals)-II, Surat for the assessment year 2005-06, wherein the Revenue has taken the following grounds: [1] On the fact and circumstances of the case and in law, the learned CIT(A)-II, Surat has erred in holding that AO had without any base adopted the rate of 0.50% commission as against 3% claimed by the assessee ignoring the fact that the general rate of commission in the line of the business of the assessee is ranging from 0,25% to 0.50%, [2] On the fact and circumstances of the case and in law, the learned CIT(A)II, Surat has erred in ignoring the material fact that the turnover of the assessee in year under consideration has not increased as compared to last year but has decreased to Ra.35.20 crores from Rs.38.47 crores shown in the last year. [3] On the facts and circumstances of the case and in law, the learned CIT(A)-II, Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,197/-. The appeal of Revenue for the A.Y. 2005-06 is accordingly dismissed. 29. In regard to the ground no.2 of assessee s appeal for the assessment year 2005-06, in the assessment order, the Assessing Officer disallowed 10% of expenses vide para 15 of page 10 of the assessment order. On appeal, in the impugned order, the Learned Commissioner of Income Tax(Appeals) confirmed the said disallowance. 30. After hearing both the sides, we are of the view that vehicles and telephone expenses were not wholly and exclusively used by the assessee for business purposes. The assessee is an individual and possibility of personal usage cannot be ruled out. 10% of vehicle and telephone expenses disallowed by the Assessing Officer is fair and reasonable. We, therefore, decline to interfere. Hence, this ground of the assessee s appeal for the assessment year 2005-06 is rejected. 31. Apropos the ground no.3. In respect of disallowance of interest, we are of the view that the assessee is entitled to consequential relief. In the assessment year 2004-05, part of the addition made under section 68 has been upheld. Part is deleted and partly it is restored to the file of the Assessing Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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