Roving Eyes Management Group, Patiala vs Assessee

Roving Eyes Management Group Vs. The J.C.I.T., C/o Amarjit Associates, 7-S, Patiala Range, Sant Nagar, Patiala. Patiala. PAN: AAIFR9046F (Appellant) (Respondent)

Appellant by : Col.G.S.Mann(Retd.) Partner of assessee's firm Respondent by : Shri S.K.Mittal, DR

Date of hearing : 07.04.2015 Date of Pronouncement : 08.04.2015

PER BHAVNESH SAINI, J.M. :

This appeal filed by the assessee is directed

against the order of learned Commissioner of Income

Tax(Appeals), Patiala dated 5.10.2012 for assessment

year 2008-09, challenging the addition of

Rs.16,49,069/- on account of salary paid to workers and

disallowance on account of withdrawal for household

purposes amounting to Rs.3,90,348/-.

2. Earlier the appeal of the assessee was dismissed

in default vide order dated 20.5.2014. The assessee moved 2

Miscellaneous Application for recalling of the ex-parte

order, which was allowed vide order dated 21.11.2014 and

the appeal of the assessee was restored and was, therefore,

fixed for hearing on merits.

3. We have heard Shri G.S.Mann, partner of the assessee

firm, t h e l e a r n e d D . R f o r t h e R e v e n u e a n d g o n e t h r o u g h t h e

material available on record.

4. The brief facts of the case are that the assessee

debited a sum of Rs.1,55,49,656/- under the head salary to

workers. The Assessing Officer during the course of

assessment proceedings asked the assessee to give present

addresses of the workers. The Assessing Officer further

issued summons under section 131 to some workers and

statement of 9 workers were recorded. It was found that

there was no discrepancy in the salary claimed in respect of

staff working in the assessee's office. However in the

salary paid to the remaining workers, certain discrepancies

were found. In such cases, on the basis of statements of 6

employees, it was noticed that the salary has been recorded

in excess by Rs.1710/- and on this basis the Assessing

Officer concluded that the salary has been claimed in excess

by 10.96% in case of such staff. The Assessing Officer,

therefore, asked the assessee to show cause as to why

disallowance in respect of salary expenditure claimed to the

tune of Rs.1,50,46,256/- (salary paid to workers other than

staff) may not be made by applying the ratio of 10.96%. The

Assessing Officer also allowed the assessee to cross examine 3

the workers. However the assessee did not come forward to

avail of this opportunity. The assessee simply stated that

the statements are recorded after a period of more than 3

years and, therefore, the statements are baseless. However

the Assessing Officer disallowed the salary to the extent of

Rs. 16,49,069/- by applying the ratio of 10.96% as the

workers have given their statements on oath and the

assessee was given due opportunity to cross examine the

workers. The Assessing Officer also observed that the

partners have not made any withdrawal for house hold

expenses which the Assessing Officer worked out at Rs.

3,90,348/- for the year under consideration. The Assessing

Officer considered this as unexplained expenditure under

section 69 of the Income Tax Act. However no separate

addition on this account was made as the same is

telescopically covered in the addition made on account of

inflated expenditure on salary paid to workers.

5. During the course of appellate proceedings the

assessee reiterated the submissions made before the

Assessing Officer. The learned CIT (Appeals), however,

dismissed the appeal of the assessee. The findings of the

learned CIT (Appeals) in paras 4.2 and 5 are reproduced as

under :

"4.2 I have considered the submissions made. It is seen that the statement of workers were recorded on oath and the appellant was given due opportunity to cross examine the workers which the appellant failed to avail. The decision in the case cited by the appellant is not applicable as in the present 4

case, appellant was given due opportunity before making the disallowance. Further the appellant did not bring on record any material which could have buttressed his argument e.g. any evidence in respect of salary paid to other workers (other than the 6 workers) specially when the A.O has issued show cause for addition be made at a certain percentage. Under the facts and circumstances of the case, I hold that the A.O. has rightly made the addition. As regards disallowance on account of withdrawals for house hold is concerned, it is seen that the appellant has not specifically raised this issue in the grounds of appeal. Further he has not raised this issue even in the submission made during the appellate proceedings. Under the facts & circumstances of the case and as no addition has been made under this head, no comments are made.

05. In the result, the appeal is dismissed."

6. After considering the rival submissions, we are of

the view that the addition of Rs.16,49,069/- on ground No.1

is excessive in nature. The Assessing Officer noted certain

discrepancies in respect of salary paid to remaining

workers. On the basis of statements recorded of six

employees, it was noticed that the salary has been paid in

excess by Rs.1710/-. The Assessing Officer, therefore, on

this basis found that excess salary has been paid by

10.96%. The partner of the assessee firm argued that only

on the basis of statements of six persons the addition

should not be made. This submission has no force because

the assessee claimed excess expenditure and the bonafide of

assessee is not proved to the satisfaction of the authorities

below that the deduction is claimed in accordance with law

and expenditure has been incurred wholly and exclusively

for the purposes of business. The statements of the 5

employees recorded by the Assessing Officer clearly reveal

that excess salary has been recorded by the assessee. In

such circumstances, the Assessing Officer was justified in

estimating the disallowance. However, the Assessing

Officer has not brought sufficient material on record to

conclude as to what was his basis for making disallowance

out of the salary by 10.96% paid to the remaining workers.

In the absence of complete details and considering the

marginal difference in excess salary of Rs.1710/-, it is

difficult to believe that the assessee would have recorded

excess salary by 10.96% of the total salary. Therefore, the

estimate made by the authorities below shall have to be

reduced accordingly. Further the partner of the assessee

firm argued that no opportunity have been given to cross

examine the employees who have made statements against

the assessee. The record, however, revealed that the

Assessing Officer has allowed assessee firm to cross

examine such workers. However, the assessee did not avail

this opportunity and merely stated that statements are

recorded after a period of more than three years. The

statement of the assessee clearly reveal that the Assessing

Officer has given opportunities to cross examine six

employees and, therefore, the arguments are rejected.

7. Considering the above discussion it would be

reasonable and proper to estimate the disallowance of

excess salary by Rs.7 lacs as against addition of

Rs.16,49,069/-. The orders of the authorities below to that 6

extent are modified and addition is restricted to Rs.7 lacs

only.

8. In the result, ground No.1 of appeal of the

assessee is partly allowed.

8.1 So far as the amount of Rs.3,90,348/- in ground

No.2 of appeal is concerned, the Assessing Officer has made

no separate addition on account of household expenses

because of the disallowance made out of the excess salary.

Since no addition of Rs.3,90,348 is made, therefore, there is

no question of deletion of such addition. The ground No.2

of appeal of the assessee is accordingly dismissed.

9. In the result, the appeal of the assessee is partly

allowed.

Order pronounced in the open court on this 8th day

of April, 2015.

Sd/- Sd/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated : 8 t h April, 2015

*Rati*

Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.

Assistant Registrar, ITAT, Chandigarh 7