Wizard Biotech Pvt Ltd. , Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 531/JP/2011 fu/kZkj.k o"kZ@Assessment Year : 2006-07

Dy. Commissioner of cuke M/s Wizard Biotech Pvt. Ltd. 768, Income tax, Circle-4, Vs. Ram Nagar, Shastri Nagar, Jaipur. Jaipur.

LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACW 3811 C vihykFkhZ@Appellant izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph (JCIT). fu/kZkfjrh dh vksj ls@ Assessee by : None ( A.D. is on record)

lquokbZ dh rkjh[k@ Date of Hearing : 23/03/2015 ?kks"k.kk dh rkjh[i@ Date of Pronouncement : 30/04/2015

vkns'k@ ORDER

PER: R.P. TOLANI, J.M.

This is an appeal filed by the revenue against the order dated

22/03/2011 by the learned CIT(A)-II, Jaipur for A.Y. 2006-07. The sole

ground of appeal is as under:

"On the facts and in the circumstances of the case and in law the Ld. CIT(Appeals) has erred in restricting the addition of Rs. 16,85,635/- made by the A.O. on account of selling and distribution exp. to Rs. 3,70,550/- without

2 ITA 531/JP/2011_ DCIT Vs. M/s Wizard Biotech P. Ltd.

appreciating the facts of the case and the deficiencies pointed out by the A.O."

2. None appeared on behalf of the assessee despite repeated

issuance of notices including present one which is duly served. In these

circumstances we are left with no alternative but to decide the revenue

appeal ex parte qua the assesse, after hearing ld. DR and on perusal of

the material on record.

3. Brief facts of the case are that the assessee is engaged in the

business of manufacturing and marketing of pharmaceuticals products,

books of accounts are audited. During the course of assessment

proceedings, AO asked details about the trading results and selling and

distribution expenses, they were not fully verifiable. According to

Assessing Officer, the names of 11 employees to whom selling and

distribution expenses were claimed to be paid, did not figure in the list

of employees. Consequently the books of accounts were rejected u/s

145(3) and the impugned disallowance was made by AO.

4. Aggrieved, assessee preferred first appeal, ld. CIT(A) allowed

substantial relief to assessee by following observations:

"3.1 ..... ..............

Considering the fact that the managerial staff did not possess complete details of payments made to temporary staff and 3 ITA 531/JP/2011_ DCIT Vs. M/s Wizard Biotech P. Ltd.

these expenses were not prone to verification, I hold that disallowance to the extent of 10% would suffice the possible leakage of revenue. Further, I find that though the sales of the current year have fallen by Rs. 66,58,378/- (Rs. 3,05,87,007/- for A.Y. 2005-06 minus Rs. 2,39,28,629/- for current year) yet the indirect expenses have remained in the same vicinity i.e. Rs. 77,62,414/- for A.Y. 2005-06 and Rs. 77,36,101/- for A.Y. 2006-07. Since the selling and distribution expenses are directly related with the sales made during the year, there is no plausible explanation for claiming high amount of selling and distribution expenses in the profit and loss account. The appellant has also conceded that temporary staff shifts job very frequently so as to get better remuneration after gaining a little experience, or they are fired from the job if they fail to achieve the targets laid down. Since the temporary staff changes the job very frequently, they are not traceable at the addresses available with the assessee company. In the present case, the appellant has filed details of payments made to the marketing personnel but its disbursement to the temporary staff is not prone to verification. I accordingly direct the A.O. to restrict the addition on this account to 10% amounting to Rs. 3,70,550/- instead of Rs. 16,85,635/- made by him. This ground of appeal is partly allowed."

5. Aggrieved, revenue is in appeal before us. The ld DR drew our

attention to the detailed observations of the Assessing Officer about 4 ITA 531/JP/2011_ DCIT Vs. M/s Wizard Biotech P. Ltd.

non filing of relevant information in respect of selling and distribution

expenses by assessee, which is reproduced as under:-

"Assessee has debited exp. on selling and distribution of Rs. 37,05,649/- but no documentary evidence submitted by the assessee. Assessee has debited this amount in the name of the for five persons which are mainly employee of the company but assessee further did not file any documentary evidence. It also did not file the name and address of concern person which was asked to the assessee vide order sheet entry dated 05/12/2008. In this matter, assessee did not file the required information which was as under:-

Name/Address: PAN No. Amount It was specifically was asked to the assessee that how this exp. is related to the business. But on the fixed date of hearing assessee did not file required reply therefore vide ordered sheet entry dated 12.12.2008 show cause notice was issued to the assessee that why not exp. of Rs. 37,05,649/- be disallowed. The case of the assessee was fixed on 19.12.2008 but on the fixed date of hearing assessee did not attend."

The ld DR further contends that the assessee vide reply dated

23/12/2008 replied as under:-

"We had produced you all ledgers of Selling & Distribution Expenses & Supporting Vouchers. However, your honour

5 ITA 531/JP/2011_ DCIT Vs. M/s Wizard Biotech P. Ltd.

had asked for the PAN, Address and all details of the receiver, but we would like to state most of the employees which is hired by the area manager, on state wise are much temporary in nature. So, it is very difficult not to trace all the information. However, we would like to state that most of the expenses were incurred in cheque only. So while looking the nature of the business we request to consider our matter."

The Assessing Officer by categorical findings held that the

assertion of assessee that relevant details were already filed was not

correct and these expenses remained grossly unverified. Since the

assessee failed to discharge the burden which squarely lay on it to

demonstrate that the expenditure incurred was genuine and wholly and

exclusively for the purpose of business; AO rightly made the above

observations, disallowed 50% expenses out of Rs. 33,71,270/-. It is

further pleaded that before ld CIT(A) no fresh evidence was filed by the

assessee, thus the relief given by ld. CIT(A) is without any improvement

of evidence on the merits of the case of the assessee as before ld. AO.

Ld. CIT(A) interfered in AOs by reducing it from 50% to 10% without

adverting to any new facts, explanation or giving any plausible basis for

the reduction of grossly unverified business expenditure. There is no

finding that the estimate made by the ld Assessing Officer was either 6 ITA 531/JP/2011_ DCIT Vs. M/s Wizard Biotech P. Ltd.

arbitrary or capricious. It is apparent that the assessee did not produce

material evidence on flimsy excuses, which is further clear from the

observations of the assessee's reply before the CIT(A) in para 2(1),

which is reproduced as under:-

"The A.O. has nowhere expressed any doubt in the assessment order about these confirmatory letters. If the names of these employees did not figure in the vouchers mentioned, it is very likely that payments covered by those vouchers were incurred by employees other than the main employees. The view that filing of reply (containing list of some employees) dated 26/12/2008, was 'an afterthought' because in earlier reply the company had denied maintaining the names and addresses of the concerned persons, is wrong. In fact, the A.O. had asked for submission of names and addresses of the 'receiver' and in that context, the company had replied vide letter dated 15.12.2008 that it was very difficult to trace all the information of such 'receiver'. It was explained that most of the employees which were hired by the area manager were of temporary nature. Since the submission of details of such temporary employees was difficult, the appellant company had given the said list of main managerial personnel through whom payment was passed to the down the line temporary employees."

7 ITA 531/JP/2011_ DCIT Vs. M/s Wizard Biotech P. Ltd.

Thus, the relief awarded by ld. CIT(A) is full of latches, probabilities and

vague assertions and without appreciating that even in cases of

temporary employees also, wages are given. The assessee failed to

demonstrate that these payees were temporary employees to whom

wages were paid or their names were present on the muster roll.

5.1 Thus assessee failed to corroborate its own version about the

temporary employees besides on payment of such commission TDS is

deductible either under the head salaries or commission. There is no

reference to any TDS deduction.

5.2 In fine, it is vehemently pleaded by ld. DR that there is no cross

verification, no TDS deduction, assessee has abdicated its burden to

prove the genuineness of the expenditure claimed to be incurred during

the course of its business wholly and exclusively. If the expenditure was

incurred on quantum of sales or performance; there will be necessary

record for payment of such selling expenses to employees. In the event

of no evidence or record forthcoming from the assesse, there was no

justification in giving the relief in question.

5.3 In absence of discharge of burden and there being no material

improvement on evidence or the merits of the assessee's case before

CIT(A), the relief was not deserved. Ld CIT(A) has further mentioned 8 ITA 531/JP/2011_ DCIT Vs. M/s Wizard Biotech P. Ltd.

that the business in this year had gone down which rather makes the

case of the assesse weaker. The ld Assessing Officer was reasonable

inasmuch as instead of disallowing the whole expenditure only 50%

thereof was disallowed.

It is contended to be a settled law that estimate of any authority

should not be generally interfered with unless the appellate authority

has some better reasons to come to a view that the action of Assessing

Officer is arbitrary, capricious or untenable. In this case, it is assessee's

own admission that he was not maintaining the record about temporary

employees amounts to a rash and untenable reply. It is the

responsibility of the assesse to maintain all the relevant details and

vouchers of expenditure, more so when books are claimed to be

audited; if the assessee fails in its obligation to prove that the

expenditure in proper manner and in appeal there is no qualitative

improvement on the evidence and explanation relief cannot be awarded

by ld. CIT(A) in cursory manner. It is vehemently pleaded that the

CIT(A)'s action of drastically reducing the addition being without any

justifiable improvement of facts or evidence of assessee is unjustified.

The order of the Assessing Officer should be restored and that of

CIT(A) reversed.

9 ITA 531/JP/2011_ DCIT Vs. M/s Wizard Biotech P. Ltd.

6. We have heard the ld DR and perused the material available on

the record. We find merit in the arguments of the ld DR. Before the

Assessing Officer and CIT(A), assessee contended that it was not

possible to keep the record of temporary employees, which in our view

is not a cavalier reply. Once the assessee is carrying on pharmaceutical

business, it comes under various regulatory laws, besides it is obliged to

keep necessary record as the books are to be audited u/s 44AB . It is

very casual to say that the assessee could not maintain the record of

temporary employees, therefore, we are unable to see any

improvement in the representation of facts by the assessee before the

ld CIT(A).

7. In order to give any relief, the appellate authority ought to record

some plausible reasons emanating from the record i.e. improvement of

facts or production of new material; none is adduced by the assessee in

this case, this leads to a view that the assessee's attitude was not to

discharge its statutory burden, consequently, the Assessing Officer was

justified in disallowing 50% of expenses. The ld CIT(A) has not given

any convincing reason to interfere in the estimate. There was no

improvement in the facts, merits or evidence before the ld CIT(A). In 10 ITA 531/JP/2011_ DCIT Vs. M/s Wizard Biotech P. Ltd.

view thereof, we reverse the order of ld. CIT(A) and restore that of

Assessing Officer.

8. In the result, revenue's appeal is allowed.

Order pronounced in the open court on 30/04/2015.

Sd/- Sd/- ¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 30th April, 2015 *Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the Order forwarded to:

1. vihykFkhZ@The Appellant- The DCIT, Circle-4 Jaipur.

2. izR;FkhZ@ The Respondent- M/s Wizard Biotech Pvt. Ltd., Jaipur

3. vk;dj vk;qDr@ CIT-

4. vk;dj vk;qDr¼vihy½@The CIT(A)-

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 531/JP/2011) vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar