Tax Case (Appeal) v. Tax Case Appeal Filed Under Section 260A Of The Income Taxact, 1961 Against The Order Of The Income Tax Appellatetribunal, Madras 'A' Bench, Chennai, Dated 26.2

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 3.9.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE C.SARAVANAN Tax Case (Appeal) No.840 of 2010 The Commissioner of Income Tax II,Madurai.Appellant/Appellant Vs. M/s.Kajah Enterprises Pvt. Ltd.64, Upstairs, South Car Street,Tirunelveli Town (PAN No. ) Respondent/Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, Madras 'A' Bench, Chennai, dated 26.2.2010 made in ITANo.937/Mds/2009. Prayer: Against the order of the Commissioner of Income Tax(Appeals)-II i/c Madurai-625 002, made in ITA No.363/2008-2009dated 30/3/2009 and against the order of the Joint Commissionerof Income Tax Tirunelveli Range, Tirunelveli made in PAN/GIRNo. dt.30.12.08 Assessment Year 2006-2007. For Appellant : Mr.M.Swaminathan Senior Standing Counsel assisted by Ms.V.Pushpa, Jr. Standing Counsel For Respondent : Mr.M.P.Senthilkumar for Mr.G.Baskar J U D G M E N T (Delivered by DR.VINEET KOTHARI,J) The Revenue has filed this Tax Case (Appeal) under Section260-A of the Income Tax Act, 1961 aggrieved by the order dated26.2.2010 passed by the learned Income Tax Appellate Tribunal,rejecting the Revenue's Appeal, with the following observation:-"9. After hearing the rival submissions and aftercogitating the entire conspectus of this case inthe light of the provisions and the precedents, weare of the considered opinion that the submission https://hcservices.ecourts.gov.in/hcservices/ of the ld. AR that the Assessing Officer hassimply estimated the income of the assesseewithout rejecting the books of account is amisconceived fact. The Assessing Officer has notat all estimated the income of the assessee. Hehas found the expenses claimed to earn income,which he has compared, with other years and othercomparable cases. So, it is not, in fact, a caseof rejection of books of account and makingestimation of income u/s 145 of the Act. TheAssessing Officer has found for a fact that theassessee-company has managed to sell its productthrough its sister concern, in which mostlyDirectors are partners. This is a very importantaspect and has not at all been dealt by the ld.CIT(A). Another important aspect is regarding thehuge expenditure incurred in the Rajah IslandProject. Again, the ld. CIT(A) noticed from theassessment order that the Assessing Officer hasnowhere mentioned that these expenses were notincurred by the assessee. He has not evenmentioned about even a single item of unvouchedexpenditure. Without finding any defect in thevoucher albeit mentioning that most of theexpenses were paid in cash, he has not identifiedthem. So to that extent, the ld. CIT(A) iscorrect that there is no evidence to deny anyposition of such expenses. Expenses can beseparately disallowed if they are found to beinflated or false but with proof. In that view ofthe matter, when we mull over the entire records,primarily we find that simplicitor on the basis ofcomparison of expenses with assessee's earlieryears or with other cases and without findingfault or material defect in the maintenance ofbills and vouchers, which is the case, theAssessing Officer can not make lump sum addition.Hence, we are in agreement with the result arrivedat by the ld. CIT(A) and uphold the impugneddeletion. 10. In the result, the appeal of the Revenuestands dismissed." 2. The Appeal was admitted on 7.9.2010 by a co-ordinateBench of this court on the following substantial questions oflaw:-"(1) Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in law in deleting the additions made by theassessing officer to the tune of Rs.3 crores, onthe basis that the assessee had inflated the 10. In the result, the appeal of the Revenuestands dismissed." 2. The Appeal was admitted on 7.9.2010 by a co-ordinateBench of this court on the following substantial questions oflaw:-"(1) Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in law in deleting the additions made by theassessing officer to the tune of Rs.3 crores, onthe basis that the assessee had inflated the expenses with the idea of reducing its net profitsand thereby its taxable income?(2) Whether on the facts and in the circumstancesof the case, the Appellate Tribunal was right inlaw in deleting the additions made by the assessingofficer without considering the issue regardingexcessive expenditure claimed and abnormal increasein the Director's salary under Section 40A(2)(a)and 40A(2)(b) of the Income Tax Act, 1961 isvalid?" 3. Learned Senior Standing Counsel Mr.M.Swaminathanappearing for the Revenue submitted that the AssessingAuthority, in the Assessment Order dated 30.12.2008, has clearlyfound that that the expenditure on account of Director's Salaryhad been disproportionately increased from 4.92 Crores in thelast Assessment Year 2005-2006 to 7.39 Crores in the presentAssessment Year 2006-2007 as on comparison of other AssessmentYears, there is a remarkable increase and it isdisproportionately high and therefore, invoking Section 40A(2)(b) of the Act, the learned Assessing Authority was justified inmaking the addition of Rs.3 crores in question, which have beenset aside by the two higher Appellate Authorities allowing theAppeal of the Assessee. He therefore, submitted that thequestions of law framed above deserve to be answered in favourof the Revenue. 4. The learned counsel Mr.M.P.Senthilkumar appearing forthe Assessee supported the impugned order and submitted thatthese are findings of facts and without rejecting the Books ofAccounts, the Assessing Authority could not have disallowed, inarbitrary manner, a lumpsum of Rs.3 crores. 5. Having heard the learned counsel for the parties, weare satisfied that no substantial question of law arises in thisAppeal. The findings given by the Assessing Authority did notreveal any evidence being taken by him while rejecting theexpenses on account of Director's Salary being excessive. Thereasons of higher payment, number of Directors, theirrelationship and the turnover or anything like that which canset up as a reasonable basis for disallowing such expenditurewithin the meaning of Section 40A2(b) have not been discussed bythe learned Assessing Authority. 6. The two higher Appellate Authorities are also being factfinding Authorities, are binding on us unless such findings canbe held to be perverse and requiring our consideration underSection 260A of the Act. The learned Tribunal, in our opinion,has rightly held that unless the Books of Accounts are rejected,the expenses on account of Director's Salary for the AssessmentYear 2006-2007 to the tune of Rs.7.39 Crores cannot be held to https://hcservices.ecourts.gov.in/hcservices/ be excessive. We do not find any reasonable basis in theAssessment Order and therefore, it has been rightly set aside bythe higher Appellate Authorities. Therefore, the questions oflaw as framed deserve to be answered against the Revenue and infavour of the Assessee and the Appeal filed by the Revenue isliable to be dismissed. Accordingly, it is dismissed. Nocosts. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar ssk. To 1.The Commissioner of Income Tax II, Madurai. 2.The Income tax Appellate Tribunal A Bench, Chennai. 3.The Joint Commissioner of Income Tax, Tirunelveli Range, Tirunelveli. +1cc to Mr.M.Swaminathan, Advocate SR.76333+1cc to Mr.G.Baskar, Advocate SR.76305TC(A) No.840 of 2010PVS(CO)CB(01/11/2019)