Shri Ashok Kumar Surana, MARWAR v. ITO, PALI

ITA 690/JODH/2007 | 2001-2002
Pronouncement Date: 28-07-2011 | Result: Dismissed

Appeal Details

RSA Number 69023314 RSA 2007
Assessee PAN ACLPS8724J
Bench Jodhpur
Appeal Number ITA 690/JODH/2007
Duration Of Justice 3 year(s) 10 month(s) 8 day(s)
Appellant Shri Ashok Kumar Surana, MARWAR
Respondent ITO, PALI
Appeal Type Income Tax Appeal
Pronouncement Date 28-07-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 28-07-2011
Date Of Final Hearing 19-07-2011
Next Hearing Date 19-07-2011
Assessment Year 2001-2002
Appeal Filed On 19-09-2007
Judgment Text
ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 1 IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH : JODHPUR BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER AND SHRI K.D. RANJAN ACCOUNTANT MEMBER ITA NO.690/JU/2007 ASSESSMENT YEAR : 2001-02 SHRI ASHOK KUMAR SURANA 26 VARDHMAN MARKET PALI. PAN : ACLPS8724J VS. INCOME TAX OFFICER WARD-I PALI.(PRESENT AO WARD-II PALI) ITA NO.503/JU/2008 ASSESSMENT YEAR : 2001-02 SHRI SUBH RAJ SURANA 26 VARDHMAN MARKET PALI. PAN : ACLPS8720N VS. THE INCOME TAX OFFICER WARD-1 PALI. ITA NO.297/JU/2005 ASSESSMENT YEAR : 2001-02 SHRI RAJENDRA KUMAR SURANA PROP. M/S SURANA DISTRIBUTORS 26 VARDHMAN MARKET PALI. PAN : ACLPS8721P THE INCOME TAX OFFICER WARD-1 PALI.(PRESENT AO-ACIT CIRCLE PALI) ASSESSEE BY : SHRI AMIT KOTHARI AR REVENUE BY : SHRIG.R. KOKANI DR O R D E R PER K.D. RANJAN AM: THESE APPEALS BY THE ASSESSEES FOR ASSESSMENT EAR 2001-02 ARISE OUT OF SEPARATE ORDERS OF CIT (A) JODHPUR. THESE APPEALS WERE HEARD TOGETHE R AND FOR THE SAKE OF CONVENIENCE ARE DISPOSED OF BY THIS COMMON ORDER. ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 2 ITA NO.690/JU/2007 2. THE FIRST ISSUE FOR CONSIDERATION RELATES TO ASS UMPTION OF JURISDICTION U/S 143 (2)(I) OF THE ACT. THE RELEVANT GROUNDS OF APPEAL ARE REPRODUCED AS UNDER:- 1. 'THE ASSESSMENT PROCEEDINGS IS WITHOUT JURISDICTION . 2. THE ASSESSMENT MADE IS BARRED BY LIMITATION; 3. THE ASSESSMENT MADE IS CONTRARY TO THE PRINCIPLE S OF NATURAL JUSTICE; 4. THE ASSESSMENT IS BAD IN LAW BAD ON FACTS MALICE- IN-LAW AND MALICE-ON-FACTS. 3. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT T HE ASSESSEE FILED RETURN OF TOTAL INCOME ON 31 ST JULY 2001 WHICH WAS PROCESSED U/S 143(1) ON 20 TH FEBRUARY 2002. SUBSEQUENTLY THE CASE WAS SELECTED FOR LIMITED SCRUTINY AND ACCORDINGLY NOTICE U/S 143(2)(I) WAS ISSUED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE CHAL LENGED THE ISSUE OF NOTICE U/S 143(2)(I) ON THE GROUND THAT THE PROVISIONS OF SECTION 143(2)(I) CAM E INTO FORCE W.E.F. 1.6.2001 AND THEREFORE THE ISSUANCE OF NOTICE U/S 143(2)(I) FOR ASSESSMENT YEA R 2001-02 WAS BAD IN LAW. THE ASSESSEE ALSO CHALLENGED THE ISSUANCE OF NOTICE BY THE AO ON THE GROUND THAT THE JURISDICTION OVER THE CASE DID NOT LIE WITH THE AO. THE AO REJECTED THE CONTENTIO N OF THE ASSESSEE REGARDING ISSUANCE OF NOTICE U/S 143(2)(I) FOR ASSESSMENT YEAR 2001-02 ON THE GR OUND THAT THE PROVISIONS OF SECTION 143(2)(I) CAME INTO FORCE W.E.F. 1.6.2001 AND NOTICE U/S 143( 2)(I) WAS ISSUED AND SERVED ON THE ASSESSEE ON 31 ST JULY 2002 AND THEREFORE THE RETURN WAS RIGHTLY SELECTED FOR LIMITED SCRUTINY AND NOTICE WAS SERVED WITHIN THE TIME OF ONE YEAR FROM THE END OF THE MONTH IN WHICH THE RETURN WAS FILED. AS REGARDS THE ISSUANCE OF NOTICE BY ITO WARD-I PALI IT WAS STATED BY THE AO THAT THE ASSESSEE HIMSELF FILED THE RETURN OF INCOME WITH ITO WARD I PALI. THE ASSESSEE HAD NOT RAISED ANY OBJECTIONS ABOUT THE JURISDICTION WHEN HE FILED THE RETURN OF INCOME. NO OBJECTIONS WERE RECEIVED WHEN REFUND WAS GRANTED BY THE ITO WARD-I PALI. HE ALSO NOTED THAT ADDL. COMMISSIONER OF INCOME-TAX RANGE HAS APPROVED THE LIMITED SCRUTINY TO BE MADE BY ITO WARD-I PALI. THEREFORE THE AO HAD JURISDICTION T O THE ASSESS THE INCOME. ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 3 4. ON APPEAL THE ASSESSEE RAISED SIMILAR OBJECTION S. LD. CIT (A) AFTER CONSIDERING THE FACTS OF THE CASE OBSERVED THAT THE ASSESSEE FILED THE RE TURN OF INCOME WITH ITO WARD-I PALI ON 31 ST JULY 2001 AND HE RECEIVED REFUND FROM ITO WARD-I PALI. NO OBJECTIONS RELATING TO JURISDICTION WERE RAISED BEFORE THE AO WITHIN THE TIME LIMIT PRE SCRIBED U/S 124(3) OF THE INCOME TAX ACT. HE THEREFORE CAME TO THE CONCLUSION THAT IN CASE WHERE RETURN OF INCOME IS MADE U/S 139 NO QUESTION OF JURISDICTION COULD BE RAISED AFTER EXPI RY OF ONE MONTH FROM THE DATE ON WHICH THE ASSESSEE WAS SERVED NOTICE U/S 143(2)(I) OR U/S 143 (2) AFTER THE COMPLETION OF ASSESSMENT WHICHEVER WAS EARLIER. 5. ON APPEAL LD. CIT (A) ALSO NOTED THAT THE ADDL. COMMISSIONER OF INCOME-TAX PALI RANGE PALI HAD CONCURRENT JURISDICTION OVER THE EN TIRE CASES FALLING IN PALI RANGE AND HAD FREE ACCESS TO ALLOT ANY CASE TO ANY AO WORKING UNDER HI M. AS REGARDS THE ISSUANCE OF NOTICE U/S 143(2) WITHIN THE TIME LIMIT LD. CIT (A) OBSERVED THAT NOTICE U/S 143(2)(I) WAS ISSUED AND SERVED ON THE ASSESSEE WITHIN THE PERIOD OF ONE YEAR. THI S FACT HAD NOT BEEN DISPUTED BY THE ASSESSEE. THEREFORE THERE WAS NO MERIT IN THE CONTENTION OF THE ASSESSEE THAT NOTICE WAS BARRED BY LIMITATION. LD. CIT (A) THEREFORE UPHELD THE ISS UANCE OF NOTICE U/S 143(2) OF THE ACT. 6. BEFORE US LD. AR OF THE ASSESSEE REITERATED SIM ILAR ARGUMENTS. ON THE OTHER HAND LD. SR. DR SUPPORTED THE ORDER OF CIT (A). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE HAD FILED ITS RETUR N OF INCOME WITH ITO WARD-I PALI. THE AO HAD ISSUED REFUND ON PROCESSING OF RETURN U/S 143(1). THE ASSESSEE HAD FILED RETURN U/S 139(1) VOLUNTARILY. THEREFORE IT CANNOT BE A CASE WHERE THE AO HAS FORCED THE ASSESSEE TO FILE ITS RETURN OF INCOME. UNDER SECTION 124(3) NO PERSON SHALL B E ENTITLED TO CALL IN QUESTION TO THE JURISDICTION OF AO WHERE HE HAS MADE A RETURN U/S 1 39(1) AFTER EXPIRY OF ONE MONTH FROM THE DATE ON WHICH HE WAS SERVED WITH NOTICE U/S 142(1) OR 14 3(2) OR AFTER COMPLETION OF ASSESSMENT WHICHEVER IS EARLIER. IN THE INSTANT CASE SINCE T HE ASSESSEE HAD FILED RETURN OF INCOME VOLUNTARILY U/S 139(1) BEFORE ASSESSING OFFICER WARD-I PALI. TH E ASSESSEE DID NOT RAISE ANY OBJECTION TO JURISDICTION WHEN REFUND WAS ISSUED. THEREFORE THE ASSESSEE CANNOT CHALLENGE THE JURISDICTION AFTER EXPIRY OF ONE MONTH WHEN NOTICE U/S 143(2)(I) WAS ISSUED TO THE ASSESSEE. THEREFORE WE DO ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 4 NOT FIND ANY MERIT IN THE GROUNDS RAISED BY THE ASS ESSEE SO FAR AS ISSUE OF NOTICE U/S 143(2)(I) BY ITO WARD-I PALI IS CONCERNED. 8. NOW COMING TO THE ISSUE OF NOTICE U/S 143(2)(I) FOR THE YEAR UNDER CONSIDERATION THE PROVISIONS OF SECTION 143(2)(I) WERE INSERTED BY TH E FINANCE ACT 2002 W.E.F. 1.6.2002. U/S 143(2)(I) THE AO CAN ISSUE NOTICE IN A CASE WHERE H E HAS REASON TO BELIEVE THAT ANY CLAIM OF LOSS EXEMPTION DEDUCTION ALLOWANCE OR RELIEF MADE IN T HE RETURN OF INCOME WAS INADMISSIBLE. THE PROVISIONS OF SECTION 143(2) ARE PROCEDURAL IN NATU RE AND THEREFORE THEY WILL APPLY TO ALL PENDING RETURNS WHICH HAVE BEEN FILED BY THE ASSESS EES AS ON DATE WHEN THE PROVISIONS OF SECTION 143(2)(I) CAME INTO OPERATION. IT IS NOT THE CASE OF THE ASSESSEE THAT NOTICE U/S 143 (2)(I) WAS NOT ISSUED AND SERVED WITHIN THE PERIOD OF ONE YEAR FRO M THE END OF THE MONTH IN WHICH THE RETURN OF INCOME WAS FURNISHED. DURING THE COURSE OF HEARING IT WAS ALSO SUBMITTED BY LD. AR OF THE ASSESSEE THAT IF THE PROVISIONS OF SECTION 143(2)(I ) ARE PROCEDURAL THEN ASSESSMENT SHOULD NOT HAVE BEEN COMPLETED AFTER 1 ST JUNE 2003 AS THE PROVISIONS OF SECTION 143(2) ARE NOT APPLICABLE AFTER THIS DATE. THIS CONTENTION OF THE ASSESSEE C ANNOT BE ACCEPTED FOR THE SIMPLE REASON THAT ONCE NOTICE U/S 143(2)(I) OR 143(2)(II) HAVE BEEN ISSUED THE ASSESSMENT HAS TO BE MADE U/S 143(3). THEREFORE THIS CONTENTION OF THE ASSESSEE DESERVES TO BE REJECTED. IN VIEW OF THE ABOVE DISCUSSION IT IS HELD THAT THE AO HAD JURISDICTION TO ISSUE NOTICE U/S 143(2)(I) AND HE HAS CORRECTLY MADE ASSESSMENT U/S 143(3) OF THE ACT. C ONSEQUENTLY GROUNDS OF APPEAL RAISED BY THE ASSESSEE REGARDING ASSUMPTION OF JURISDICTION ARE D ISMISSED. 9. THE NEXT ISSUE FOR CONSIDERATION RELATES TO CONF IRMING THE ADDITION OF RS.1 31 250/- MADE BY THE AO BY DISALLOWING THE EXEMPTION OF RETRENCHM ENT BENEFITS (GRATUITY LEAVE SALARY COMMUTED PENSION RETRENCHMENT COMPENSATION AND REI MBURSEMENT OF MEDICAL EXPENSES). THE RELEVANT GROUNDS OF APPEAL ARE REPRODUCED AS UNDER: - 5. THAT THE ADDITION OF RS.1 31 250/- MADE BY DIS ALLOWING THE EXEMPTION OF RETRENCHMENT BENEFITS (GRATUITY LEAVE SALARY COMM UTED PENSION RETRENCHMENT COMPENSATION) IS BAD IN LAW AND BAD ON FACTS AND IL LEGAL. 6. THAT THE ADDITION OF RS.14 400/- MADE BY DISALLO WING THE EXEMPTION OF REIMBURSEMENT OF MEDICAL EXPENSES BY EMPLOYER IS BA D IN LAW AND BAD ON FACTS AND ILLEGAL. ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 5 10. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE WAS EMPLOYED WITH TWO CONCERNS NAMELY SURANA DISTRIBUTORS AND SURANA ST ARCH AND CHEMICALS WHOSE PROPRIETORS WERE REAL BROTHERS OF THE ASSESSEE. THE ASSESSEE D URING THE YEAR UNDER CONSIDERATION RECEIVED RETRENCHMENT BENEFITS ON ACCOUNT OF GRATU ITY (RS.12 500/-) RETRENCHMENT COMPENSATION (RS.12 500) COMMUTED PENSION (RS.25 0 00) LEAVE SALARY (RS.25 000/-) AMOUNTING TO RS. 75 000/- FROM SURANA DISTRIBUTORS. THE ASSESSEE ALSO RECEIVED PAYMENTS OF RS.56 250/- BEING GRATUITY OF RS.9 375/-; RETREN CHMENT COMPENSATION OF RS.9 375/-; COMMUTED PENSION OF RS.18 750/-; AND LEAVE SALARY O F RS.18 750/-. THE TOTAL RETRENCHMENT COMPENSATION RECEIVED BY THE ASSESSEE FROM BOTH THE FIRMS WAS AT RS.1 31 250/-. THE ASSESSEE ALSO RECEIVED RS.14 400/- ON ACCOUNT OF ME DICAL REIMBURSEMENT FROM SURANA DISTRIBUTORS. THE ASSESSEE CLAIMED THESE PAYMENTS EXEMPT UNDER VARIOUS PROVISIONS OF INCOME TAX ACT. THE AO NOTED THAT THE CONCERNS FRO M WHOM THE ASSESSEE HAD RECEIVED RETRENCHMENT BENEFITS WERE NOT COVERED UNDER GRATUI TY ACT AND PENSION RULES AS PER PAYMENT OF GRATUITY ACT 1972. AS PER SECTION 4 OF GRATUITY ACT 1972 THE GRATUITY SHALL BE PAYABLE TO AN EMPLOYEE ON TERMINATION OF HIS EMP LOYMENT AFTER HE HAS RENDERED CONTINUOUS SERVICE OF NOT LESS THAN FIVE YEARS PRO VIDED THAT THE COMPLETION OF CONTINUOUS SERVICE OF FIVE YEARS SHALL NOT BE NECESSARY WHERE THE TERMINATION OF THE EMPLOYMENT OF ANY EMPLOYEE IS DUE TO DEATH OR DISABLEMENT. SIMIL ARLY FOR THE PURPOSE OF PENSION MINIMUM SERVICE REQUIRED WAS FIVE YEARS. THE NATUR E OF CONTRACT OF SERVICE WAS HARDLY RELEVANT FOR THE PURPOSE OF DETERMINING THE CONTINU OUS SERVICE FOR THE PURPOSE OF PAYMENT OF GRATUITY AND PENSION. THE AO THEREFORE TREATE D THE GRATUITY PAYMENTS MADE BY THE EMPLOYER TO THE EMPLOYEES CONTRARY TO THE PROVISION S OF THE GRATUITY ACT. THE AO ALSO NOTED THAT M/S SURANA STARCH AND CHEMICALS HAD NOT PAID ANY SALARY TO THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. ONLY RETRENCHMENT BENEFI TS HAVE BEEN ALLOWED. AS SUCH THE ASSESSEE WAS NOT ELIGIBLE FOR EXEMPTION U/S 10(10)( III) OF THE ACT. AS REGARDS EXEMPTION OF RETRENCHMENT COMPENSATION RECEIVED BY THE ASSESSEE U/S 10(10B) THE AO NOTED THAT RETRENCHMENT COMPENSATION WAS ONLY AVAILABLE UNDER INDUSTRIAL DISPUTES ACT 1947. IN THE CASE OF THE ASSESSEE RETRENCHMENT OF SERVICES BY A LETTER ISSUED BY EMPLOYER THAT SERVICES WERE TERMINATED AND AS SUCH THE CONDITION LAID DO WN U/S 10(10B) OF THE ACT WERE NOT FULFILLED. HE THEREFORE DISALLOWED THE CLAIM OF RETRENCHMENT COMPENSATION. AS REGARDS ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 6 THE CLAIM FOR COMMUTED PENSION THE AO NOTED THAT T HE PAYMENT OF COMMUTED PENSION WAS ALLOWABLE IF THE PENSION WAS GRANTED TO THE ASSESSE E IN ACCORDANCE WITH THE PENSION RULES. SINCE THE ASSESSEE HAD NOT COMPLETED MINIMUM SERVIC E PERIOD PRESCRIBED AND ALSO THE PROVISIONS OF RESPECTIVE ACTS OR THE RULES HAVE NOT BEEN FULFILLED THE CLAIM OF THE ASSESSEE WAS NOT ALLOWABLE. AS REGARDS LEAVE SALARY THE AO NOTED THAT THE EXEMPTION WAS AVAILABLE ONLY IF THE LEAVE OF AN EMPLOYEE WAS ACTUALLY IN HI S CREDIT AT THE TIME OF RETRENCHMENT. SINCE NO SUCH INFORMATION WAS FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE CLAIM WAS NOT ALLOWABLE. AS REGAR DS THE MEDICAL EXPENSES OF RS.14 400/- THE REIMBURSEMENT OF MEDICAL EXPENSES WAS NOT MENTI ONED IN THE APPOINTMENT LETTER ISSUED BY THE EMPLOYER TO THE ASSESSEE ON 1.4.1997. IT WA S THE CONTENTION OF THE ASSESSEE THAT IN THE APPOINTMENT LETTER IT WAS STATED THAT SHRI RAJE NDRA KUMAR SURANA THE EMPLOYER WOULD DECIDE THE SALARY AND ALLOWANCES FROM TIME TO TIME AND AS SUCH THE APPOINTMENT LETTER WAS PREPARED ONLY TO ALLOW THE RETRENCHMENT BENEFITS TO THE RELATED PERSONS. THE AO NOTED THAT ABOVE MEDICAL EXPENSES WERE PAID BY THE EMPLOYER ON 31 ST MARCH 2001 AT THE END OF FINANCIAL YEAR @ RS.1200/- PER MONTH. FOR REIMBURS EMENT OF MEDICAL EXPENSES IT WAS NECESSARY THAT EXPENDITURE WAS INCURRED. THE ASSES SEE WAS REQUIRED TO SUBMIT A BILL TO THE EMPLOYER. BUT IN THE CASE OF THE ASSESSEE FIXED A MOUNT OF RS.1 200/- PER MONTH WAS PAID BY THE EMPLOYER ON 31 ST MARCH 2001. THEREFORE IT WAS A CASE OF MEDICAL ALLOWANCE AND NOT REIMBURSEMENT OF MEDICAL EXPENSES. THE AO THE REFORE DISALLOWED THE CLAIM OF MEDICAL REIMBURSEMENT CLAIMED BY THE ASSESSEE. 11. BEFORE CIT (A) THE ASSESSEE MADE SIMILAR ARGUME NTS. LD. CIT (A) AFTER CONSIDERING THE FACTS OF THE CASE NOTED THAT NO FAC TS OR EVIDENCES HAVE BEEN PLACED ON RECORD AS TO WHY THE SERVICES OF THE ASSESSEE WERE TERMINATED BY THE EMPLOYERS. THE ASSESSEE HAD COMPLETED ONLY THREE YEARS OF SERVICE IN ONE CONCERN AND FOUR YEAR SERVICE IN ANOTHER. THE ASSESSEE IS A BROTHER OF EMPLOYERS. THIS FACT COULD NOT BE LOST SIGHT OF. LD. CIT (A) FURTHER NOTED THAT IT WAS SURPRISING THAT B OTH THE EMPLOYERS HAVE TERMINATED THE SERVICES OF THE ASSESSEE ON ONE SINGLE DAY. THEREF ORE WHEN THE FACTS OF THE CASE ARE LOOKED IN TOTALITY AN IRRESISTIBLE CONCLUSION COULD BE DR AWN THAT SO CALLED TERMINATION WAS A WELL PLANNED TAX EVADING STRATEGY. HE HELD THAT IT WAS A CASE OF COLOURABLE DEVICE ADOPTED BY THE EMPLOYERS AS ALSO THE ASSESSEE TO REDUCE THE IN CIDENT OF TAX BY GIVING OF RETIREMENT ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 7 BENEFITS AND TREATING THEM AS ALLOWABLE DEDUCTION I N THE HANDS OF PAYER AND TREATING THE SAME AS EXEMPT IN THE HANDS OF PAYEE. THE ASSESSEE HAD NOT PLACED ON RECORD ANY FACTS AS TO WHAT WERE HIS SOURCES OF INCOME AFTER THE SAID T ERMINATION OF THE EMPLOYEES. HE ALSO NOTED THAT THE ASSESSEE REMAINED ACTIVELY INVOLVED IN THE FAMILY BUSINESS AND IN FACT THE SO-CALLED TERMINATION WAS ONLY ON PAPER AND NOT REA L. LD. CIT (A) FURTHER NOTED THAT THE REAL MEANING OF THE WORD TERMINATION REQUIRED TO BE LOOKED INTO BEFORE DECIDING THE ISSUE IN DISPUTE. HE FURTHER NOTED THAT U/S 10(10)(II) T HE PAYMENT MADE UNDER GRATUITY ACT 1972 WERE ELIGIBLE FOR EXEMPTION. SINCE THE ASSESSEE FA ILED TO FULFILL THE CONDITIONS AS PRESCRIBED UNDER GRATUITY ACT 1972 LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. 12. AS REGARDS THE RETRENCHMENT COMPENSATION AMOUNT ING TO RS.21 875/- RECEIVED FROM BOTH THE CONCERNS LD. CIT (A) NOTED THAT THE ASSES SEE IS THE REAL BROTHER OF OWNERS OF TWO CONCERNS. AS PER THE PROVISIONS OF SECTION 10(10B) A COMPENSATION RECEIVED BY A WORKMAN UNDER ANY CONTRACT OR SERVICE WITHIN THE PR ESCRIBED LIMIT IS EXEMPT FROM TAX. THE ASSESSEE WAS NEVER RETRENCHED FROM THE SERVICES. T HE CONCERNS FROM WHICH RETRENCHMENT COMPENSATION WAS RECEIVED WERE NEVER CLOSED OR SHIF TED NOR WAS THERE ANY TRANSFER OF OWNERSHIP EITHER IN EXPRESS OR IN REAL TERMS. THE ASSESSEE CONTINUE TO BE ASSOCIATED IN THE SAME BUSINESS IN ANOTHER CONCERN OF SAME FAMILY GRO UP. LD. CIT (A) THEREFORE CAME TO THE CONCLUSION THAT THE ASSESSEE HAS MISUSED THE PR OVISIONS REGARDING EXEMPTION AND THE AMOUNTS RECEIVED UNDER THE GARB OF RETRENCHMENT COM PENSATION WERE LIABLE TO BE TAXED. LD. CIT (A) REFERRED TO DEFINITION OF TERM WORKMAN AS PER INDUSTRIAL DISPUTES ACT 1974. AS PER THE DEFINITION WORKMAN DOES NOT INCLUDE A PERSON WHO IS EMPLOYED MAINLY IN A MANAGERIAL OR ADMINISTRATIVE CAPACITY OR WHO IS EMP LOYED IN A SUPERVISORY CAPACITY AND DRAWS WAGES EXCEEDING RS.1600/- PER MONTH. IN THE CASE OF THE ASSESSEE THE ASSESSEE WORKED IN A MANAGERIAL AND ADMINISTRATIVE CAPACITY AND NOT IN THE CAPACITY OF A WORKMAN OR A LABOURER OR A SKILLED PERSON. THE ASSESSEE BE ING A REAL BROTHER OF OWNERS OF EMPLOYERS CONCERN WAS ACTIVELY ENGAGED IN THE DAY- TO-DAY BUSINESS AFFAIRS IN MANAGERIAL AND ADMINISTRATIVE CAPACITY ONLY. THEREFORE THE A SSESSEE WAS NOT ELIGIBLE TO RECEIVE ANY RETRENCHMENT COMPENSATION. LD. CIT (A) THEREFORE CAME TO THE CONCLUSION THAT THE AMOUNT RECEIVED WAS NOT ELIGIBLE FOR DEDUCTION U/S 10(10B) OF THE ACT. IN RESPECT OF THE CLAIM RECEIVED UNDER THE HEAD COMMUTED PENSION L D. CIT (A) NOTED THAT THE AMOUNT ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 8 RECEIVED UNDER THE HEAD COMMUTED PENSION COULD NO T BE HELD AS EXEMPT U/S 10(10A) OF THE ACT. HE ALSO NOTED THAT AS PER THE PROVISIONS OF SECTION 10(10A) THE COMMUTATION OF PENSION DEPENDS UPON THE AGE OF RECIPIENT STATE OF HIS HEALTH AND RATE OF INTEREST AND KEEPING IN VIEW THESE FACTS THE ASSESSEE WAS NOT EL IGIBLE FOR ANY COMMUTATION OF PENSION. LD. CIT (A) THEREFORE UPHELD THE ORDER OF THE AO IN RESPECT OF COMMUTATION OF PENSION RECEIVED FROM BOTH THE CONCERNS. AS REGARD THE LEA VE SALARY CLAIMED EXEMPT U/S 10(10AA) LD. CIT (A) NOTED THAT EXEMPTION WAS ALLO WABLE ONLY WHEN THE PAYMENT WAS RECEIVED BY THE ASSESSEE ON HIS RETIREMENT. HE HAS FURTHER NOTED THAT COMBINED STUDY OF THE PROVISIONS OF SECTION 17(1)(VA) AND SECTION 10(10AA ) SHOWS THAT THE PAYMENT RECEIVED BY AN EMPLOYEE IN RESPECT OF ANY PERIOD OF LEAVE NOT A VAILED BY HIM SHALL BE EXEMPT FROM TAX IN CASES WHERE SUCH PAYMENTS ARE RECEIVED ON RETIRE MENT AND SUBJECT TO FULFILLING ALL OTHER CONDITIONS LAID DOWN U/S 10(10AA) OF THE ACT. THE ASSESSEE HAD COMPLETED ONLY THREE YEARS SERVICE IN ONE CONCERN AND FOUR YEARS IN ANOT HER WHICH ARE OWNED BY HIS BROTHERS. THEREFORE THE AMOUNT WAS NOT RECEIVED AT THE TIME OF SUPERANNUATION OR OTHERWISE. THEREFORE THE ASSESSEE WAS NOT ENTITLED FOR EXEMPT ION ON ACCOUNT OF LEAVE ENCASHMENT. AS REGARDS MEDICAL REIMBURSEMENT LD. CIT (A) NOTED TH AT AS PER THE APPOINTMENT LETTER ISSUED BY THE EMPLOYER THERE WAS NO MENTION OF ANY ALLOWA NCE OR PERQUISITE. THE EMPLOYER HAD MADE PAYMENT IN THE GARB OF MEDICAL REIMBURSEMENT A T FLAT RATE OF RS.1200/- PER MONTH AND THE PAYMENT WAS MADE AS PER VOUCHERS PREPARED B Y EMPLOYER HIMSELF. NO BILLS OR DETAILS IN RESPECT OF EXPENDITURE INCURRED BY THE A SSESSEE COULD BE FURNISHED ON THE BASIS OF WHICH IT COULD BE SAID THAT THE ASSESSEE FACTUAL LY AND ACTUALLY INCURRED MEDICAL EXPENSES WHICH WERE SUBSEQUENTLY REIMBURSED. SINCE THE EVID ENCES HAVE NOT BEEN PRODUCED LD. CIT (A) ACCORDINGLY UPHELD THE DISALLOWANCE OF RS.1 4 400/- ON ACCOUNT OF MEDICAL EXPENSES. 13. BEFORE US LD. AR OF THE ASSESSEE REITERATED TH E SIMILAR ARGUMENTS. ON THE OTHER HAND LD. SR. DR SUPPORTED THE ORDER OF THE CIT (A) . 14. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE THERE IS NO DISPUTE TH AT THE ASSESSEE IS THE REAL BROTHER OF THE OWNERS OF TWO CONCERNS I.E. M/S SURANA DISTRIBUTOR S AND M/S SURANA STARCH & CHEMICALS. ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 9 THE ASSESSEE WAS WORKING WITH BOTH THE CONCERNS IN THE MANAGERIAL CAPACITY. NO EVIDENCE HAS BEEN BROUGHT ON RECORD TO PROVE THAT THE ASSESS EE WAS A WORKMAN WITHIN THE MEANING OF INDUSTRIAL DISPUTES ACT 1947. SECTION 2(S) OF INDUSTRIAL DISPUTES ACT 1947 DEFINES THE TERM WORKMAN. AS PER THE DEFINITION WORKMAN D OES NOT INCLUDE A PERSON WHO IS EMPLOYED MAINLY IN A MANAGERIAL OR ADMINISTRATIVE C APACITY OR WHO IS EMPLOYED IN A SUPERVISORY CAPACITY AND DRAWS WAGES EXCEEDING RS.2 500/- PER MONTH. IN THE CASE OF THE ASSESSEE BOTH THE EMPLOYERS I.E. M/S SURANA DISTRI BUTORS AND M/S SURANA STARCH & CHEMICALS HAVE TERMINATED THE SERVICES OF THE ASSES SEE ON THE SAME DATE. LD. CIT (A) HAS ALSO STATED THAT THE ASSESSEE WAS CONTINUING WITH T HE OTHER BUSINESS CONCERNS OWNED BY THE FAMILY MEMBERS. U/S 10(10)(III) OF THE INCOME TAX ACT ANY OTHER GRATUITY RECEIVED BY AN EMPLOYEE ON HIS RETIREMENT OR ON HIS BECOMING INCAP ACITATED PRIOR TO SUCH RETIREMENT OR ON TERMINATION OF HIS EMPLOYMENT OR ANY GRATUITY RECEI VED BY HIS WIDOW CHILDREN OR DEPENDENT ON HIS DEATH TO THE EXTENT IT DOES NOT I N EITHER CASE EXCEED MONTHS SALARY FOR EACH YEAR OF COMPLETED SERVICE CALCULATED ON THE BA SIS OF AVERAGE SALARY FOR THE TEN MONTHS IMMEDIATELY PRECEDING THE MONTH IN WHICH ANY SUCH E VENT OCCURS SUBJECT TO SUCH LIMIT AS PRESCRIBED BY CENTRAL GOVERNMENT BY NOTIFICATION IN OFFICIAL GAZETTE SPECIFYING IN THIS BEHALF HAVING REGARD TO LIMIT APPLICABLE TO THE EMP LOYEES OF CENTRAL GOVERNMENT. THE ASSESSEE HAS COMPLETED THREE YEARS SERVICE IN ONE C ONCERN AND FOUR YEARS SERVICE IN ANOTHER CONCERN. THE ASSESSEE HAS NOT RECEIVED THE AMOUNT OF GRATUITY ON HIS RETIREMENT OR ON HIS BECOMING INCAPACITATED PRIOR TO SUCH A RETIREMENT. THE ASSESSEE HAS NOT COMPLETED FIVE YEARS OF SERVICE IN ANY OF THE CONCERNS. UNDER SEC TION 4(1) OF PAYMENT OF GRATUITY ACT 1972 GRATUITY IS PAYABLE TO AN EMPLOYEE (EMPLOYED ON WAGES ETC.) NOT EXCEEDING RS.2 500/- OR HIGHER AMOUNT SPECIFIED BY THE CENTRA L GOVERNMENT IN THAT BEHALF ON TERMINATION OF HIS EMPLOYMENT AFTER HE HAS RENDERED CONTINUOUS SERVICE FOR NOT LESS THAN FIVE YEARS PRIOR TO SUPERANNUATION RETIREMENT RES IGNATION DEATH OR DISABLEMENT. IN THE INSTANT CASE SINCE THE ASSESSEE HAS NOT COMPLETED FIVE YEARS OF SERVICE THE ALLEGED PAYMENT OF GRATUITY FROM BOTH THE EMPLOYERS CANNOT BE TREAT ED AS EXEMPT U/S 10(10)(III) OF THE ACT. THEREFORE LD. CIT (A) WAS JUSTIFIED IN UPHOLDING T HAT THE ASSESSEE WAS NOT ELIGIBLE FOR EXEMPTION U/S 10(10)(III) OF THE ACT. THERE IS NO DISPUTE THAT PAYMENT HAS NOT BEEN RECEIVED ON HIS RETIREMENT OR ON HIS BECOMING INCAP ACITATED PRIOR TO SUCH RETIREMENT. THE ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 10 ASSESSEE WAS PAID COMPENSATION ON TERMINATION ON TH E SAME DATE BY BOTH THE EMPLOYERS OWNED BY HIS REAL BROTHERS. NO REASONS HAVE BEEN A SSIGNED FOR HIS TERMINATION OF THE SERVICES BY BOTH THE EMPLOYERS. THERE IS NO DISPUT E THAT ON THE RETRENCHMENT OF HIS SERVICES THE BUSINESS OF BOTH THE EMPLOYERS WERE NO T DISCONTINUED. LD. CIT (A) HAS ALSO HELD THAT A COLOURABLE DEVICE HAS BEEN ADOPTED BY T HE ASSESSEE FOR PAYMENT OF GRATUITY AND CLAIM OF THE SAME BY THE ASSESSEE UNDER INCOME TAX ACT SO AS TO REDUCE THE INCIDENT OF TAX BOTH BY THE EMPLOYER AS WELL AS THE EMPLOYEE. THIS FACT HAS NOT BEEN CONTROVERTED BY THE ASSESSEE DURING THE COURSE OF HEARING BEFORE US. T HEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (A) CONFIRMING THE STAND OF AO DISALLOWING THE CLAIM OF EXEMPTION U/S 10(10)(III) OF THE ACT IN RESPECT OF GRATUITY RECEIVED BY THE ASSESSEE FROM BOTH THE EMPLOYERS. 15. NOW COMING TO THE CLAIM OF RETRENCHMENT COMPEN SATION AMOUNTING TO RS.21 875/- THE ASSESSEE HAD CLAIMED THIS AMOUNT AS EXEMPT U/S 10(10B) OF THE ACT. LD. CIT (A) HAS RECORDED A FINDING OF FACT THAT THE ASSESSEE HAD WO RKED IN THE MANAGERIAL/ADMINISTRATIVE CAPACITY. HE WAS NOT A WORKMAN OR LABOURER OR A SK ILLED PERSON EMPLOYED BY BOTH THE EMPLOYERS WHO ARE REAL BROTHERS OF THE ASSESSEE. T HE PROVISIONS OF SECTION 10(10B) ARE APPLICABLE IN RESPECT OF ANY COMPENSATION RECEIVED BY A WORKMAN UNDER THE INDUSTRIAL DISPUTES ACT 1947 OR UNDER ANY OTHER ACT OR RULES OR ORDERS OR NOTIFICATIONS ISSUED THEREUNDER OR ANY OTHER STANDING ORDERS OR UNDER AN Y AWARD CONTRACT OF SERVICE OR OTHERWISE AT THE TIME OF HIS RETRENCHMENT. IN THE CASE OF THE ASSESSEE THE PROVISIONS OF INDUSTRIAL DISPUTES ACT ARE NOT APPLICABLE. SINCE THE ASSESSEE IS NOT A WORKMAN WITHIN THE MEANING OF SECTION 2(S) OF INDUSTRIAL DISPUTES ACT 1947 THE AMOUNT RECEIVED BY THE ASSESSEE AS ALLEGED RETRENCHMENT COMPENSATION CANNO T BE TREATED AS EXEMPT U/S 10(10B) OF THE ACT. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT (A) CONFIRMING THE DISALLOWANCE MADE BY THE AO. 16. THE NEXT ITEM OF DISALLOWANCE RELATES TO COMMUT ATION OF PENSION AT RS.43 750/-. AT THE TIME OF HEARING LD. AR OF THE ASSESSEE COUL D NOT LEAD ANY EVIDENCE WHETHER THE SERVICES RENDERED BY THE ASSESSEE WITH BOTH THE CON CERNS WERE PENSIONABLE. THE ASSESSEE HAD NOT RECEIVED ANY PENSION FROM BOTH THE EMPLOYER S. THEREFORE THE QUESTION OF ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 11 COMMUTATION OF PENSION WOULD NOT ARISE. SECTION 10 (10A)(I) OF THE INCOME TAX ACT 1961 IS APPLICABLE IN RESPECT OF CIVIL SERVANTS/DEFENCE PERSONNEL OF CENTRAL GOVERNMENT OR STATE GOVERNMENTS. CLAUSE (II) OF SECTION 10(10A) IS APP LICABLE IN RESPECT OF ANY PAYMENT IN COMMUTATION OF PENSION RECEIVED UNDER ANY SCHEME OF ANY OTHER EMPLOYER TO THE EXTENT IT DOES NOT EXCEED (A) IN A CASE WHERE EMPLOYEE RECEIV ES ANY GRATUITY COMMUTED VALUE OF 1/3 OF PENSION WHICH HE IS NORMALLY ENTITLED TO RECEIVE ; AND (B) IN ANY OTHER CASE COMMUTED VALUE OF OF SUCH PENSION SUCH COMMUTED VALUE BEI NG DETERMINED HAVING REGARD TO THE AGE OF THE RECIPIENT THE STATE OF HIS HEALTH THE RATE OF INTEREST AND OFFICIALLY RECOGNIZED TABLE OF MORTALITY. CLAUSE (III) OF SECTION 10(10A ) IS APPLICABLE IN RESPECT OF PAYMENT IN COMMUTATION OF PENSION RECEIVED FROM A FUND UNDER C LAUSE (23AAB). IN THE CASE OF THE ASSESSEE THERE IS NOTHING ON RECORD TO PROVE THAT T HE SERVICE RENDERED BY THE ASSESSEE WERE PENSIONABLE. IN FACT THE ASSESSEE HAD NOT RECEIVE D ANY PENSION FROM THE EMPLOYERS. THEREFORE THE QUESTION OF COMMUTATION OF PENSION W OULD NOT ARISE IN THE CASE OF THE ASSESSEE. ACCORDINGLY LD. CIT (A) WAS JUSTIFIED I N REJECTING THE CLAIM OF THE ASSESSEE FOR EXEMPTION IN RESPECT OF COMMUTED PENSION. AS REGAR DS THE EXEMPTION OF AMOUNT RECEIVED BY WAY OF LEAVE SALARY UNDER SECTION 10(10AA) THE ASSESSEE COULD NOT LEAD ANY EVIDENCE THAT THERE WERE THE BALANCE OF LEAVE TO THE CREDIT OF THE ASSESSEE. MOREOVER THERE IS NOTHING ON RECORD THAT THE ASSESSEE WAS ELIGIBLE FO R RECEIPT OF ENCASHMENT OF LEAVE AVAILABLE AT HIS CREDIT AT THE TIME OF TERMINATION OF HIS SERVICES. NO REGISTERS WERE PRODUCED BEFORE THE AO OR BEFORE CIT (A) ON THE BAS IS OF WHICH LEAVE PERIOD COULD BE VERIFIED. IN THE ABSENCE OF ANY SUCH DETAILS IN OU R CONSIDERED OPINION LD. CIT (A) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE ON ACCOUNT OF ENCASHMENT OF LEAVE SALARY. 17. LASTLY THE ISSUE RELATES TO REIMBURSEMENT OF M EDICAL EXPENSES. THE ASSESSEE HAD BEEN PAID MEDICAL EXPENSES @ RS.1 200/- PER MONTH. THE REIMBURSEMENT OF MEDICAL EXPENSES AS THE WORD REIMBURSEMENT SIGNIFIES WOUL D ARISE WHEN THE ASSESSEE HAD INCURRED SUCH EXPENSES. SINCE THE ASSESSEE HAD BEE N PAID MEDICAL EXPENSES @ RS.1 200/- PER MONTH IT CAN BE SAID ONLY MEDICAL ALLOWANCE AND NOT REIMBURSEMENT OF MEDICAL EXPENSES. THEREFORE THE SAME CANNOT BE ALLOWED TO BE EXEMPT. ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 12 18. IN VIEW OF ABOVE FACTS IT IS HELD THAT THE ASS ESSEE IS NOT ENTITLED TO ANY EXEMPTION ON ACCOUNT OF GRATUITY LEAVE SALARY COMMUTED PENS ION RETRENCHMENT COMPENSATION AND MEDICAL REIMBURSEMENT EXPENSES. ACCORDINGLY THE O RDER OF CIT (A) IS UPHELD. 19. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ITA NO.503/JU/2008 20. IN THIS CASE THE FIRST SIX GROUNDS RELATE TO A SSUMPTION OF JURISDICTION AND COMPLETION OF ASSESSMENT U/S 143(3). THESE GROUNDS ARE IDENTICAL TO THE GROUNDS RAISED IN THE CASE OF SHRI ASHOK KUMAR SURANA. THE AO AS WEL L AS THE CIT (A) REJECTED THE CLAIM OF THE ASSESSEE FOR THE SAME REASONS MENTIONED IN T HE CASE OF SHRI ASHOK KUMAR SURANA. SINCE THE FACTS OF THE CASE ARE IDENTICAL TO THE FA CTS OF THE CASE OF SHRI ASHOK KUMAR SURANA AND WE HAVE UPHELD THE ORDER OF THE CIT (A) THE GR OUNDS CHALLENGING ASSUMPTION OF JURISDICTION AND ISSUE OF NOTICE U/S 143(2)(I) ARE REJECTED FOR THE SAME REASONS. 21. THE NEXT ISSUE IN THE CASE OF SHRI SUBH RAJ SUR ANA RELATES TO RETRENCHMENT BENEFITS OF RS.58 500/- BEING GRATUITY LEAVE SALARY COMMUT ED PENSION RETRENCHMENT COMPENSATION AND AN AMOUNT OF RS.14 400/- ON ACCOUNT OF REIMBUR SEMENT OF MEDICAL EXPENSES. SINCE THE ISSUES INVOLVED IN THIS APPEAL ARE IDENTICAL T O THE ISSUES INVOLVED IN THE APPEAL OF SHRI ASHOK KUMAR SURANA FOR THE SAME REASONS AS MENTION ED IN THE CASE OF SHRI ASHOK KUMAR SURANA THESE GROUNDS OF APPEAL RAISED BY THE ASSES SEE ARE DISMISSED. 22. IN THE RESULT THE APPEAL FILED BY SHRI SUBH RA J SURANA IS ALSO DISMISSED. ITA NO.297/JU/2005 23. IN THE CASE OF SHRI RAJENDRA KUMAR SURANA THE PROPRIETOR OF M/S SURANA DISTRIBUTORS THE ASSESSEE HAS RAISED THE FIRST FIV E GROUNDS RELATING TO ASSUMPTION OF JURISDICTION AND ISSUE OF NOTICE U/S 143(2) OF THE ACT. THE ISSUE IN THIS APPEAL IS IDENTICAL TO THE ISSUE INVOLVED IN THE CASE OF SHRI ASHOK KUM AR SURANA. LD. CIT (A) HAS UPHELD THE STAND OF THE AO WHICH HAS BEEN UPHELD BY US IN THE CASE OF SHRI ASHOK KUMAR SURANA. SINCE THE FACTS OF THIS CASE ARE IDENTICAL TO THE F ACTS OF THE CASE OF SHRI ASHOK KUMAR SURANA THE GROUNDS RAISED BY THE ASSESSEE IN THIS CASE ARE ALSO DISMISSED. ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 13 24. THE NEXT ISSUE FOR CONSIDERATION RELATES TO THE DISALLOWANCE OF COMMISSION IN RESPECT OF RETRENCHMENT BENEFITS OF RS.34 375/-. T HE FACTS OF THIS CASE ARE IDENTICAL TO THE FACTS OF THE CASE OF SHRI ASHOK KUMAR SURANA. FOR THE SAME REASONS THE DISALLOWANCE CONFIRMED BY LD. CIT (A) IS UPHELD. 25. THE NEXT ISSUE FOR CONSIDERATION RELATES TO CON FIRMATION OF ADDITION OF RS.2 08 500/- BY DISALLOWING RETRENCHMENT BENEFITS OF SHRI SUBH RAJ SURANA ASHOK KUMAR SURANA AND SHRI SUNIL KUMAR SURANA. THE AO ON PERUSAL OF RECORDS FOUND THAT THE ASSESSEE HAD ALLOWED RETIREMENT/RETRENCHMENT BENEFITS TO SHRI SUBH RAJ S URANA THE FATHER OF THE ASSESSEE AT RS.58 500/-; SHRI ASHOK KUMAR SURANA THE BROTHER A T RS.75 000/-; AND SHRI SUNIL KUMAR SURANA THE BROTHER AT RS.75 000/-. IN RESPONSE TO THE QUERY RAISED BY THE AO THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SECTION 40A(2) WIL L NOT HAVE APPLICATION UNLESS IT WAS FIRST HELD THAT THE EXPENDITURE WAS EXCESSIVE AND UNREASONABLE . IT WAS ALSO STATED THAT NO PROVISIONS OF INCOME-TAX ACT PROHIBITS RETRENCHMENT BENEFIT HENC E THE SAME COULD NOT BE DISALLOWED. THE AO AFTER CONSIDERING THE REPLY OF THE ASSESSEE NOT ED THAT THE DEDUCTION CAN BE ALLOWED IF UNDER THE RELEVANT ACT THE BENEFIT CAN BE GIVEN TO THE AS SESSEE. THE GRATUITY ACT AND PENSION RULES AS ALSO INDUSTRIAL DISPUTES ACT DEALS WITH THE PAYMENT S TO BE MADE AT THE TIME OF RETIREMENT OR RETRENCHMENT. UNDER GRATUITY ACT THE MINIMUM SERV ICE OF FIVE YEARS MUST BE THERE TO ALLOW THE GRATUITY. UNDER INDUSTRIAL DISPUTES ACT THE RETRE NCHMENT COULD BE GIVEN TO A WORKMAN. IN ORDER TO GIVE BENEFIT OF PENSION OF COMMUTATION OF PENSIO N AND LEAVE SALARY THE PROVISIONS OF GRATUITY ACT AND PENSION RULES ARE TO BE SEEN. FOR THE PURP OSE OF PENSION AND GRATUITY THE MINIMUM SERVICE REQUIRED IS FIVE YEARS. THEREFORE THE BEN EFITS COULD HAVE BEEN GIVEN IN RESPECT OF PERSONS WHO HAVE COMPLETED FIVE YEARS OF SERVICE WI TH THE ASSESSEE. MERELY SAYING THAT RETIREMENT BENEFITS WERE GRANTED AS PER APPOINTMENT LETTER HAD NO FORCE. THE AO FURTHER NOTED THAT THE ABOVE PAYMENTS HAVE BEEN MADE TO RELATIVES OF THE ASSESSEE WITH A VIEW TO REDUCE THE INCIDENT OF TAX IN THE HANDS OF THE ASSESSEE. THE ASSESSEE HAD MADE EACH AND EVERY ATTEMPT TO AVOID PAYMENT OF TAX BY USING DIFFERENT DEVICES WHI CH IS EVIDENT FROM THE RECORDS. THE AO RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MCDOWELLS 148 ITR 107(SC) FINALLY CONCLUDED THAT THE BENEFIT HAS BEEN GIVEN T O FAMILY MEMBERS IN ORDER TO AVOID/REDUCE THE TAX INCIDENT IN THE CASE OF THE ASSESSEE. ACCORDIN GLY HE DISALLOWED THE AMOUNT OF RS.2 08 500/-. ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 14 26. ON APPEAL BEFORE THE CIT (A) IT WAS SUBMITTED THAT THE RETIREMENT BENEFITS WERE PAID IN ACCORDANCE WITH THE TERMS OF SERVICE . SIM ILAR BENEFITS WERE ALLOWED TO NON- RELATIVES ALSO. THEREFORE THE EXPENDITURE WAS INC URRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS AND WAS ALLOWABLE U/S 37 OF THE ACT. LD. CIT (A) CONFIRMED THE DISALLOWANCE ON THE GROUND THAT UNDER GRATUITY ACT FOR ENTITLEMENTS OF GRATUITY BENEFIT FIVE YEARS SERVICE WAS REQUIRED. SINCE NONE OF THE EMPLOYEES HAVE COM PLETED FIVE YEARS SERVICE THE AMOUNT INCURRED BY THE ASSESSEE COULD NOT BE TREATED FOR T HE PURPOSES OF BUSINESS. ACCORDINGLY HE UPHELD THE DISALLOWANCE OF RS.2 08 500/-. 27. BEFORE US LD. AR OF THE ASSESSEE REITERATED SI MILAR ARGUMENTS. IT WAS SUBMITTED THAT SERVICES OF THE PERSONS WERE TERMINATED ABOUT TWO YEARS BEFORE THE BUSINESS OF THE ASSESSEE WAS CLOSED DOWN. SINCE THE EXPENDITURE HA S BEEN INCURRED IN TERMS OF AGREEMENT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 37 OF TH E ACT. ON THE OTHER HAND LD. SR. DR SUPPORTED THE ORDER OF AO. 28. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE THE PAYMENT BY WAY OF RETRENCHMENT BE NEFITS HAVE BEEN GIVEN TO THE FAMILY MEMBERS. IT IS NOT A CASE THAT THE SERVICES HAVE B EEN RETRENCHED AT THE TIME OF CLOSURE OF BUSINESS. THESE PERSONS NAMELY SHRI ASHOK KUMAR SU RANA AND SHRI SUBH RAJ SURANA ARE STILL WORKING WITH OTHER GROUP CONCERNS. NONE OF T HE PERSONS HAVE COMPLETED FIVE YEARS SERVICE. THE ASSESSEE HAD MADE THE PAYMENTS TO HIS CLOSE RELATIVES. IT IS IMPORTANT TO POINT OUT HERE THAT SHRI ASHOK KUMAR SURANA RECEIVED RETR ENCHMENT BENEFITS FROM TWO FAMILY CONCERNS ON THE SAME DAY. UNDER WHAT CIRCUMSTANCES THEIR SERVICES WERE RETRENCHED IS NOT KNOWN WHETHER IT IS BECAUSE OF SOME FINANCIAL IRREG ULARITIES. DEFINITELY THERE WAS NO CLOSURE OF BUSINESS AS ON 31 ST MARCH 2001. UNDER THESE CIRCUMSTANCES THE PAYME NT MADE BY THE ASSESSEE HAS TO BE TREATED AS EX GRATIA PAYM ENT. THE ASSESSEE HAD SHOWN THE PAYMENT BY WAY OF RETIREMENT BENEFITS TO REDUCE THE INCIDENTS OF TAX. THIS CONTENTION OF THE REVENUE HAS NOT BEEN CONTROVERTED BY THE ASSESS EE. AS ON 31 ST MARCH 2001 THERE WAS NO OCCASION AS TO WHY THE SERVICES OF THE PERSONS W ERE TO BE RETRENCHED. WE WOULD ALSO LIKE TO MENTION THAT THE FAMILY MEMBERS TO WHOM RET IREMENT BENEFITS HAVE BEEN GIVEN HAVE ALSO CLAIMED THE SAME EXEMPT UNDER VARIOUS PROVISIO NS OF THE INCOME-TAX ACT WHICH WE ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 15 HAVE NOT APPROVED. IN VIEW OF THE ABOVE THE IRRES ISTIBLE CONCLUSION IS THAT THE ASSESSEE HAD MADE PAYMENT TO FAMILY MEMBERS NOT BECAUSE OF THE F ACT THAT THEY HAVE RENDERED SERVICES BUT TO PROVIDE UNDUE BENEFITS. THE PAYMENT WAS NOT DUE UNDER ANY PROVISIONS OF LAW I.E. INDUSTRIAL DISPUTES ACT 1947 GRATUITY ACT AND PEN SION ACT AND RULES. THEREFORE THE PAYMENT MADE BY THE ASSESSEE HAS TO BE TREATED AS E X GRATIA IN NATURE AND CANNOT BE TREATED TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF BUSINESS. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT (A). 29. THE NEXT ISSUE FOR CONSIDERATION RELATES TO CON FIRMING THE ADDITION OF RS. 28 000/- BY DISALLOWANCE OF SALARY AND OTHER ALLOWANCES TO S HRI SUBH RAJ SURANA. DURING THE YEAR UNDER CONSIDERATION SALARY OF SHRI SUBH RAJ SURANA WAS INCREASED FROM RS.46 800/- TO RS.78 000/- PER ANNUM. THE AO NOTED THAT SERVICES OF SHRI SUBH RAJ SURANA WAS TERMINATED AND RETRENCHMENT BENEFIT WAS ALSO GIVEN IN ADDITION TO SALARY TO REDUCE TAX LIABILITY. THE AGE OF SHRI SUBH RAJ SURANA WAS ABO UT 60 YEARS. IN RESPONSE TO A QUERY IT WAS SUBMITTED THAT IN THE PRECEDING YEAR SHRI SUBH RAJ SURANA WAS NOT KEEPING GOOD HEALTH AND THEREFORE HIS REMUNERATION WAS REDUCED TO RS.46 800/- FROM RS.54 000/- PAID IN FINANCIAL YEAR 1998-99. SINCE DURING THE YEAR SHRI SUBH RAJ SURANA HAD WORKED EFFICIENTLY AND EFFECTIVELY THEREFORE THE SALARY AND ALLOWANCES WERE RAISED TO RS.78 000/- PER ANNUM. IT WAS ALSO SUBMITTED THAT SALARY OF OT HER PERSONS LIKE SHRI ANAND SINGH AND POONAM CHAND WERE ALSO INCREASED FROM RS.60 000/- T O RS.75 000/- PER ANNUM. HOWEVER THE AO DISALLOWED THE CLAIM OF THE ASSESSEE THAT TH E PAYMENT OF RS.78 000/- PER ANNUM WAS NOT SATISFACTORILY EXPLAINED AND SHRI SUBH RAJ SURANA WAS FALLING UNDER THE PROVISIONS OF SECTION 40A(2)(B). THE AO DISALLOWED THE SALARY OF RS.28 000/- OUT OF RS.78 000/- PAID TO HIM. ON APPEAL LD CIT (A) NOTED THAT IN THE YE AR UNDER CONSIDERATION THE SERVICES OF SHRI SUBH RAJ SURANA WERE TERMINATED MEANING THEREB Y THERE WAS NO BUSINESS NEED TO KEEP HIM IN THE SERVICE CONTINUOUSLY AND THEREFORE THE RE WAS NO JUSTIFICATION FOR INCREASE IN SALARY. LD. CIT (A) THEREFORE CONFIRMED THE ADDI TION OF RS.28 000/-. 30. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN CASE OF SHRI SUBH RAJ SURANA SALARY FOR FINANCI AL YEAR 1998-99 WAS PAID AT RS.54 000/- PER ANNUM WHICH WAS REDUCED TO RS.46 800/- IN THE I MMEDIATE PRECEDING YEAR. IT IS ALSO A ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 16 FACT THAT THE SERVICES OF SHRI SUBH RAJ SURANA WERE TERMINATED. THE CONTENTION OF THE ASSESSEE THAT SHRI SUBH RAJ SURANA HAS WORKED EFFIC IENTLY DURING THE YEAR UNDER CONSIDERATION AS COMPARED TO IMMEDIATE PRECEDING YE AR AND THEREFORE SALARY OF RS.78 000/- WAS ALLOWED. THIS FACT IS NOT SUPPORTE D BY ANY DOCUMENTARY EVIDENCE. THE ASSESSEE HAD PAID RS.78 000/- AS SALARY TO SHRI SUB H RAJ SURANA. AT THE SAME TIME THE SERVICES HAVE BEEN TERMINATED IN THE YEAR UNDER CON SIDERATION. SINCE THE ASSESSEES CASE FALLS UNDER SECTION 40A (2) (B) AND SALARY IN THE I MMEDIATE PRECEDING ASSESSMENT YEAR WAS AT RS.46 800/- AND THE AO HAS ALLOWED THE SALARY OF RS.50 000/- IN THE YEAR UNDER CONSIDERATION THEREFORE IN OUR CONSIDERED OPINION NO CASE HAS BEEN MADE OUT BY THE ASSESSEE TO JUSTIFY THE INCREASE IN THE SALARY FROM RS.46 800/- TO RS.78 000/-. SINCE THE SERVICES OF SHRI SUBH RAJ SURANA WERE TERMINATED AN D HE WAS PAID RETIREMENT BENEFITS THERE SEEMS TO BE NO JUSTIFICATION FOR PAYMENT OF H IGHER SALARY. THE AO HAD ALREADY ALLOWED INCREASE IN THE SALARY FROM RS.46 800/- TO RS.50 000/-. IN VIEW OF THE ABOVE FACTS IN OUR CONSIDERED OPINION LD. CIT (A) WAS JUSTIFIE D IN DISALLOWING THE CLAIM OF RS.28 000/-. ACCORDINGLY WE DO NOT FIND ANY INFIR MITY IN THE ORDER PASSED BY THE CIT (A). 31. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DIS ALLOWANCE OF INTEREST OF RS.30 210/-. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD CHA RGED INTEREST @ 18% AND ALSO HAD PAID INTEREST TO CREDITORS @ 18% BUT IN THE CASE OF TWO PERSONS NAMELY SUBH RAJ SURANA THE FATHER OF THE ASSESSEE AND SMT. VARSHA SURANA THE SISTER-IN-LAW OF THE ASSESSEE THE INTEREST WAS PAID @ 24%. THE AO DISALLOWED INTEREST IN RESP ECT OF THESE CREDITORS AT RS.30 210/-. BEFORE CIT (A) IT WAS SUBMITTED THAT THE AO HAD NO T APPRECIATED THE DECISION OF ITAT WHEREIN IT HAS BEEN DECIDED THAT RATE OF 24% WAS GE NUINE. LD. CIT (A) ON CONSIDERATION OF FACTS AND SUBMISSIONS MADE BY THE ASSESSEE NOTED TH AT THE ASSESSEE HAD CHARGED INTEREST @ 18% AND ALSO PAID INTEREST TO CREDITORS @ 2%. THE ASSESSEE HAD PAID INTEREST OF 24% IN CASE OF SHRI SUBH RAJ SURANA AND SMT. VARSHA SURANA @ 24%. HOWEVER SINCE NO JUSTIFICATION FOR HIGHER RATE OF INTEREST PAID TO T HE RELATIVES WAS GIVEN LD. CIT (A) UPHELD THE DISALLOWANCE OF RS.30 210/- . ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 17 32. BEFORE US LD. AR OF THE ASSESSEE SUBMITTED THA T IN CASE OF RELATIVES THERE IS NO URGENCY OF PAYMENT OF PRINCIPLE AND INTEREST. THER EFORE HIGHER RATE OF INTEREST IS JUSTIFIED. ON THE OTHER HAND LD. SR. DR SUPPORTED THE ORDER O F THE CIT (A). 33. WE HAVE HEARD BOTH THE PARTIES. THE ASSESSEE H AD CHARGED INTEREST FROM OTHERS @ 18% AND HAS PAID INTEREST TO CREDITORS @ 18%. HOWE VER IN THE CASE OF FAMILY MEMBERS I.E. SHRI SUBH RAJ SURANA THE FATHER OF THE ASSES SEE AND SMT. VARSHA SURANA THE WIFE OF YOUNGER BROTHER THE INTEREST WAS PAID @ 24%. THES E PERSONS ARE FAMILY MEMBERS OF THE ASSESSEE SHRI RAJENDRA KUMAR SURANA THE PROPRIET OR OF M/S SURANA DISTRIBUTORS. DURING THE COURSE OF HEARING THE ASSESSEE HAD NOT MADE OU T ANY CASE FOR PAYMENT OF HIGHER RATE OF INTEREST. SINCE IN THE CASE OF RELATIVES THE PAYME NTS OF INTEREST HAVE BEEN MADE @ 24% WHEREAS THE ASSESSEE HAD MADE PAYMENT OF INTEREST T O OUTSIDERS @ 18% AND HAS ALSO CHARGED INTEREST FROM DEBTORS @ 18% IN OUR CONSIDE RED OPINION THE HIGHER PAYMENT OF INTEREST IN RESPECT OF TWO FAMILY MEMBERS IS NOT JU STIFIED. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD. CIT (A) CONFIR MING THE DISALLOWANCE OF RS.30 210/-. 34. THE LAST ISSUE FOR CONSIDERATION RELATES TO CON FIRMATION OF ADDITION OF RS.24 000/- OUT OF TELEPHONE EXPENSES VEHICLE EXPENSES AND DEP RECIATION ETC. FOR PERSONAL USE BY THE ASSESSEE. THE AO DISALLOWED 1/10 OF TELEPHONE EXP ENSES VEHICLE MAINTENANCE EXPENSES AND DEPRECIATION IN VIEW OF THE ELEMENT OF PERSONAL USE OF THESE FACILITIES. LD. CIT (A) UPHELD THE DISALLOWANCE ON THE GROUND THAT POSSIBIL ITY OF PERSONAL USE OF TELEPHONE AND VEHICLES COULD NOT BE RULED OUT. 35. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE HONBLE MADRAS HIGH COURT IN THE CASE OF KANTIM ATHI PLANTATIONS PVT. LTD. VS. STATE OF TAMILNADU 215 ITR 203 (MAD) HAS HELD THAT IN THE AB SENCE OF LOG BOOK POSSIBILITY OF PERSONAL USE BY THE DIRECTORS OF THE COMPANY COULD NOT BE RULED OUT. IN THE CASE BEFORE US NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SUGGEST T HAT THE ASSESSEE HAD MAINTAINED TELEPHONE REGISTER AS WELL AS THE LOG BOOK IN RESPE CT OF VEHICLES. THEREFORE THE POSSIBILITY OF USE OF TELEPHONE AND VEHICLES CANNOT BE RULED OU T BY THE ASSESSEE FOR HIS OWN PURPOSE AND BY THE FAMILY MEMBERS OF THE ASSESSEE. RESPECT FULLY FOLLOWING THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF KANTIMATHI PLANTATIONS PVT. LTD. (SUPRA) THE ITA NO.690/JU/2007 ITA NO.503/JU/2008 AND ITA NO.2 97/JU/2005 18 DISALLOWANCE MADE BY THE AO IS UPHELD. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (A). 36. IN THE RESULT THE APPEALS FILED BY ALL THE THR EE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.07.2011. SD/- SD/- [RAJPAL YADAV] [K.D. RANJAN] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 28 TH JULY 2011 DK COPY FORWARDED TO:- 1. APPELLANT. 2. RESPONDENT 3. INCOME-TAX OFFICER 4. CIT 5. DR 6. GUARD FILE ASSTT. REGISTRAR ITAT JODHPUR