AMARAVATHIDYEINGS PRIVATE LIMITED ,COIMBATORE vs. ACIT CORP CIRCLE 1, COIMBATORE

आदेश / O R D E R

PER MANJUNATHA.G, ACCOUNTANT MEMBER:

This appeal filed by the assessee is directed against the order of the

Commissioner of Income Tax (Appeals), Income Tax Department, National

Faceless Appeal Centre (NFAC), Delhi, dated 19.07.2022, and pertains to

assessment year 2017-18.

1) The order of the Learned CIT(A) is bad and erroneous in law and against the principles of natural justice. 2) The Learned CIT(A) erred in not considering the written submissions and grounds of appeal in proper perspective.

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3) Limited scrutiny

The Learned CIT(A),while accepting the plea of the appellant in Para-4.4 - vis-a-vis Limited Scrutiny, erred in rejecting the same on a reason which is not plausible.

4) In respect of Salary Expenses: -

a) The finding of the CIT(A) that the employees selected for physical verification used to work there earlier and were not working there is fallacious, for the employees did not deny the fact that they had worked during the impugned assessment year.

b) When the employees did not deny the factum of receiving salary from the appellant company and when the Assessing Officer had not brought on record any adverse evidence that expenses are not genuine, the action of disallowing the same is indefensible.

c) Without prejudice to the above, when the total claim of Salary expense is for Rs.75,62,260/-, disallowance of Rs.40,25,810/- on whims and fancies requires deletion.

5) In respect of Canteen Expenses; -

a) When the expenses are supported with bills and vouchers, disallowing the entire expense of Rs.25,99,880/- by stating that the same has been inflated without any material is highly condemnable.

b) When the factum of the expenses incurred is not disputed and when all the bills in respect of the canteen expenses were less than Rs.20,000, disallowing the same under sec.40A(3), that too by saying the bills were INFLATED, here also without any material, is unjustifiable.

And for the other reasons that may be adduced at the time of hearing, the appellant prays that this appeal be admitted, considered and justice rendered.

in the business of yarn conversion work, filed its return of income for the

AY 2017-18 on 30.10.2017 admitting total income of Rs.11,89,960/- under

normal provisions and Rs.11,65,272/- u/s.115JB of the Income Tax Act,

1961 (in short “the Act"). The case was selected for scrutiny and during

the course of assessment proceedings, the AO called upon the assessee to

furnish necessary evidences in support of salary expenses and canteen

expenses debited to P & L A/c. The AO on the basis of information

submitted by the assessee opined that the assessee could not file necessary

evidences in support of salary expenses. Further, the assessee has also

paid salary throughout the month. Therefore, the AO on the basis of

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information furnished by the assessee and also on the basis of external

information collected from certain employees opined that salary paid after

first week of month, is not genuine in nature, and thus, made addition of

Rs.40,25,810/-. The AO had also made additions towards disallowance of

entire amount of canteen expenses on the ground that the assessee must

have inflated canteen expenses, which is evident from the fact that the bill

submitted by the assessee shows that the assessee has purchased grocery

items by paying more than the amount of market price of relevant products.

Therefore, rejected the arguments of the assessee and made addition

towards disallowance of canteen expenses at Rs.25,99,880/-. The

assessee carried the matter in appeal before the First Appellate Authority,

but could not succeed. The Ld.CIT(A), NFAC, Delhi, for the reasons stated

in their appellate order dated 19.07.2022 rejected arguments of the

assessee, and sustained the additions made by the AO towards

disallowance of salary expenses and canteen expenses. Aggrieved by the

order of the Ld.CIT(A), the assessee is in appeal before us.

confirming disallowance of salary expenses on flimsy grounds without

understanding the nature of business carried out by the assessee and also

ignoring confirmation given by various employees.

submitted that the assessee could not explain ‘as to how’ it has paid salary

to employees throughout the month, and further, some of the employees

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working in the factory of the assessee, are agricultural labourers and having

no relevant experience. Therefore, the AO has rightly disallowed the salary

expenses and their orders should be upheld.

record and gone through orders of the authorities below. We find that the

AO has disallowed salary expenses of Rs.40,25,810/- on the ground that

some of the employees, whom he had verified, stated that they had worked

only during the year under consideration and left their job. The AO further

noted that Mr.Ponnusamy is basically an agricultural labour, worked in their

company only during the year as Cotton Supervisor, and thereafter, left the

job to resume agricultural work. According to the AO, salary paid after first

week of subsequent month, found non-genuine in nature. We do not

subscribe to the reasons given by the AO for the simple reason that

payment of salary at later date or second or third week of subsequent

month, is not a reason for disallowing salary. Further, no employee stated

in their statement that they have never worked for the assessee, but, in

fact, have admitted that they have worked for the assessee. There is no

prohibition under law for agricultural labour to work as Supervisor in any

factory. The reasons given by the AO to disallow salary is flimsy and purely

suspicious. Therefore, we are of the considered view that the AO is

completely erred in disallowing salary, and thus, we direct the AO to delete

the addition made towards disallowance of salary expenses of

Rs.40,25,810/-.

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appeal is disallowance of canteen expenses. The assessee had incurred

canteen expenses of Rs.25,99,880/-. In support of said expenditure,

furnished necessary bills for purchase of groceries and other products. The

AO disallowed canteen expenses on the ground that the assessee has paid

more price for certain commodities and according to the AO, the assessee

has inflated and boosted the expenses to reduce the Income Tax liability.

record and gone through orders of the authorities below. We have gone

through the reasons given by the AO to disallow total expenditure incurred

for canteen expenses and after considering reasons given by the AO, we

find that the AO had disallowed canteen expenses on flimsy grounds

without there being any factual findings ‘as to why & how’ expenditure

incurred by the assessee, is non-genuine in nature. But fact remains that

the assessee also could not file complete evidence. Therefore, considering

facts and circumstances, we direct the AO to restrict disallowance of

canteen expenses to 10% of total expenditure incurred by the assessee,

and allow 90% of expenditure.

Sd/- Sd/- (महावीर िसंह) (मंजूनाथा.जी) (MANJUNATHA.G) (MAHAVIR SINGH) लेखा सद�य/ACCOUNTANT MEMBER उपा�� /VICE PRESIDENT

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चे�ई/Chennai, �दनांक/Dated: 19th May, 2023. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ� / Appellant 3. आयकर आयु� / CIT 5. गाड� फाईल / GF 2. ��यथ� / Respondent 4. िवभागीय �ितिनिध / DR