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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI MAHAVIR SINGH, HON’BLE & SHRI MANJUNATHA.G, HON’BLE
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.
The assessee has raised the following grounds of appeal:
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.
The brief facts of the case are that the assessee company is engaged 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 ITA No.713/Chny/2022 :: 3 ::
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.
The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in 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.
The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), 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
ITA No.713/Chny/2022 :: 4 :: 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.
We have heard both the parties, perused the materials available on 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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The next issue that came up for our consideration from assessee’s 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.
We have heard both the parties, perused the materials available on 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.
In the result, appeal filed by the assessee is partly allowed. Order pronounced on the 19th day of May, 2023, in Chennai.