P H COMMODITY MANAGERS PRIVATE LIMITED,MUMBAI vs. DY COMMISSIONER OF INCOME TAX(CENTRAL) - 1(4), MUMBAI

PER BENCH:

These are bunch of 35 appeals by 9 different assessee’s, i.e., 7 companies

and 2 individuals, arising out of separate orders passed by learned Commissioner

of Income Tax (Appeals) (ld. CIT(A) for short), Mumbai pertaining to Assessment

Years 2020-21, 2021-22, 2022-23 and 2023-24 in respect of all assessee’s, except

Shri Parag Hemdev, in whose case, appeals relate to A.Y. 2020-21, 2021-22 and

2023-24.

identical set of facts arising out of materials/information found in course of a

common search and seizure operation and issues arising in the appeal are mostly

identical and the assessee’s are belonging to the same group, the appeals have been

clubbed together and disposed for in a consolidated order for the sake of

convenience. The issues on merits arising in the appeals can be crystallized as per

the following tabular chart:

4 ITA No.9353/Mum/2025 and others P H Financials and Investments Private Limited and others

such disputed issues are more or less common, for ease of reference, we have

5 ITA No.9353/Mum/2025 and others P H Financials and Investments Private Limited and others culled out facts from ITA No. 9353/Mum/2025 appeal relating to PH Financial

and Investments P. Ltd. for A.Y. 2020-21.

raised certain legal grounds challenging the validity of the assessment order.

However, at the time of hearing, ld. Counsel appearing for the assessee restricted

his argument to the issues on merits. Hence, we proceed to decide the appeals on

merits. As could be seen from the issues crystallized in the tabular chart

reproduced above, the major additions/disallowances are in respect of salary and

Staff Welfare expenses. Whereas, in respect of one particular assessee,

additionally, disallowance on account of vehicles related expenses have been

made.

of the additions/disallowances made, it is necessary to briefly narrate the facts.

The assessees belong to the same group. The two individuals appearing in the

cause title are the Directors of the Companies noted above. A search and seizure

operation u/s. 132 of the Act was conducted at the office premises of the

companies on 18.11.2023 and continued till 21.11.2023. In course of such search

and seizure operation, a statement was recorded from Smt. Neeta Prasad Bhide,

working as an Accountant with the group. In the said statement recorded u/s.

132(4) of the Act, Smt. Bhide stated that some of the employees were working at

the residence of the individual Directors, but their salary is being paid by the

6 ITA No.9353/Mum/2025 and others P H Financials and Investments Private Limited and others companies in cash. So far as, Staff Welfare expenses is concerned, Smt. Bhide

stated that part of the expenses were for the purpose of personal use. The statement

recorded from Smt. Bhide was confronted to Shri Parag Hemdev, one of the

Directors of the group companies. On being confronted, he agreed that some of

the employees were working in the Directors residence and further a part of the

Staff Welfare expenses is used for personal use. Based on the statement, the A.O.

proceeded to disallow salary and Staff Welfare expenses paid in cash over and

above the cheque payment in respect of all the assessees in appeal before us. In

respect of one of the assessees, the A.O. disallowed car related expenses, such as,

car insurance, car expenses and depreciation on car.

appeals before learned first appellate authority. After considering the submissions

made before him, in the context of facts and materials on record, learned first

appellate authority restricted the disallowance to 50% of the expenditure incurred

in cash towards salary and Staff Welfare expenses. Insofar as, car related expenses

are concerned, learned first appellate authority restricted it to 15% as against 30%

disallowed by A.O.

A reading of the assessment order in no uncertain terms reveals that the foundation

of the disallowances made out of salary and Staff Welfare expenses are based

primarily on the statement recorded u/s. 132(4) of the Act from Smt. Bhide in

7 ITA No.9353/Mum/2025 and others P H Financials and Investments Private Limited and others course of search and seizure operation. Undoubtedly, in the said statement, Smt.

Bhide had stated that some of the employees were working in the residential

premises of the Directors of the companies. She had further stated that a part of

the Staff Welfare expenses was for personal use. In fact, when the statement of

Smt. Bhide was confronted to Shri Parag Hemdev, in the statement recorded u/s.

132(4) of the Act, Shri Parag Hemdev had agreed with what Smt. Bhide had stated

regarding some of the employees working in the residence of the Directors as also

part of Staff Welfare expenses was towards personal use. However, in our view,

the departmental authorities have utilized the statement of Smt. Nita Prasad Bhide

selectively while making the disallowances at 100% and 50% respectively. Upon

going through the statement recorded from Smt. Bhide, we have noted that in

response to a specific query from the department, she had taken the name of three

employees who worked at the residence of Shri Parag Hemdev, but received salary

from one of the group companies. Similarly, looking at the nature of Staff Welfare

expenses, it cannot be said that the quantum of expenditure disallowed by the A.O.

and learned first appellate authority was entirely for personal use. The fact that the

AO allowed the payment made in cheque towards salary and staff welfare

expenses is suggestive of the fact that the employees were indeed working with

the group companies and the individual directors. Hence, there is no doubt about

the genuineness of the expenditure. The doubt is only with regard to quantum of

salary and staff welfare expenses as part of it was paid in cash. While the AO has

disallowed the entire payment made in cash, learned first appellate authority has

8 ITA No.9353/Mum/2025 and others P H Financials and Investments Private Limited and others restricted the disallowance to 50%. Thus, to some extent, learned first appellate

authority has understood that the disallowance made by the AO in the peculiar

facts and circumstances of the case was unreasonable. However, in our view, even

50% disallowance sustained by learned first appellate authority is irrational. As

discussed earlier, Smt. Bhide had taken the name of three employees who

allegedly worked in the residence of one of the directors. Thus, if at all, a part of

the salary paid to such employees could have been considered for disallowance.

Similarly is the issue with staff welfare expenses.

disallowance should be made, however, we are unable to accept. It is a fact on

record that the Accountant of the Group had stated that some employees drawing

salary from companies were actually working in the residence of Director. Even,

the Director had agreed with such statement when confronted. The subsequent

retraction of statement is only an afterthought. The statement of accountant

coupled with the fact that the payments were made in cash and were not fully

supported by authentic vouchers do not rule out possibility of inflation of the

expenses.

deem it appropriate to restrict the disallowance to 10% of the amounts paid in cash

towards salary and staff welfare expenses. The AO is directed to delete the balance

disallowance. In so far as, disallowance of a part of car expenses, it is a fact on

9 ITA No.9353/Mum/2025 and others P H Financials and Investments Private Limited and others record that car belongs to the company and not to any individual. Therefore, any

part of car expenses, left alone 15% disallowance sustained by learned first

appellate authority, can be made as there cannot be any personal use of car by the

company. Thus, the disallowance made on account of car insurance, car expense

and car depreciation is entirely deleted. In view of our decision on merits, rest of

the grounds, including the legal issues raised by the assessees, having become

academic for the purpose of present appeals, are kept open.

Order pronounced in the open court on 27/07/2026.

Sd/- Sd/- (Girish Agrawal) (Saktijit Dey) Accountant Member Vice President

Mumbai, Dated: 27.07.2026 Roshani, Sr.PS

Copy of the Order forwarded to :

The Appellant, The Respondent, The CIT, The DR ITAT & Guard File

BY ORDER,