SIDHIVINAYAK ASSOCIATES,DELHI vs. ITO WARD 49(1) DELHI, CIVIC CENTRE DELHI

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ITA 7212/DEL/2025Status: DisposedITAT Delhi06 July 2026AY 2018-196 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO did not provide cogent evidence to show that salary payments violated Section 40A(3). The assessee's explanation that payments were made in installments below Rs. 10,000 per day and that EPF was not applicable due to salaries exceeding Rs. 15,000 per month was not rebutted.

What were the facts?

The assessee, engaged in the liquor business, paid staff salaries in cash on a weekly basis. The Assessing Officer (AO) disallowed salary expenses of Rs. 21,59,84,000/- under Section 40A(3) for cash payments exceeding Rs. 10,000 per day. The CIT(A) upheld this disallowance.

What were the issues?

Whether cash salary payments exceeding Rs. 10,000 per day to employees are disallowable under Section 40A(3) when paid on a weekly basis and not exceeding Rs. 10,000 on any single day.

Which sections of the Income-tax Act were involved?

Section 40A(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI

For Appellant: Shri Rakesh Dubey and Shri Sanjeev Saini, Advs
For Respondent: Shri Dayainder Singh Sidhu, CIT-D.R
Hearing: 09.04.2026Pronounced: 09.04.2026

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘C’, NEW DELHI BEFORE SH. SATBEER SINGH GODARA, JUDICIAL MEMBER AND SH. NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 7212/Del/2025 (Assessment Year : 2018-19) Sidhivinayak Associates Vs. ITO Shop No.23-25, Bidhwadeep Ward 49(1) Building Plot No.4, Delhi Janakpuri Delhi - 110 064 PAN No. AAFAM 8355 E (APPELLANT) (RESPONDENT) Assessee by Shri Rakesh Dubey and Shri Sanjeev Saini, Advs. Revenue by Shri Dayainder Singh Sidhu, CIT-D.R. Date of hearing: 09.04.2026 Date of Pronouncement: 09.04.2026

ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER : This captioned appeal has been filed by the assessee against the order of the learned Commissioner of Income Tax (Appeals) –NFAC, Delhi [‘CIT(A)’ in short] dated 29.10.2025 arising from the assessment order dated 07.09.2021, passed by the National Faceless Assessment Centre, Delhi under Section 143(3) r.w.s 144B of the Income Tax Act, 1961 (‘the Act’) concerning Assessment Year (A.Y.) 2018-19.

ITA No. 7212/DEL/2025 [A.Y 2018-19] Sidhivinayak Associates vs. ITO 2. The grounds raised by the assessee are as under : 1. That the Appeal Order dated 29.10.2025 passed by the Ld. National Faceless Appeal Centre (NFAC) Delhi is against the Law and Facts of the case. 2. That the Ld. NFAC Delhi has wrongly confirmed the addition sum of Rs. 21,59,84,000/- as disallowed in respect of salary of staff/ employees by Ld. CIT(A) as well as Ld. A. O. without considering documents as filed before them. 3. That Ld. NFAC Delhi has wrongly not consider the submission of Your assessee about the facts "that your assessee participated in the Government auction for allotment of Liquor vends/ Shops and your assessee got the Liquor license for the period from 01.04.2017 to 31.03.2018 from Government of Punjab to operate the Liquor vends/ Shops in different part of State of Punjab and your assessee has appointed temporary several staffs/ employees to run its vends/ shops in different part of the Punjab. 4. That Ld. NFAC Delhi has wrongly restricted the allowable salary expenses and confirmed addition sum of Rs. 21,59,84,000/-in account of salary paid, though it should be allowed @ 100%. As well as Ld. NFAC Delhi has wrongly not consider the same, though your assessee has filed list of employees, salary register, Identity of employees. That your assessee did not violate the section 40A(3) of Income Tax Act because your assessee paid the salary to employees (Weekly Basis) in several date below Rs. 10,000/- and which details were produced before Assessing Officer as well as before CIT Appeal and explained during the course as of virtual hearing and filed the details as asked by the Ld. A. O. well as CIT Appeal but Ld. CIT Appeal not considered the submission of 40(3) A of the Act. 6. That your assessee explained before the Ld. A.O. as well as before CIT Appeal that EPF and ESI not applicable to your assessee case. 7. That, the wage ceiling for mandatory inclusion under EPF schemes is 15,000 per month and If basic salary is exceeding 15,000 per month then EPF is not mandatory and your assessee is not required to join EPF because salary was paid more then 15,000/- per month. 8. Paragraph 26(6) of the EPF Scheme, 1952, allows employees whose wages exceed Rs. 15,000/- the statutory limit to contribute to the provident fund on their actual wages. This requires a joint request and permission from both the employee and the employer. The EPFO has authorized a specific digital format for this joint request to process it digitally. This provision enables voluntary EPF membership and contributions for employees who are not mandatorily covered but Ld. CIT Appeal wrongly not consider the submission of your assessee about registration of EPF etc. 9. That Ld. CIT Appeal wrongly not considered the submission of your assessee about TDS, section 40(3) A as well as rule 6DD, though the entire matter was explained via written submission, which should be consider. 10. That your assessee has reserved their right to alter, to modify, to amend,

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ITA No. 7212/DEL/2025 [A.Y 2018-19] Sidhivinayak Associates vs. ITO to rectify, add the grounds of appeal and/ or to take additional grounds of appeal on or before hearing of the case. 3. Brief facts of the case are that the assessee is doing the business of Liquor shops and during the year, assessee participated in Govt. auction and succeeds and Govt. allotted 414 PML vends/shops and 213 IMFL vends/shops, aggregating to 627 numbers of vends/shops for the period of one year in urban and rural areas. Assessee electronically filed its return of income for A.Y. 2018-19 on 08.10.2018 declaring total income of Rs.2,02,57,010/- u/s 143(3) of the Act. The case was selected for scrutiny through CASS and notice u/s 143(2) of the Act was issued on 22.09.2019. 4. In the course of assessment proceedings, the AO noted that the salary expenses debited by the assessee are in cash and no documentary evidences were provided by the assessee for salary expenses in installments. Therefore, salary expenses of Rs.21,59,84,000/- u/s 40A(3) of the Act and in account of General expenses (i.e. on account of refreshment expenditure) of Rs 85,61,165/-were added to the income of the assessee and penalty proceedings u/s 270(9) were initiated. Upon appeal, the CIT(A) upheld the addition. Aggrieved the assessee is before us. 5. Learned Counsel of the assessee submitted that assessee is in the business of Liquor Shop and has 414 PML vends/shops and 213 IMFL

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ITA No. 7212/DEL/2025 [A.Y 2018-19] Sidhivinayak Associates vs. ITO vends/shops, aggregating to 627 numbers of vends/shops. The main argument of the assessee is that the employee of the assessee are not permanent employees and are being paid salaries on weekly basis and is more than Rs 15,000/- per month. The salary paid do not exceed Rs.10,000/- on a single day. It is argued that the provisions of section 40A(3) is not applicable. It is submitted that the staffs/employees are taken on temporary basis for the period of one year from the nearest village of each shops to sell the liquors to the consumers and all the temporary staffs are from village and they do not have bank account and no source of income except temporary jobs as provided by the assessee. 6. The ld AR stated that during the course of hearing before the AO/CIT(A), the assessee filed the list of employees, Identity Proof of all employees and Ledger copy and Cash Book. It is submitted that the Ld. A.O. himself attached the list of employees in his order under page no. 11, wherein it is clear that salary was not paid more than Rs. 10,000/- to single person on single day and the assessee had not violated the section 40A(3) of Income Tax Act. The ld AR relied on the following case laws:  Vivek Gupta 7, Kalu Sarai, Begampur. New Delhi-110017 -Vs- Income tax Officer, Ward 24(2), New Delhi. ITA No. 5727/Del/2011

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ITA No. 7212/DEL/2025 [A.Y 2018-19] Sidhivinayak Associates vs. ITO  In the Case of M/s Brothers Pharma Pvt. Ltd., 869-70, Road No. 14P, V.K.I. Area, Jaipur. Vs- Income Tax Officer, Ward 4(2), Jaipur. ITA No. 635/JP/2012 The ITAT, JAIPUR BENCHES,  ITO, Ward-32(1), Kolkata -Vs- Satish Singh, 5B/H/6, Shibtala Lane, Kolkata-700071 ITA NO 449/KOL/2025 ITAT Kolkata Benches 7. Per contra, learned DR relied on the orders of authorities below.

8.

We have heard the rival submissions and perused the material available on record. We note that the reasons for additions crystallized by the AO was that the salary expenses debited by the assessee are in cash. Further, the AO has also adversely viewed the fact that the assessee has failed to fulfil statutory application of salary payments as no employees are on payroll record as per PF data basis. We however, note that the payments of salary to the employees of the assessee, has not been questioned by the AO. The AO has not raised any suspicion that such payments are not genuine. It is only the provision of section 40A(3) which has been invoked to make the disallowance. We find that in the kind of nature of the assessee’s business, the payment is made in cash to the employees who are segregated at various places on weekly basis. We note that the AO has rejected the assessee’s explanation that the salary expenses have been paid to the employees in instalment and the payment per day is below Rs.10,000/- without any cogent or corroborative evidence. There is no material brought out by the AO to show that these employees were paid in violation of

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ITA No. 7212/DEL/2025 [A.Y 2018-19] Sidhivinayak Associates vs. ITO 40A(3) of the Act. We also note that the AO has not pointed out that the salary has been paid more than 10,000/- to the single person on a single day. Further the assessee’s explanation that the employees are paid salary more than Rs 15,000/- per month, hence the laws of EPF does not apply, has not been rebutted by the AO. In view of the same, we are of the considered view that the disallowance made u/s 40A(3) is unjustified. We therefore, delete the addition made under section 40A(3) of the Act. The appeal of the assessee is allowed to that extent. 9. In the result, appeal of the assessee in ITA 7212/Del/2025 is allowed. Order pronounced in the open court on 09.04.2026

Sd/- Sd/- (SATBEER SINGH GODARA) (NAVEEN CHANDRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:- 06.07.2026 Priti Yadav, Sr. Ps* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI

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