VISALAKSHI MARKETING PRIVATE LIMITED,BANGALORE vs. ITO, WARD -17(1),, HYDERABAD

The brief facts of the case are that, the assessee company filed its return of income on 26.12.2020 declaring total income at Rs.34,58,980/-. The case of the assessee company was selected for scrutiny and the assessment has been completed under Section 143(3) r.w.s. 144B of the Income-tax Act, 1961 on 22.09.2022 determining total income at Rs.85,61,880/- by inter alia making addition towards disallowance of salary expenses for Rs.40,36,214/-, disallowance of employees contribution towards P.F. and E.S.I. for belated remittances for Rs.1,50,836/-, disallowance of salary under Section 40(a)(ia) of the Act, for Rs.6,87,228/- for non-deduction of TDS u/s 192 of the Act, and addition towards ad hoc disallowance of 25% of travelling expenses for want of proper evidences for Rs.2,28,625/-.

Aggrieved by the assessment order, the assessee company carried the matter in appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee company submitted that, the A.O. erred in making disallowance of salary expenses without properly appreciating the details and evidences furnished during the course of assessment proceedings. The assessee company further submitted that, salary payments were made through various bank accounts and imprest accounts and necessary ledger accounts and employee-wise details were furnished before the A.O. The assessee company further submitted that, no TDS was deducted on salary payments made to certain employees, since after considering eligible deductions and rebate under the provisions of the Act, taxable income of the employees was below taxable limit. The assessee company further submitted that, disallowance towards belated remittance of employees contribution towards P.F. and E.S.I. was already considered in the computation of income filed along with return of income. The assessee company further submitted that, travelling expenses incurred by directors were wholly and exclusively for the purpose of business and necessary details in support of travelling expenses were furnished before the A.O. Therefore, the assessee company submitted that, the additions and disallowances made by the A.O. should be deleted.

The Ld. CIT(A), after considering the submissions of the assessee company and also taking note of the reasons given by the A.O. to make various additions and disallowances, observed that, the assessee company failed to furnish cogent documentary evidences to substantiate salary payments claimed through various bank accounts and imprest accounts. The Ld. CIT(A) further observed that, the assessee company also failed to substantiate non-deduction of TDS on salary payments made to certain employees and failed to reconcile the claim regarding disallowance of employees contribution towards P.F. and E.S.I. for belated remittances. The Ld. CIT(A) further observed that, the assessee company could not furnish complete evidences in support of travelling expenses incurred by directors to establish that, the expenditure was wholly and exclusively for business purposes. Therefore, the Ld. CIT(A) rejected the explanation of the assessee company and sustained the additions and disallowances made by the A.O.

Aggrieved by the order of Ld. CIT(A), the assessee company is now in appeal before the Tribunal.

The first issue that came up for our consideration from ground no.2 of the assessee’s appeal is disallowance of salary expenses of Rs.40,36,214/- for not justifying payment of salary with relevant payment details. The A.O. noticed that, the assessee company has incurred salary expenses of Rs.2,03,24,031/-. The A.O. called upon the assessee company to file relevant details of payment of salary along with salary register, deductions, if any from salary etc. In response, the assessee company submitted details of salary payment form various banks, including HDFC Bank, Canara Bank, Kotak Bank, Andhra Bank and claimed that, entire salary expenses have been paid through proper banking channels after deducting applicable employee contributions towards P.F. and E.S.I. The A.O. on analysis of the details submitted by the assessee company observed that, the assessee company has failed to provide evidence of payment of salary of Rs. 40,36,214/- from various other bank accounts even though the assessee company specified payment through bank account, but upon verification of relevant details, it is observed that, there is no nexus between payments referred to in the bank account and salary expenses claimed by the assessee company. Therefore, the A.O. disallowed the difference amount of salary expenses of Rs.40,36,214/- under Section 69C of the Act, and added to the total income.

The learned counsel for the assessee company, Shri T. Rajendra Prasad, C.A. referring to various evidences filed by the assessee company before the A.O. submitted that, the assessee company has filed complete list of salary statements of all the months along with relevant bank account statements to prove that, the salary has been paid through proper banking channel. The assessee company has also filed bank wise statements along with deduction of employees contribution towards P.F. and E.S.I. The learned counsel for the assessee company further submitted that, the assessee company has also provided salary for the month of March, 2020 for Rs. 6,86,293/- and paid in the month of April, 2020. The A.O. after considering relevant submissions of the assessee company observed that, the assessee company has not filed relevant details even though complete details of salary have been furnished by the assessee company. Therefore, he submitted that, the addition made by the A.O. should be deleted.

The learned Sr.A.R. for the Revenue, Shri Gurpreet Singh, on the other hand, supporting the order of Ld. CIT(A), submitted that, the assessee company could not justify salary payments by filing relevant bank account statements and other details. Although, the assessee company claims to have filed relevant bank account statements indicating payment of salary, but the A.O. has noticed various discrepancies and observed that, there is no match between payments referred to in the bank accounts and the salary expenses. Since the assessee company has not proved the salary payment of Rs. 40,36,214/-, the A.O. has rightly disallowed the salary expenses and therefore, the order of the A.O. should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The A.O. disallowed salary payment of Rs. 40,36,214/- only on the ground that, the assessee company could not file relevant bank account statements, indicating payment of salary to each employee. The assessee company has furnished relevant salary statements of each month along with gross salary of each employee, deductions for the month, and corresponding bank statements indicating salary payment. The assessee company has paid salary through various bank accounts and matched with the salary expenses debited in the profit and loss account. The A.O. never disputed this fact, however, disallowed part of salary expenses of Rs. 40,36,214/- only on the ground that, bank payment indicated by the assessee company is not matching with the salary statements. We find that, the reasons, given by the A.O. to disallow salary expenses of Rs. 40,36,214/-, is fallacious going by the evidence filed by the assessee company and explanation made during the course of assessment proceedings. Further, going by the amount of salary expenses when compared to the business of the assessee company, there is no reason for the A.O. to doubt the salary expenses and more particularly, when the assessee company has paid the entire salary through proper banking channels. Therefore, we are of the considered view that, A.O. erred in disallowing salary expenses Rs. 40,36,214/-. However, fact remains that, the assessee company has furnished certain additional evidence in the form of monthly salary statements along with P.F. and E.S.I. returns filed with authorities to prove the entire amount of salary debited in profit and loss account is matching with P.F. and E.S.I. and salary statements. The assessee company has also furnished relevant bank account statements. Since the assessee company has furnished certain additional evidences to prove the payment of salary of Rs.40,36,214/-, in our considered view, the matter needs to be set aside to the file of the A.O. for further verification. The A.O. is directed to verify the details submitted by the assessee company in respect of payment of balance salary of Rs.40,36,214/- and after verification, if the claim of the assessee company is found to be correct, then the A.O. is directed to delete the addition made towards salary expenses of Rs.40,36,214/-.

The next issue that came up for our consideration from ground no.3 of the assessee’s appeal is disallowance of salary expenses of Rs.6,87,228/- under Section 40(a)(ia) of the Act, for non-deduction of TDS under Section 192 of the Act, in respect of salary payment to four employees. The A.O. has listed salary payment to four employees in para 3.4.1. of the assessment order and in all the four cases, the gross salary payment exceeded Rs. 5,00,000/- and accordingly, the A.O. was of the opinion that, the assessee company should have deducted TDS under Section 192 of the Act. It was the explanation of the assessee company before the A.O. that, although the gross salary in case of four employees was in excess of Rs. 5,00,000/-, but after deduction under Chapter VI-A and other deductions like HRA and interest on housing loan, the net salary payable to the employee for the whole year does not exceed Rs. 5,00,000/- and in view of Circular No.4 of 2020 issued by the CBDT dated 16.01.2020, the assessee company need not deduct TDS under Section 192 of the Act.

We have heard both the parties and considered the relevant arguments of the learned counsel for the assessee company and the learned Sr.A.R. present for the Revenue. The A.O. disallowed 30% of salary expenses under Section 40(a)(ia) of the Act, for non- deduction of TDS under Section 192 of the Act. The A.O. has disallowed salary expenses of four employees and as per the details culled out by the A.O., the gross salary of all four employees exceeds Rs. 5,00,000/-, however, it was the arguments of the counsel for the assessee company that, after deductions/exemptions towards Chapter VI-A deduction, HRA, interest on housing loan, the net estimated salary of income of four employees is below Rs. 5,00,000/- and as per the said CBDT Circular, the assessee company has not required to deduct TDS. The assessee company has furnished copy of Circular No. 4 of 2020 and as per the above Circular, TDS u/s 192 of the Act, is not deductible in a case, where the estimated salary income, including value of perquisites is not taxable after giving effect to the exemptions/deductions and the and the maximum amount not chargeable to tax. In the present case, the assessee company claims that, the taxable income of the four employees after giving effect to exemptions/deductions, does not exceed the maximum amount of income on which tax is payable. However, the facts with regard to computation of the estimated salary income of each employee and possible deductions from the salary along with evidences has not been filed before the A.O. Since the assessee company has furnished additional evidence in the form of computation of estimated salary in case of each employee and circular of CBDT, in our considered view, the matter needs to be set aside to the file of the A.O. with a direction to verify the claim of the assessee company in light of Circular No.4 of 2020 and in case, the assessee company is able to prove that, the net estimated salary income of four employees is below the tax limit, then the A.O. is directed to delete disallowance under section 40(a)(ia) of the Act, for non-deduction of TDS under section192 of the Act.

The next issue that came up for our consideration from ground no.4 of the assessee’s appeal is disallowance of PF and ESI of Rs.1,50,836/-. The A.O. disallowed employee’s contribution to P.F. and E.S.I. of Rs.1,50,836/- on the ground that, the assessee company has made belated payment of contribution towards P.F. and E.S.I. and the same has not been disallowed while computing income from business and profession. The A.O. further observed that, although, the assessee company claims to have disallowed PF and ESI in the return of income, but going by the ITR filed by the assessee company, in Clause 26 of Form 3CD in the return of income, no such reporting has been made by the assessee company. It was the arguments of the counsel for the assessee company that, the assessee company has voluntarily disallowed belated payment of PF and ESI in the statement of total income and the same has been reported in clause 23 of ITR form filed for the year under any other item or items of addition under Section 28 to 44DA along with disallowance of donations under Section 80G of the Act, for Rs. 10,36,500/-.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The assessee company furnished relevant computations of total income along with return of income and from the computation filed by the assessee company, we find that, the assessee company made suo motu disallowance of belated payment of PF and ESI and the same has been reported in clause 23 of form ITR under any other item or items of disallowance under section 28 to 44DA. The A.O. without appreciating the relevant facts, simply made further disallowance of Rs. 1,50,836/- even though, the assessee company has already disallowed the amount and added back to the total income. Therefore, we direct the A.O. to delete the addition made towards disallowance of P.F. and ESI of Rs.1,50,836/- under section 36(1)(va) of the Act, 1961. 14. The next issue that came up for our consideration from ground no.5 of the assessee’s appeal is ad hoc disallowance of travelling expenses. The A.O. has made 25% disallowance of travelling expenses of Rs.9,14,502/- and made addition of Rs.2,28,625/- on the ground that, the assessee company has not furnished supporting evidences and also not explained the purpose and objective of incurring such travelling expenses. The A.O. further noted that, there is a possibility of personal element in travelling expenses incurred by the assessee company.

The learned counsel for the assessee company submitted that the books of accounts of the assessee company are audited, and the auditor has not pointed out any incorrectness in the travelling expenses claimed by the assessee company. Further, the assessee company has submitted all supporting evidence. However, the A.O. disallowed 25% ad hoc disallowance of travelling expenses only on the ground that, the assessee company has not furnished travel details along with purpose of visit. Since the assessee company has furnished all the evidences, the A.O. ought not to have made ad hoc disallowance of salary expenses. Therefore, he submitted, that the addition made by the A.O. should be deleted.

The learned Sr. A.R. for the Revenue, on the other hand, supporting the order of A.O. and Ld. CIT(A) submitted that, it is a fact on record that, the assessee company has not furnished supporting evidences and also not explained the purpose and objective of incurring such expenditure. Therefore, the A.O. has rightly made 25% ad hoc disallowance of travelling expenses and thus, the addition made by the A.O. should be upheld.

We have heard both parties, perused the material available on record and had gone through the order of the authorities below. The assessee company incurred travelling expenses of Rs. 9,14,502/- and said expenditure has been incurred wholly and exclusively for the purpose of business, which is evident from the relevant submissions of the assessee company where the assessee company has operating its business in Delhi, Hyderabad, Varanasi, Bangalore and Vizag and the directors of the assessee company are travelling to these locations for reviewing the business and attending client meetings and further, to expand the business in different locations. Further, the assessee company has also furnished supporting evidences. The A.O. although, not disputed the fact that, the assessee company has incurred travelling expenses for the purpose of business, but made 25% ad hoc disallowance only on the ground that, there may be personal element in travelling expenses incurred by the assessee company. In our considered view, the ad hoc disallowance made by the A.O. on the ground of personal element in the expenditure incurred by the assessee company is purely a guess work without there being any evidences. On the contrary, the assessee company has furnished all evidences and proved that, the travelling expenses were incurred for the purpose of business. Therefore, in our considered view, the A.O. erred in making ad hoc disallowance of travelling expenses at 25%. Thus, we direct the A.O. to delete the addition made towards 25% ad hoc disallowance of travelling expenses of Rs.2,28,625/-.

In the result, the appeal filed by the assessee company is partly allowed for statistical purposes.

The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file