LAPTECH SOLUTIONS PVT. LTD.,PUNE vs. ITO WARD-14(3) , PUNE

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ITA 2706/PUN/2025Status: DisposedITAT Pune26 May 2026AY 2014-155 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the AO's ad-hoc disallowance of salary to relatives lacked merit and directed its deletion. However, the disallowance of rent was upheld as the assessee failed to prove exclusive business use. The addition of notional interest was deleted as there is no specific provision in the Income Tax Act for such an addition.

What were the facts?

The assessee, Laptech Solutions Private Limited, appealed against the CIT(A)'s order for AY 2014-15. The Assessing Officer (AO) made several additions, including disallowance of salary to relatives, rent expenses, and notional interest on advances to related parties.

What were the issues?

Whether ad-hoc disallowance of salary to relatives is justified and whether notional interest can be added to income in the absence of specific statutory provision.

Which sections of the Income-tax Act were involved?

Section 40A(2)(b)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE

Before: SHRI Dr. DIPAK P. RIPOTE & SHRI VINAY BHAMORE

For Appellant: Shri B.S. Rajpurohit
For Respondent: Shri Shashank Ojha

PER Dr. DIPAK P. RIPOTE, A.M :

This is an appeal filed by assessee against the order of Ld.ADDL/JCIT(A)-1, Coimbatore passed u/s 250 of Income Tax Act 1961 for Assessment Year (Ay) 2014-15 on 19th September, 2025, emanating from Assessment Order u/s 143(3), dated 30th December 2016.

2.

The grounds of appeal raised by assessee are as under

On the facts and circumstances of the case and in law- 1. The Ld. CIT(A) has erred in sustaining ad-hoc 10% disallowance out of 30% disallowance made by the AO from salary payment to persons specified u/s 40A(2)(b) of the I.T. Act against his own contradictory finding as "the AO has not, however, brought on record any specific comparable data or concrete material to prove that the payments were excessive vis-à-vis the market value of the services rendered." 2. The Ld. CIT(A) has erred in sustaining the disallowance of rent payment of Rs. 2,43,000/- on the ground that the agreement was made with sister

ITA No. 2706/PUN/2025

concern rather than appellant and ignored the utilization of place and payment made by the appellant to owners. 3. The Ld. CIT(A) has erred in sustaining the addition of estimated income of interest @12% P.A. on advances to related parties of Rs. 1,47,42,879/- by ignoring the submission of the appellant and also ignoring the fact that the advances were made wholly and exclusively for the purpose of business. 4. The Ld. CIT(A) has erred in treating estimated addition of interest income made by AO as disallowance of proportionate interest expenses against the finding of AO without justifying that the borrowed fund was diverted towards interest free fund to related party and also ignored the fact that adequate interest free fund available with the appellant. 5. The Appellant craves leave to add, to alter, amend, or delete all or any of the aforesaid grounds of appeal on or before or at the time of hearing.”

3.

BRIEF FACTS OF THE CASE: Appellant is a private limited company engaged in the trading of Laptops and other accessories. Appellant had e-filed its return of income for the year under consideration on 30/09/2014 declaring total income of Rs. 21,63,334/. The Assessing Officer finalized the assessment and assessed the income of the appellant at Rs. 69,53,270/- by making the following additions: The appellant has paid salary to the directors and shareholders amounting to Rs.26,00,000/- during the year under consideration. The Assessing Officer (AO) disallowed 30% of salary paid to relatives of the directors/shareholders amounting to Rs.8,6 6,667/- holding that appellant has not provided sufficient information regarding the genuineness of the same. The AO disallowed rent expense amounting to Rs. 9,72,000/- holding such rent expense as not a business expense. The AO added an amount of Rs. 14,72,810/- holding the same as excess purchases debited to the Profit & Loss Account vis a vis recorded in the purchase register and returns filed for the purpose of sales tax. The AO disallowed depreciation amounting to Rs.1,76,588/-on additions made to software and furniture during the year holding the additions as non- genuine. The A. O added an amount of Rs. 12,96,873/- on account of notional interest on Interest free Loans and Advances given by the appellant. The AO added interest @ 12% on the loan amount outstanding as on 31/03/2014. Also, the AO has not explained the basis on which he has arrived at the interest rate of 12% to add the notional interest income to the income of the appellant. The assessment order passed by the A.O was received by the appellant after 31/12/2016 i.e. on 03/01/2017.

ITA No. 2706/PUN/2025

4.

Findings and Analysis: We have heard both the parties and peruse the records. Ground Number 1. It has been mentioned in the Assessment Order that during the year assessee has paid Rs. 26,00000 salary to its relatives. Therefore, AO disallowed 30 per cent of Rs. 26,00000/-. Ld. CIT(A) reduced disallowance to 10 %. Before the CIT(A) has filed elaborate submission. Assessee submitted qualifications and nature of work of each relative. Assesse claimed that salary was as per the qualification and work done. In this case the AO has made an ad-hoc disallowance without bringing on record any comparative. AO has not bothered the record statement of those persons to understand the nature of work done and appropriateness of salary. In these facts and circumstances of the case there is no merit in the addition. Accordingly we direct AO to delete the Ad-hoc addition. Accordingly, Ground No. 1 is allowed.

4.1. Ground Number 2: It has been accepted by the assesse that the premises for which rent was claimed, was taken on rent by another entity called MX laptech retail Pvt. Ltd. Assessee claimed that premises was used by assessee for its own business. On perusal of the documents filed before AO and CIT(A) it is observed that there is no specific evidence filed by assessee that the premises was legally used for the purpose of the business of the assessee. Whenever, assessee claims expenditure, onus is on assessee to prove that it was wholly and exclusively for the purpose of the business of the assessee. In this case admittedly the rent agreement has been entered between Anil Shah the owner and MX Laptech Retail Pvt. Ltd. Therefore, as per the leave and license agreement, MX Laptech Retail Pvt. Ltd., is legal licensee. Therefore, it has not been established by the assessee that premises was used by the assessee wholly and exclusively for the purpose of the business of the assessee. In these facts and circumstances of the case, we do not find any infirmity in the order of the Ld.CIT(A) confirming the disallowance of Rs. 2,43,000/-. Accordingly, the Ground No. 2 is dismissed.

ITA No. 2706/PUN/2025

4.2. Ground No. 3 & 4: In this case, AO has noted that assessee had given loans and advances of Rs. 153.98 lakhs. Out of these Rs. 1,47,82,879/- was given to related parties without charging any interest. AO, therefore, calculated notional interest at 12% and made addition of Rs. 12,96,873/-. Ld.CIT(A) confirmed the addition of notional interest. Ld.CIT(A) held as under:

Quote“In the present case, the appellant has not discharged this onus. The plea that no specific provision authorizes the taxation of notional interest cannot be accepted when borrowed funds have been diverted interest-free, as this directly impacts the allowability of interest claimed by the appellant. In such a situation, the AO is justified in recomputing income by making proportionate adjustment.”Unquote 4.2.1. During the proceedings, Ld.AR vehemently submitted that there is no provision in the income tax Act for addition of notional interest as calculated by the AO. Ld.AR further submitted that the reserve and surplus were more than the amount given to related parties without interest. Ld.AR further submitted that these were not loans, but business advances for the purpose of business.

4.2.2. Ld.DR supported the order of the AO.

4.2.3. We agree with Ld.AR that there is no provision under the Income Tax Act to add notional interest as done by the AO. Therefore, we direct to delete the addition. Accordingly, Ground No. 3 & 4 are allowed.

5.

Ground No. 5 is general in nature and does not require any adjudication.

6.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 26th May, 2026

Sd/- Sd/- (VINAY BHAMORE) (Dr. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे/Pune; दिन ांक/Dated : 26-05-2026 TNMM

ITA No. 2706/PUN/2025

आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: अपील र्थी / The Appellant 1. प्रत्यर्थी / The Respondent 2. 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘A’ Bench, Pune 5. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune

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