PUSHPA DEVI BHARALAWALA,CUTTACK vs. ACIT, CIRCLE-2(1)/CUTTACK, CUTTACK

IN THE INCOME TAX APPELLATE TRIBUNAL “HYBRID COURT AT CUTTACK” BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA No.211/CTK/2026 Assessment Year: 2015-16 Pushpa Devi Bharalawala ACIT, Circle-2(1), Cuttack

C/o Ratan Kumar Bharalawala, Choudhury Vs Bazar, Cuttack, Odisha- 753001.

(PAN: ACGPB0362E) (Appellant) (Respondent)

Assessee by : Shri Mohit Sheth, AR Revenue by : Shri Ashim Kr. Chakraborty, CIT-DR Date of Hearing : 26.05.2026 Date of Pronouncement : 26.05.2026

ORDER PER BENCH: This is an appeal filed by the assessee against the order of the NFAC, Delhi [hereinafter referred to as the ‘CIT(A)’] in appeal no.CIT(A), Cuttack/10258/2017-18 dated 08.01.2026.

ITA No.211/CTK/26 the impugned assessment year, the assessee has filed return of income declaring an income of Rs.1,55,12,540/-. The return was taken up for scrutiny and the Assessing Officer made disallowance of warranty claimed by the assessee to an extent of Rs.2,38,72,732/-. It was the submission that the warranty provision for the impugned assessment year was a total of Rs.2,55,41,695/-. After considering the actual expenditure incurred during the impugned assessment year, the Assessing Officer disallowed an amount of Rs.2,38,72,732/- on the ground that the warranty claim was a provision. It was the submission that under similar circumstances for the assessment year 2013-14, the ld. CIT(A) has considered this issue and has allowed the assessee’s claim for warranty expenses to the extent of Rs.49,61,146/- which was claimed for the assessment year 2013-14. It was the submission that the ld. CIT(A) has followed the principles laid down by the decision of Hon’ble Supreme Court in the case of Rotork Controls India (P) Ltd. vs. CIT reported in 180 taxmann 422 (SC). It was the submission that the revenue has not filed any appeal against the said allowance by the ld. CIT(A). It was the submission that the said warranty claim has been offered to tax in so far as warranty paid for a period of 5 years and after expiry of 5th year, the warranty provision was written back to the P&L A/c. The ld. AR drew our attention to page 81 of the paper- book which is a copy of details of warranty expenses which reads as follows:

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3.1 The ld. AR also drew our attention to the warranty provision written back for the assessment year 2016-17 in the P&L a/c which reads as follows:

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3.2 For the assessment year 2017-18, the same reads as under:

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3.3 For the assessment year 2018-19, the same reads as under:

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3.4 And for the assessment year 2019-20, the same reads as follows:

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3.5 It was the submission that the provision for warranty expenses which has claimed as written back is according to when the period of the warranty expired. It was the submission that the warranty expenses that is disallowed may be deleted.

ITA No.211/CTK/26 the case of Rotork Controls India (P) Ltd. vs. CIT referred to supra, the warranty provision is an allowable expenditure. Even otherwise, the assessee has categorically shown that on the expiry of the warranty period, the assessee has suo moto offered the provision for warranty and written back in P&L A/c and has offered the same as income. The addition as made for the impugned assessment year would result in a double addition. This being so, the addition as made by the Assessing Officer and confirmed by the ld. CIT(A) stands deleted. This ground is allowed.

ITA No.211/CTK/26 and again further making disallowance out of the expenses which has already treated as possible expenses, is not permissible.

ITA No.211/CTK/26 assessee has calculated only the value of stock in trade. It was the submission that the addition as made by the Assessing Officer is not permissible in so far as the assessee and M/s Utkal Alluminium are paying GST and filing VAT returns. It was the submission that without these purchases, the installation itself would not be possible.

ITA No.211/CTK/26 13. In reply, the ld. CIT-DR submitted that no vouchers were produced for verification in respect of items identified, therefore, the disallowance is liable to be upheld.

ITA No.211/CTK/26 17. We have considered the rival submissions. An ad hoc disallowance without any specific fault pointed out in respect of any specific expenses, is not permissible. Ad hoc disallowances are not recognised under the Act unless and until specific defects in the vouchers are pointed out. Such disallowances of expenses cannot be made and that too on an ad hoc basis. If vouchers are not produced then disallowance on account of non- produced can be made. This being so, in the interest of justice, the ad hoc disallowances made by the Assessing Officer and confirmed by the ld. CIT(A) stand deleted.

“5. We have considered the rival submissions. From the record, it is seen that the payment made to the assessee’s husband and father-in-law have not been doubted as the ld. CIT(A) in para 6.3 of the order has also observed that there is no iota of doubt on payment made to them. Only issue remained about the qualification and experience of spouse and services rendered by both of them. From 12

ITA No.211/CTK/26 the perusal of the financial statements and also stated by the ld. AR that during the year under consideration salary of Rs.18,39,524/- was paid to total four persons. Out of them, two were the non-related parties and remaining amount of Rs.10,80,000/- was paid to assessee’s husband and father-in-law. It is also accepted fact that the assessee’s business is of providing solar equipments to the customers residing in remote places for which frequent visits and close supervision is a pre-condition for making these supplies to the satisfaction of the buyer. All these activities of pursuing and supervision on day-to-day basis is a necessary element and her husband was looking after all these activities. Spouse of the assessee, is a science graduate and having good experience of installation of Solar Power Plants. Further, the turnover declared by the assessee could not be achieved without the services rendered by spouse of assessee of frequent inspection and supervision. These services have not been denied by the lower authorities, who simply asked for the evidences which were available in the shape of the turnover achieved. However, the total salary claimed was of Rs.18,39,524/-, out of which the salary paid to the non-related parties i.e. for two employees was also not doubted. The wages paid to workers was also not denied. The proviso to Section 64(1)(ii) of the Act lays down two conditions and it is on satisfaction of both the conditions, the same can be applied. Both the conditions are cumulative and not alternative. First condition talks about the technical or professional qualifications. Here the word “Technical or professional qualification” does not mean the possession of any degree or diploma from recognized institute. It depends upon the nature of employment of spouse, based on which the degree or diploma can be insisted upon. In the present case as observed above, the spouse of assessee holds science degree of graduation and having good experience of installation of solar power plants as he was looking after the business of the assessee since inception. Thus, by virtue of experience his services can be termed as covered under the proviso to section 64(1)(ii) of the Act. In this regard, reliance is placed on the judgment of Hon’ble M.P. High Court in the case of CIT Vs. Smt. Madhubala Shrenik Kumar, reported in (1990) 181 ITR 180 (Madhya Pradesh High Court), wherein it is held as under :- 3. Now, the Tribunal, in the instant case, has found that the husband of the assessee had requisite experience as a salesman, that the firm in question was entirely dependent upon the salesmanship of the husband of the assessee as the firm had not employed any other salesman and that the amount of salary paid to the husband of the assessee by the firm was for his professional experience which was utilised by the firm in the conduct of the business of the firm. In view of these findings, the conditions requisite for the applicability of the proviso to cl. (ii) of s. 64(1) of the Act are satisfied and the income of the spouse of the assessee could not be clubbed with the income of the assessee. The words "technical or professional qualifications" occurring in the aforesaid proviso cannot be construed to mean obtaining a degree or diploma from a recognised body. In this connection, the following observations of the Andhra Pradesh High Court in Batta Kalyani vs. CIT (1985) 154 ITR 59 are pertinent: "We find considerable force in the submission of Learned Counsel for the assessee that the words 'technical or professional qualifications' occurring in the first part of the proviso, do not necessarily relate to the technical or professional qualifications acquired by obtaining a certificate, diploma or a degree or in any other form from a recognised body like university or an institute. That this was not the intention of the Legislature is clear from the use of the expression 'knowledge and experience' in the latter part of the proviso, as otherwise it would have been perfectly permissible for the Legislature to use the same expression as occurring in the first part. The

ITA No.211/CTK/26 harmonious construction of the two parts of the proviso, in our opinion, would be that if a person possesses technical or professional knowledge and the income is solely attributable to the application of such technical or professional knowledge and experience, the requirement for the application of the proviso is satisfied, although the person concerned may not possess any qualification issued by a recognised body. In our opinion, the Tribunal erred in coming to the conclusion that unless recognised body conferred a qualification, it should not be considered that a person possessed technical or professional qualifications. It is enough, in our opinion, for the purpose of the proviso, if the recipient of the salary possesses the attributes of technical or professional qualifications, in the sense that he has got expertise in such profession or technique. If, by the use of that expertise in the profession or technique, the person concerned earns salary, then the latter part of the proviso is also satisfied." 4. We respectfully agree with the aforesaid observations. In our opinion, therefore, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the remuneration paid to the husband of the assessee was not assessable in the hands of the assessee under s. 64 (1) (ii) of the Act. 6. Further reliance is placed on the decision rendered by the Hon’ble Kerala High Court in the case of CIT Vs. Sorabji Dorabji, reported in 168 ITR 598, wherein it is held as under :- 5. Having heard the rival contentions of the parties, we are of the view that the Tribunal was justified in holding that Mrs. Sorabji Dorabji has sufficient professional knowledge and experience entitling her to a salary of Rs. 700 per mensem as a director. She has been a director of the company from 1963 onwards. She should have acquired sufficient experience in the line. We do not think that the context in which the crucial words in the proviso to s. 64(1)(ii) occurs, namely, "Technical or professional qualifications "Or "Technical or professional knowledge or experience ", requires a degree or diploma of a university or other similar institution. The practical experience acquired by Mrs. Sorabji Dorabji by virtue of her being a director in the line for a sufficiently long number of years will be sufficient to hold that she has professional knowledge and experience in the line. In this context, we would usefully quote the observations of the Andhra Pradesh High Court in the decision in Batta Kalyani vs. CIT (1985) 154 ITR 59 , at p. 62. Delivering the judgment of the Bench, Anjaneyulu J. observed as follows : “We find considerable force in the submission of the Learned Counsel for the assessee that the words ‘technical or professional qualifications , occurring in the first part of the proviso do not necessarily relate to the technical or professional qualifications acquired by obtaining a certificate, diploma or a degree or in any other form from a recognised body like a university or an institute. That this was not the intention of the Legislature is clear from the use of the expression ‘knowledge and experience' in the latter part of the proviso, as otherwise it would have been perfectly permissible for the Legislature to use the same expression as occurring in the first part. The harmonious construction of the two parts of the proviso, in our opinion, would be that if a person possesses technical or professional knowledge and the income is solely attributable to the application of such technical or professional knowledge and experience, the requirement for the application of the proviso is satisfied, although the person concerned may not possess any qualification issued by a recognised body. In our opinion, the Tribunal erred in coming to the conclusion that unless a recognised body conferred a qualification, it should not be considered that a person

ITA No.211/CTK/26 possessed technical or professional qualifications. It is enough, in our opinion, for the purpose of the proviso, if the recipient of the salary possesses the attributes of technical or professional qualifications, in the sense that he has got expertise in such profession or technique. If by the use of that expertise in the profession or technique, the person concerned earns salary, then the latter part of the proviso is also satisfied. " 6. We concur with the said observations. 7. The question as to whether Smt. Soonoo Sorabji (Mrs. Sorabji Dorabji) had sufficient technical or professional knowledge and experience is ordinarily a question of fact. As the final fact-finding authority, the Tribunal has found that she has such technical or professional knowledge and experience. It has not been shown that the said finding is in any way irrational or unsustainable. In the circumstances, we answer the question referred to us in the affirmative, against the Revenue and in favour of the assessee 7. With regard to salary to father-in- law, since he is looking after dayto-day business affairs, thus, had gained enough experience and it is not necessary having any professional degree to run a shop. This being so, the salary paid to father-in-law also come out of the clutches of Section 64(1)(ii) of the Act. However, the ld. AO has not invoked the provisions of Section 64(1)(ii) of the Act to disallow the salary paid to father-in-law and the same is disallowed merely because of want of evidence of service rendered. As observed above, when his salaries are recognized by accepting the business turnover, what is needed further. 8. In view of these facts and circumstances, we had no agitation to hold that the services had been rendered by both the persons in day-today business affairs of the assessee and the services rendered by spouse of assessee are fallen under the proviso to Section 64(1)(ii) of the Act, therefore, the salary paid to them deserves to be allowed. As a result, the disallowance made by the ld. AO and as confirmed by the ld. CIT(A) is hereby deleted.” 18.1 It was prayed that the disallowances made in the impugned assessment year in respectof salary expenses may be deleted.

ITA No.211/CTK/26 21. It was further submitted by the ld. AR that the assessee had introduced Rs.4,20,000/- as capital in the proprietorship business of the assessee. For the introduction of such capital, the assessee has received gift from Sri Rameswar Lal Bharalawala and Sri Vikash Agarwal. The ld. AR drew our attention to the balance sheets of Sri Rameswar Lal Bharalawala and Sri Vikash Agarwal for the assessment year 2015-16 where the said gift of Rs.2,00,000/- has been shown and also filed their returns. It was prayed that the addition as made by the Assessing Officer and confirmed by the ld. CIT(A) may be deleted.

Cuttack, the 26th May, 2026.

Sd/- Sd/- [Rajesh Kumar] [George Mathan] लेखा सदस्य/Accountant Member न्याययक सदस्य/Judicial Member

Dated: 26.05.2026. RS

ITA No.211/CTK/26 Copy of the order forwarded to: 1. Appellant - 2. Respondent – 3. CIT(A)- 4. CIT- , 5. CIT(DR),

//True copy// By order Assistant Registrar