SWARAN NADHAN SALARIA,MUMBAI vs. DCIT, CENTRAL CIRCLE 1(2), MUMBAI

ITA 1049/MUM/2025Status: DisposedITAT Mumbai30 July 2025AY 2014-1546 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal allowed the assessee's appeal on the issue of penalty related to ad-hoc disallowances of salary, wages, and administrative expenses. The Tribunal found that the AO did not establish that these cash expenditures were false. The disallowances were made due to the lack of verification of vouchers for cash expenses, not because the expenses were found to be false. Furthermore, the Tribunal noted that the condition that the falsity of expenses should emerge from the search action was not satisfied. Therefore, the penalty under Section 271(1)(c) could not be levied merely because the AO made additions in the assessment order. The Tribunal also allowed the appeal concerning penalties on interest and depreciation expenses. It found that the AO did not record any finding to cover these disallowances under the definition of undisclosed income comprising entries of expenses in the books of accounts. The Tribunal noted that the AO did not establish how the issue of depreciation was unearthed during the search action. In the absence of clear findings of fact satisfying the conditions for undisclosed income under Section 271AAB, the penalty could not be sustained. Consequently, all appeals for assessment years 2014-15 to 2020-21 were partly allowed.

What were the facts?

The assessee, Swaran Nadhan Salaria, an individual and head of the 'Trig' group engaged in manpower, security, and facility services, is in appeal against penalty orders for assessment years 2014-15 to 2020-21. The penalties were levied by the Assessing Officer (AO) and confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)]. The assessee's original return for AY 2014-15 was assessed at Rs. 2,12,77,280. Following a search under Section 132, a notice under Section 153A was issued. In response, the assessee filed a revised return declaring Rs. 1,78,56,660. During the Section 153A assessment, discrepancies were noted, leading to a special audit. The AO made ad-hoc disallowances of salary/wages (Rs. 14,22,444) and administrative expenses (Rs. 2,17,162) under Section 37(1) on an estimated basis. Additionally, the AO initiated penalty proceedings for suo-moto disallowances of interest (Rs. 33,94,396) and excess depreciation (Rs. 38,02,913) related to 'shell entities'. The assessee contended these disallowances were either estimated or genuine expenses offered to avoid litigation.

What were the issues?

1. Whether the penalty levied under Section 271(1)(c) is sustainable on ad-hoc disallowances of salaries and wages (Rs. 14,22,444) and administrative expenses (Rs. 2,17,162) made under Section 37(1) on an estimated basis, considering the assessee's argument that such disallowances do not meet the criteria for penalty under Section 271(1)(c) and the additional ground that the additions themselves are not sustainable. 2. Whether the penalty levied under Section 271(1)(c) is sustainable on the suo-moto disallowance of interest (Rs. 33,94,396) and excess depreciation (Rs. 38,02,913) made in the return of income filed under Section 153A, given the assessee's contention that these were genuine expenses offered to avoid litigation and do not fall under Explanation 5A of Section 271(1)(c). Assessee's Arguments: - The penalty on ad-hoc disallowances under Section 37(1) is not leviable as they are based on estimates. - The suo-moto disallowances of interest and excess depreciation were genuine expenses offered to avoid litigation, and Explanation 5A of Section 271(1)(c) is not applicable. - The additions themselves are not sustainable, making the penalty levied thereon unsustainable. Revenue's Arguments: - The AO relied on judicial precedents including Dharmendra Textile Processors, MAK Data, and Zoom Communication Pvt. Ltd. - The disallowances were not arbitrary but based on analysis of books, cash payments, and lack of verifiable evidence.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 153A,Section 271(1)(c),Section 142(2A),Section 139(1),Section 132,Section 143(3),Section 36(1)(iii),Section 271AAB

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(4)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI

Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN

For Appellant: Mr. Rakesh Joshi
For Respondent: Mr. Virabhadra S. Mahajan, Sr. DR
Hearing: 12/06/2025Pronounced: 30/07/2025

PER BENCH The captioned appeals by the assessee are directed against separate orders passed by the Ld. Commissioner of Income-tax (Appeals)-47, Mumbai [in short 'the Ld. CIT(A)'] for assessment years 2014-15 to assessment year 2020-21 respectively in relation to penalty levied by the Assessing Officer. Being identical issue-in- dispute involved in these appeals, same were heard together and disposed off by way this consolidated order for the sake of convenience.

2.

Firstly, we take up the appeal of the assessee for as

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 37(1)

All 6,995 judgments and leading authorities on Section 37(1) →

Recent GST High Court judgments

Search GST case law →