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Facts
The assessee, engaged in the coal trading business, filed returns for AY 2016-17. The Assessing Officer (AO) disallowed salary expenses of Rs. 9,70,000 and direct expenses of Rs. 6,70,000, observing them as unexplained. The CIT(A) upheld the disallowance for direct expenses but directed verification for salary expenses.
Held
The Tribunal found that the assessee failed to provide adequate proof for the direct expenses, hence disallowance was justified. However, for salary expenses, the Tribunal directed a fresh verification by the AO due to discrepancies in claimed amounts and the need to ascertain actual payments.
Key Issues
Whether disallowance of direct expenses is justified without proper proof? Whether salary expenses require verification by the AO due to discrepancies in claim amounts?
Sections Cited
194C, 37, 142(1), 44AB, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “J(SMC
Before: SMT. BEENA PILLAI & SHRI OMKARESHWAR CHIDARA
Per: Smt. Beena Pillai, J.M.: The present appeal arises out of order dated 15/02/2024 passed by Ld. CIT(A), Mysore, for assessment year 2016-17 for following grounds of appeal :
“Sir, ADDL/JCIT/ (A) Mysore confirmed the addition of direct expenses of Rs.6,70,000/- on account of non-deduction of TDS u/s 194C which is not only unjustifiable but against principal of natural justice.
As per provision of u/s 194C it is clear that No TDS u/s 194C if transporter owns less than ten good carrier during the F.Y and provide declaration u/s 194C (6) with PAN No As per provision of 194C (6) we have declaration form the following parties to whom we paid freight and transport expenses of Rs.670000/- Party Name PAN NO Amount
Manish Jayesh AΑΤΕΡΜ5268M 2,91,770 Malde Seema Nipul Maru CDZPM4002M 2,15,410 Ashish K Kapadia AFTPK0827P 1,62,820 Sir considering the above facts and figure it is clear that TDS liability not applicable to above parties and we make the payments which are genuine and incurred of business purpose allowable u/s 37(1) of the IT Act, 1961, We have following documentary evidence to substantiated our claim that it is genuine and incurred for business purpose allowable u/s 37 (1) of IT Act 1961:-
1. 1. Comparative Chart for Freight and Transport along with declaration u/s 194C (6) 2. Income Tax Return of the Party 3. Confirmation of the Party Please Allow Direct Expenses of Rs. 6,70,000/-.
2. Salary of Rs.970000/- It is paid to various person working in organisation which is essential and genuine for running of the business, AddI/JCIT/(A), Mysore confirm the disallowance made by AO only saying that there was no payment made through bank, such action of same was not justifiable and it is against principal of natural justice. Sir it is payment made through cash and we have following documentary evidence to substantiated our claim that it is genuine and incurred for business purpose allowable u/s 37 (1) of IT Act 1961:- 1. Cash Payment voucher
Confirmation from Employee 3. Income Tax Return Copy of Employee 4. Comparative Chart 5. Form No.16 Consideration all above documentary evidence please allow salary of Rs.970000/-” Brief facts of the case are as under:
2. Assessee engaged in the business of Trading of Coal since 1997. For the year under consideration, the assesse compered the provision of u/s 44AB and got book of account audited from and filde audit report in form 3CB and 3CD on 29.04.2016 disclosing return income of Rs.46,80,364/ after claiming TDS/TCS of Rs. 12,84,187/- claimed refund of Rs.67,650/-.
2.2 Subsequently the assesse realised the fact and found that certain expenses which was incurred for business purpose are not claimed in original return. The assesse thus filed revised return on 03/04/2016 declaring return income of Rs.30,40,364/- after claiming TDS/TCS claim refund of Rs.5,74,410/- 2.3 The case was selected for scrutiny and notice u/s 142(1)(a) was issued. Assessee filed details as called for . The Ld.CIT(A).AO after considering the submissions of the assessee passed assessment order on 19.11.2018 disallowing salary of Rs.9,70,000/- and 6,70,000/- for direct expenses by observing as under:-
II. Action of AO (Circle-1) Kalyan:-
Salary of Rs.9,70,000/-:-
Excess salary of Rs.970000/- debited in P&L account by the assesse as above found to be unexplained and require to be disallowed. Therefore Rs.970000/- is disallowed u/s 37 and added back to the total income of the assesse for A.Y 2016 -17
2. Direct Expenses of Rs.6,70,000/-:-
The excess direct expenses of Rs.6,70,000/- debited on P&L account by the assesse as above are found to be unexplained and require to be disallowed. Therefore Rs.6,70,000/- is disallowed under section 37 of the income tax act added back to the total income of the assesse for A.Y 2016-17.
Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A).
In respect of direct Expenses of Rs.6,70,000/- the Ld.CIT(A) observed as under:
The Claim of the appellant has been verified Vis-à-vis with the submission made. On verification, it is evident that the appellant has provided the confirmation letters from the 3 parties stating the amounts received from the appellant along with the copies of ITR-V during the F.Y 2015-16. The appellant has further stated that the amount has been paid toward loading charges, uploading charges and transport charges during the year. On perusal of the appellant submission it is seen that the appellant has made several payments to the parties, but no vouchers or payment proof substantiating the genuinity of the payments has been produces before the appellate authority. Also the appellant has not submitted any details regarding mode of payment, ledger account, statements, and bank account statements to prove the mettle in his contentions. Further it is observed that the payments made to the parties in the nature of loading charges, uploading charges and transport charges are liable to deduct TDS u/s 194C of the act as the payments have crossed the limit of Rs. 75000/-in a financial year. However the appellant has not furnished any details regarding TDS made along with supporting evidence Viz. TDS return, TDS payment proof from 16A issued to the parties etc. The appellant has to prove any expenses claimed in the ROI eligible for deduction by furnishing clinching evidences. The appellant has failed to do so before the AO as well as before the appellate authority. As such, it is held that the expenses claimed by the appellant cannot be allowed as a deduction for the year under present appeal. 3.1. In respect of Salary expensed claimed by the assessee of Rs.9,70,000/-, the Ld.CIT(A) observed as under: It is pertinent to mention that salaries are natural expenses for any business and it is settled principle that it shall be allowed as per the provision of the Act. There is no doubt regarding allow ability of expenses. But it is also pertinent to mention that appellant in its submission has not furnished any payment proof before the appellate authority. Also the appellant has not submitted any details regarding mode of payment and bank account statements to verify as regarding. Further it is seen that the appellant had claimed of Rs.480000/- as salaries in the original return and subsequently he has claimed of Rs. 1450000/- during the appellate proceedings, the appellant has only furnished details to the extent of Rs.970000/-only even though he has claimed of Rs. 1450000/- during the year under appeal. In the absence of complete details, the claim of the appellant in this regard cannot be ascertained completely as regarding payment of salary, total salary paid etc. in view of above Ld. Jurisdiction assessing officer is directed to verify the genuineness of the payment of salaries by verifying bank account statements, payment vouchers and allow the claim of the appellant to the extent of salaries paid during the year. Appellant is also directed to submit all relevant documents before Ld. JAO for verification of payment of salaries to the employees. With this direction, the Ground No.3 of the appeal is allowed subjected to verification at the end of AO. Aggrieved by the oreder of Ld.CIT(A), the assessee is in appeal before this Tribunal.
It is submitted that as the appeal was pending before this Tribunal, the Ld.CIT(A).AO passed order giving effect to the Order u/s 250 of the act passed by the Ld.CIT(A)/NFAC, on 30/04/2024. It is submitted that the addition was retained without any verification.
4.1. The Ld.AR also submitted that in any event the Ld. CIT(A) cannot remand the issue to the Ld.AO for necessary verification. The Ld.AR prayed for the issues to be considered in accordance with law.
4.2. On the contrary, the Ld. DR did not raised any objection for the issues to be remanded to the Ld.AO for necessary verification.
We have perused the submissions advanced by both sides in light of records placed before u/s.
In the interest of justice, we deem it fit and proper to remit this issue to the Ld.AO for de novo consideration based on the evidences furnished by the assessee. The Ld.AO is directed to consider the claim in accordance with law and to pass a detail order on merits.
Accordingly the grounds raised by the assessee stands allowed for statistical purposes.
In the result appeal filed by the assessee stands allowed for statistical purposes.
Order pronounced in the open court on 31/01/2025