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Facts
The assessee, an educational institution, claimed salary expenses of Rs. 72.30 lacs. The AO disallowed Rs. 53.67 lacs, assuming only Rs. 18.62 lacs were paid through bank and the rest in cash. The assessee contended that most salaries were paid by cheque, with only a small amount paid in cash to lower-level employees, and all payments were accounted for and verifiable.
Held
The Tribunal held that the payments of salary to teaching and other staff were made through bank channels and were verifiable from bank statements and regular books of account. The question of EPF/ESIC deposit was not the issue before the Tribunal, as no deduction was claimed for such deposits. Therefore, the core salary portion claimed as deduction was allowable.
Key Issues
Whether the disallowance of salary payments made through bank channels and cash, which were otherwise accounted for and verifiable, was justified. Whether the issue of EPF/ESIC compliance was relevant when no deduction was claimed for such deposits.
Sections Cited
250, 143(3), 11
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: SH. MANOJ KUMAR AGGARWAL & SH. UDAYAN DASGUPTA
This appeal is filed by the assessee against the order of the ld. CIT (A) NFAC, Delhi dated 09.01.2025 passed u/s 250 of the Income Tax Act, 1961 (henceforth the Act) which has emanated from the order of the AO, NFAC dated 03.05.2021 passed u/s 143(3) of the Income Tax Act, 1961.
There is no appearance by the assessee or his counsel on repeated calls, neither physically nor in virtual mode. The case has been adjourned thrice on earlier occasion, (as evident from order sheet entries). As such we proceed to dispose off the appeal on merits after hearing the ld. D.R.
Grounds of appeal taken by the assessee in Form No. 36 are as follows:
“1. That The Ld. C.I.T. (A), NFAC, Delhi has wrongly passed the order u/s 250(6) of the Income Tax Act, 1961 against law and facts of the case.
2. That the Ld. C.I.T.(A), NFAC, Delhi erred in sustaining the addition of Rs. 53,67,810/- on account of disallowance of salary.
3. That the Ld. C.I.T. (A), NFAC Delhi erred in law & facts in not treating the payment towards the salary as application of income.
That the Ld. C.I.T(A), NFAC Delhi erred in law & facts in sustaining the addition on flimsy grounds without affording reasonable opportunity of being heard in contravention to principles of natural justice i.e. Audit Alterm Partem.
That the Ld. CIT(A), NFAC Delhi has erred in law & facts to sustain the addition made solely on the basis of conjectures, assumptions and surmises.
That the Ld. CIT(A), NFAC Delhi has erred in law & facts in non-considerations of computation of Income as per mandate of section 11 of the Income Tax Act, 1961 without any base and reason thereof.
The appellant carves leave to add, amend, alter, modify, or substitute any ground at the time or before hearing of appeal.”
and the only issue before the Tribunal is that the salary paid to staff as per the ledger account of the assessee claimed at Rs.72.30 lacs has been allowed only to the extent of Rs.18.62 lacs and the remaining amount of salary totaling of Rs.53.67 lacs has been disallowed. This disallowance has been made on a wrong assumption by the Assessing Officer that out of the total claim of salary only the amount of Rs.18.62 lacs has been paid through bank and the remaining amount has been paid in cash, which has been challenged by the assessee as incorrect conclusion and he has filed bank statement and details before the ld. CIT(A) as evidence of payment of the above salary by cheque through bank channel. From the details filed, it was seen that major amount of salary has been paid by cheque and only salary to the tune of Rs. 70,000/- per month has been paid in cash to those employees who are working at the lower level. It was the contention of the assessee that the full name and address of the employees have been provided and the said amount are duly accounted for in the cash book of the assessee society and are fully verifiable in nature.
5. Subsequently, the ld. CIT(A) has sustained the addition of Rs.53.67 lacs only on the ground that the assessee could not furnish the supporting payments made to the Provident Fund and ESI Authority (EPF/ESIC) and also, the assessee has not produced the copy of the statement filed before University Authority, as full proof evidence of actual salary claimed. observed from the appellate order that major part of the entire expenditure by way of salary paid to staffs has been paid through banking channel and are fully recorded in regular books of account which are also verified with the bank statement, (except payments amounting to Rs.70,000/- per month, paid in cash, are also duly recorded in the regular cash book). Since, the entire documentary evidences are existing and payments are made through bank channel, the genuineness and authenticity of the said payments to the various office and teaching staffs whose names and addresses are available on record and are fully identified, cannot be simply disallowed.
7. Per contra, the ld. DR relied on the order of the ld. CIT(A) and has submitted that it was incumbent on the part of the society to comply with the provisions of the Act (Employees Provident Fund and miscellaneous Provisions Act, 1952), since the number of employees engaged in the institution is above, the minimum statutory limit and he further submitted that since no EPF and ESIC has been deposited in respect of these salary payments, the genuineness of the payment are not full-proof as observed by the ld. first appellate authority. Since, the assessee has not been able to produce full documentary evidences he prayed for upholding the appellate order and sustaining the addition. the opinion that the payments of salary to teaching and other staffs are made through bank channel and are verifiable from the bank statements itself and all the entries are also matching with the regular books of account. The question of registration or enrollment under the EPF and ESIC as argued by the ld. DR is not the issue before us and no claim of deduction has been made by the assessee in respect of the deposits on account of PF or ESI which has never been made. (Compliance with the provisions of the said Act is a matter which will be governed by the authorities under the said Act, 1952 and necessary provisions will follow as applicable). In the instant case, it is only the core salary portion has been claimed as deduction by the assessee which is duly recorded in regular books of account and supported by bank statement (except the amount of Rs. 8,40,000/- which has been paid in cash.
As such, we are of the view, that payment of salary through bank channel and its claim thereof, are all supported by documentary evidences and names and addresses of such persons are also available on record and the AO has not brought anything on record to disprove the documentary evidences and the transactions made through bank channel.
As such, we are of the opinion, that this claim for salary of Rs. 45.27 lacs is fully evidenced, duly recorded in books and bank statement and are allowable.
Order pronounced in accordance with Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 as on 12.03.2026