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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED&
PER Ms. MADHUMITA ROY - JM:
The instant appeal has been filed before us by the assessee against the order dated 22.02.2017 passed by the Commissioner of Income Tax (Appeals)-4, Vadodara under section 143(3) of the Income Tax Act, 1961 arising out of the order dated 26.02.2016 for the Assessment Year 2013-14 with the following grounds : “Your appellant being dissatisfied with the order passed by Hon'ble Commissioner of Income Tax (A)-4, Baroda, in appeal No. CAB/4-553/2015-16, dated 22.02.2017 received by us on 17.04.2017 presents this appeal against the said order on the following amongst other grounds:
The order passed by the Hon'ble CIT(A) is bad in law, contrary to legal pronouncements and same be quashed. The disallowances/additions are unwarranted and same be deleted now. 2. The Hon'ble CIT(A)-V, Baroda has erred in confirming the disallowance of Rs.5,29,000/- out of salary paid to persons covered under section 40A(2)(b) of the Act without any base for estimation of salary payable to the
- 2 - ITA No.1173/Ahd/2017 Parikh Chandulal Gokaldas & Bros vs. ITO Asst.Year – 2013-14 employees. It is submitted that the disallowance made is unjust and uncalled for since the provisions of section 40A(2)(b) of the Act are not applicable in this case. It be held so now and addition made by the AO be deleted.
Without prejudice to the above it is submitted that there is no provision in the Income tax Act to disallow such expenses without any cogent reason assigned thereof and without any base for such disallowance. It be held so now and the AO be directed to delete the addition.
Your appellant craves for to leave add/alter/amend any grounds of appeal before hearing of this appeal.”
The main grievance of the assessee is against the disallowance of Rs.5,29,000/- out of salary paid to the persons covered u/s 40A(2)(b) of the Act without any base for estimation of salary payable to the employees.
The assessee having the business of selling joggery on wholesale basis filed its return through electronic media on 27.08.2013 for A.Y. 2013-14 declaring total income of Rs.89,958/-. Upon scrutiny notice u/s 142(1) r.w.s. 129 due to change of incumbent was issued to the assessee on 22.06.2015. During the course of assessment proceedings, the assessee duly submitted the audited books of accounts and the copy of the audit report in Form No.3CB & 3CD which was kept on record. It appears from the records particularly profit and loss account that the assessee has claimed salary expenses of Rs.13,62,000/- which was paid to eight employees specified under the provision of Section 40A(2)(b) of the Act. The Learned Assessing Officer turned down the claim of the assessee on the ground that such services could have been availed of by the assessee at a lower rate from the open market. Out of the said amount Rs.5,29,000/- was disallowed and added to the total income of the assessee by the Learned Assessing Officer which was in tern confirmed by the Learned First Appellate Authority in appeal preferred by the assessee. Hence, the instant appeal.
- 3 - ITA No.1173/Ahd/2017 Parikh Chandulal Gokaldas & Bros vs. ITO Asst.Year – 2013-14 4. At the time of hearing of the appeal, the Learned Representative of the Assessee submitted before us that the issue has already been settled by the Co-ordinate Bench in favour of the assessee in assessee’s own case for A.Y. 2011-12 & 2012-13, where same amount of salary was paid for the A.Y. 2012-13 out of which Rs.5,14,000/- was ultimately deleted by the Co-ordinate Bench in ITA No.58/Ahd/2017. In fact, the Learned Representative of the Assessee fairly submitted before us that out of 8 employees 5 are identical to that of the A.Y. 2011-12 & 2012-13.
He thus, prayed for deletion of the addition made in respect of the salary of those 5 employees identical to the A.Y. 2011-12 & 2012-13. On the contrary, the Learned Departmental Representative relies upon the orders passed by the authorities below.
We have heard the Learned Counsel appearing for the parties, we have perused the relevant materials available on record. The details of the salary as claimed to have been paid against the employees are as under: Sr. Name of the person Relation Amount No. of salary 1. Jagdipkumar H Parikh Brother of partner 270000 2. Mayurkumar H Parikh Brother of partner 270000 3. Chetankumar H Parikh Brother of partner 270000 4. Niravkumar Jagdipkumar Parikh Nephew of partner 150000 5. Hirenkumar Janakkumar Son of the partner 150000 6. Devangbhai Janakkumar Son of the partner 72000 7. Jaykumar M Parikh Nephew of partner 72000 8. Dipenkumar Jagdipkumar Nephew of partner 72000 Total 1326000
We have also perused the judgment referred by Learned Representative of the Assessee passed by ITAT, Ahmedabad in assessee’s own case. We find from the list of employees that names as appearing at Serial No.1 to 5 are identical with the names qua issue involved in A.Y. 2012-13. Further that, the amount of salary is also same to that of
- 4 - ITA No.1173/Ahd/2017 Parikh Chandulal Gokaldas & Bros vs. ITO Asst.Year – 2013-14 the amount paid during the A.Y. 2012-13 as it appears from the order passed by the Learned Tribunal. In fact, while passing orders the Learned Co-ordinate Bench relied upon the finding of the ITAT’s order for A.Y. 2011-12 and ultimately deleted such addition made by Learned Assessing Officer subsequently confirmed by the Learned CIT(A). The relevant portion of the said judgment is reproduced herein below:
“7. We have duly considered the rival contentions and gone through the record carefully. We find similar salary was paid to similar persons in assessment year 2011-12. A little variation is there with respect to N. J. Parikh and H. J. Parikh. The Tribunal has considered all these aspects and thereafter deleted the disallowance. The discussion made by the Tribunal read as under:
"2. To adjudicate on this appeal, only a few material facts need to be taken note of. During the course of scrutiny assessment proceedings, the Assessing Officer noted that the assessee has paid salaries, aggregating to Rs.11,10,000/-, to the persons specified under section 40A(2)(b) of the Act. He called for the details of these salaries, and disallowed Rs.1,50,000/- each, so far as salaries of Rs.2,70,000/- p.a. paid to J.H. Parikh, M.H. Parikh and C.H. Parikh was concerned, and Rs.60.000/- each, so far as salaries of'Rs.90,000/- p.a. paid to N.J. Parikh and HJ. Parikh, was concerned. Aggrieved, assessee carried the matter in appeal before the learned CIT(A) but without any success. Learned CIT(A) also observed that genuineness of the expenses itself is in doubt, though he did not even really deal with quantification part of the disallowance. He con finned the disallowance nevertheless, aggrieved by which assessee is in appeal before its.
We have heard the rival submissions, perused the material on record and duly-considered facts of the case in the light of the applicable legal position.
In our considered view, for invocation of disallowance under section 40A(2)(b) in the present case, one of the conditions precedent is unreasonableness of the amount paid. Section 40A(2) provides that where the A.O. is of the view that expenditure incurred by the assessee, in respect of which payment is made to the specified persons, is excessive or unreasonable having regard to the market value of goods, services or facilities for which the payment is made, or the legitimate needs of the business of the assessee or the benefit derived by or accruing to him
- 5 - ITA No.1173/Ahd/2017 Parikh Chandulal Gokaldas & Bros vs. ITO Asst.Year – 2013-14 therefrom, so much of the expenditure as is considered to be excessive or unreasonable shall not be allowed as deduction. The emphasis is on the market value of the goods or services. The CIT(A) has also dealt with the matter at a superficial level without giving any cogent finding about the conditions of applicability of section 40A(2) being satisfied. Unless there is a clear finding that the market value of the services taken from the sister- concern is less than the price at which the services are obtained, there cannot be an occasion to apply the disabling provisions of section 40A(2), for partial disallowance of the expenses incurred. This exercise, therefore, necessitates a finding about the fair market value of such services. There is no finding whatsoever as to what were the nature of services rendered and as to what, on some cogent basis, will be fair consideration for the same. Merely questioning the need of this expenditure cannot justify a partial disallowance of the expenses. For this reason alone, the disallowance under section 40A(2) is inherently unsustainable in law on the facts of this case. We are, therefore, of the considered view that it was not a fit case far invoking the provisions of section 40A(2) on the facts of the case. The C1T(A) should have deleted the entire disallowance. We, therefore, allow this appeal and delete the disallowance.”
There is no disparity on facts in this assessment year. Therefore, following the order of the Tribunal, we allow the appeal of assessee and delete the disallowance.”
We do not hesitate to observe that the Co-ordinate Bench has taken into consideration of the employee’s name of whom are appearing at Serial No.1 to 5 of the list in the year under consideration. The amounts so paid are also equal to that of the year under consideration before us.
It appears from the record that the Learned Assessing Officer has disallowed to the tune of Rs.4,99,000/- towards the salary made to Jagdipkumar H Parikh, Mayurkumar H Parikh, Chetankumar H Parikh, Nirvankumar J Parikh and Hirenkumar Janakkumar. We reiterate that these employees are getting the same amount of salary which were paid during the A.Y. 2012-13 as it appears from the order passed by the Co-ordinate Bench. In that view of the matter, respectfully following the said judgment, we delete the addition of Rs.4,99,000/- made by the authorities below.
- 6 - ITA No.1173/Ahd/2017 Parikh Chandulal Gokaldas & Bros vs. ITO Asst.Year – 2013-14
In the result, assessee’s appeal is hereby partly allowed. This Order pronounced in Open Court on 30/11/2018
Sd/- Sd/- ( WASEEM AHMED ) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 30/11/2018 Priti Yadav, Sr.PS
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-4, Vadodara. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad
Date of dictation 14/11/2018 (dictation pages 5) 2. Date on which the typed draft is placed before the Dictating Member 27/11/2018 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S 30/11/2018 5. Date on which the fair order is placed before the Dictating Member for pronouncement… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………