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Facts
The assessee company filed its return for AY 2017-18. The AO made disallowances for salary payments to directors under Section 40A(2) and for software expenses. The CIT(A) initially directed deletion of the salary addition as revenue neutral but erroneously dismissed the grounds. The CIT(A) also adjudicated grounds unrelated to the assessee.
Held
The Tribunal held that the CIT(A)'s finding regarding the salary payment being revenue neutral was correct, and thus the related ground should have been allowed. The Tribunal also noted that other grounds adjudicated by the CIT(A) were irrelevant to the assessee.
Key Issues
Whether the CIT(A) correctly adjudicated the grounds raised by the assessee, particularly concerning the disallowance of salary payments, and whether irrelevant grounds were erroneously included in the order.
Sections Cited
40A(2), 148, 151, 69, 270A, 234A, 234B, 234C, 156, 143(1), 143(2), 142(1), VI-A
AI-generated summary — verify with the full judgment below
िनधा"रती की ओर से/Assessee by : Shri Tejmohan Singh, Advocate राज" की ओर से/ Revenue by : Dr. Ranjit Kaur, Addl. C IT, Sr. DR सुनवाई की तारीख/Date of Hearing : 19/05/2025 उदघोषणा की तारीख/Date of Pronouncement : 26/05/2025 आदेश/Order PER LALIET KUMAR, J.M: This is an appeal filed by the Assessee against the order of the Ld. CIT(A) / NFAC, Delhi ddt. 26/09/2024 pertaining to Assessment Year 2017-18. 2. In the present appeal Assessee has raised the following grounds:
1. That the Ld. Commissioner of Income Tax(Appeals) has erred in mentioning in Para 6.1.4 of the appellate order that ground no.1 and 2 raised by the appellant is hereby dismissed in respect of addition of Rs.85,00,000/- made by AO applying the provisions of Section 40A(2) though he deleted the addition being revenue neutral and as such it should be mentioned that the ground no.1 and 2 have been allowed.
2. That the Ld. Commissioner of Income Tax(Appeals) has further erred in deciding issue in respect of Section 148/151 in para 6.3 on page 13 of the appellate order which are unrelated to the assessee in as much as no such grounds have been raised by the assessee.
3. That the L.d. Commissioner of Income Tax(Appeals) has further erred in deciding a issue in Para 6.2 page 15 of the appellate order in respect of addition of Rs.5,78,95,494/- u/s 69 which is unrelated to the assessee in as much as neither any such addition has been made by the assessing officer nor there is any such investment made as mentioned in the order.
That the appellant craves leave to add or amend the grounds of appeal
before the appeal is finally heard or disposed off.
5. That the order of Ld. Commissioner of Income Tax(Appeals) Officer is arbitrary, opposed to the facts of the case and thus untenable.
Briefly, the facts of the case are that the assessee i.e; Tynor Orthotics Pvt. Ltd., located in Mohali, Punjab, and engaged in manufacturing orthotic aids, filed its income tax return for the Assessment Year 2017–18 on 25/10/2017. The company declared a taxable income of Rs.15,06,75,850/- under the head "Profits and gains from business or profession," after claiming a deduction of Rs.1,00,000/- under Chapter VI-A of the Income Tax Act, 1961. The return was processed under Section 143(1) and selected for scrutiny through CASS. Statutory notices under Sections 143(2) and 142(1) were issued on 08/08/2018, and 04/09/2019 respectively.
4. During assessment, the Ld. AO examined related party payments under Section 40A(2)(b), focusing on salaries paid to three female directors: Smt. Gurjeet Kaur Rs.42,00,000/-, Smt. Harpreet Kaur Rs.42,00,000/-, and Smt. Kulwant Kaur Rs.21,00,000/ 4.1 The company justified these salaries citing non-core functions such as CSR activities, canteen management, and festival coordination. However, the AO found their involvement irregular and non-technical, disallowing Rs.32,00,000/- each for Gurjeet Kaur and Harpreet Kaur, and the entire Rs.21,00,000 for Kulwant Kaur due to lack of evidence and her absence from summons proceedings. This led to a total disallowance of Rs.85,00,000 under Section 40A(2). 4.2 Further, out of Rs.14,04,936/- claimed as software expenses, the company could substantiate only Rs.9,32,785/-. The remaining Rs.4,72,151/- was questioned, and upon clarification, Rs.3,88,300/- was found to relate to prior period expenses from 2014 and was disallowed due to insufficient documentation. 4.3 The AO recomputed the company’s taxable income as Rs.15,95,64,150/-, adding disallowances of Rs.85,00,000 excess salary and Rs.3,88,300/- software expenses. Penalty proceedings under Section 270A were initiated for under-reporting and misreporting of income, and interest was charged under Sections 234A, 234B, and 234C. A demand notice under Section 156 was also issued. 5. Against the order of the Ld. AO the assessee went in appeal before the Ld. CIT(A) who has since dismissed the appeal of the Assessee. 6. Against the order of the Ld. CIT(A) the assessee came in appeal before us. 7. During the course of hearing the the Ld. AR had drawn our reference to page 11 to 13 of the order passed by the Ld. CIT(A) more particularly para 6.1.4 which is to the following effect: 6.1.4 In view of the above and case laws relied by the appellant. the payment of salary is thus revenue neutral and is not causing any loss to the revenue. Hence AO is directed to delete the addition made us/ 40A(2) amounting to Rs. 85,00,000/-. Accordingly ground no. 01 & 02 raised by the appellant is hereby dismissed.