AGARWAL ENTERPRISES,PUNE vs. A.O, PUNE

In appeal, the Ld. CIT(A) / NFAC, on the basis of various submissions made by the assessee, noted that the evidences for claiming salary is available to the extent of Rs.38,64,803/- only and therefore he allowed the salary expenses to that extent and held the remaining amount of Rs.2,62,396/- as not allowable. So far as the allocation of salary to power generation unit is concerned, it was argued before him that share trading and investment business is of Rs.1,67,78,718/- and that of power generation business is Rs.2,45,10,036/- and therefore, the salary is to be allocated in the ratio of the turnover.

However, the Ld. CIT(A) / NFAC was not satisfied with the arguments advanced by the assessee and held that 1/4th of salary payment of Rs.38,64,803/- i.e. Rs.9,66,201/- is to be allocated to power generation unit and Rs.28,98,602/- to be allocated to share trading unit.

Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1] The learned CIT(A) erred in making a disallowance of Rs.2,62,396/- out of the total salary expenditure of Rs.41,27,199/- on the ground that the assessee could submit evidences of the payment of Rs.38,64,803/- only and therefore, the balance amount was not allowable as an expenditure u/s. 37(1). 2] The learned CIT(A) failed to appreciate that the assessee had submitted details of the entire salary expenditure of Rs.41,27,199/- and accordingly, there was no reason to make any disallowance out of the total salary expenditure paid by the assessee and hence, the disallowance made of Rs.2,62,396/- may kindly be deleted. 3] The learned CIT(A) erred in allocating 25% of the total salary expenditure to the power generating undertaking and thereby erred in reducing the claim of 80IA by an amount of Rs.9,66,201/-. 4] The learned CIT(A) erred in not appreciating that there was no reason to allocate any salary expenditure towards power generation undertaking and therefore, the disallowance of Rs.9,66,201/- made u/s. 80IA is not justified and the same may kindly be deleted. 5] Without prejudice to the above grounds, the assessee submits that the allocation of 25% the total salary expenditure to the power generation unit is not justified and the same may kindly be released substantially. 6] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.

The Ld. Counsel for the assessee at the outset submitted that the only issue raised in the grounds of appeal is regarding allocation of salary expenses to power generation unit and share trading unit and the disallowance of Rs.2,62,396/- out of total salary expenditure of Rs.41,27,199/-.

Referring to page 83 of the paper book he drew the attention of the Bench to the statement of trading account for the year ending 31.03.2023 according to which the assessee has claimed salary payment of Rs.41,27,199/-.

Referring to page 178 of the paper book, he submitted that the assessee has claimed salary to the extent of Rs.41,27,199/-. He submitted that the first appellate authority has allowed salary to the extent of Rs.38,63,700/-. However, if bonus / commission of Rs.2,42,998/- which has been disallowed by the assessee suo motu is considered, then the salary payment considered by the assessee is correct.

Referring to the same Profit and Loss Account he submitted that the sale of electricity is Rs.2,45,10,086/- and sale of shares is Rs.1,67,78,507/-. He submitted that there cannot be any adhoc apportionment of salary to share trading and power generation business and it has to be apportioned on the basis of turnover which is a scientific method. In his alternate contention, he submitted that only a lump sum amount approximately Rs.50,000/- may be disallowed out of 80IA claim.

The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. The only dispute in the instant appeal is regarding the quantum of salary and apportionment of the same between the power generation unit and the share trading business. We find the assessee in the instant case claimed salary expenses of Rs.41,27,199/-. However, in absence of any proper details, the Assessing Officer determined the salary at Rs.27,06,871/- and apportioned the same to the power generation unit and share trading business in the ratio of 50:50. We find in appeal the Ld. CIT(A) / NFAC on verification of the details found that the assessee has established salary payment to the tune of Rs.38,64,803/-. He, therefore, held that out of the salary of Rs.41,27,199/- an amount of Rs.38,64,803/- is allowable and Rs.2,62,396/- is not allowable.

So far as the allocation of salary to share trading business and power generation business are concerned, he directed the Assessing Officer to allocate 1/4th of salary payment of Rs.38,64,803/- i.e. Rs.9,66,201/- to be allocated to power generation unit and the remaining amount of Rs.28,98,602/- to be allocated to share trading unit. It is the submission of the Ld. Counsel for the assessee that the correct salary after considering the bonus paid to the employees as per the tax audit report is Rs.41,27,199/- and therefore, the salary claimed in the Profit and Loss Account is correct and has to be allowed.

So far as the allocation of the same to power generation unit and share trading business is concerned, it is his submission that either same should be allocated on the basis of turnover or some lump sum disallowance may be made.

So far as the quantum of salary is concerned, on verification of tax audit report and other details, we find the salary has been correctly claimed at Rs.41,27,199/-, therefore, the contention of the assessee that the salary which has been debited to Profit and Loss Account as per audit report is accepted. So far as the allocation of salary to the power generation unit and share trading business is concerned, we are of the considered opinion that the allocation of the same in the ratio of turnover of both the units is a scientific method and therefore will meet the ends of justice. We, therefore, direct the Assessing Officer to re-compute the deduction u/s 80IA of the Act by apportioning the payment of salary to the power generation unit and the share trading business in the ratio of their turnover. The grounds raised by the assessee are accordingly partly allowed.

In the result, the appeal filed by the assessee is partly allowed.