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Income Tax Appellate Tribunal, KOLKATA ‘B(SMC
Before: Shri P.M. Jagtap, Vice-
This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-12, Kolkata dated 29.03.2019 and the grounds raised by the assessee therein read as under:-
1. For that the orders passed by the lower authorities are arbitrary, erroneous, without proper reasons, invalid and bad- in-Iaw, to the extent to which they are prejudicial to the interests of the appellant.
2. For that the Ld. CIT CA) erred in confirming disallowance to the extent of 90% of the amount of salary paid on alleged grounds.
3. For that the Ld. CIT CA) ought to have deleted the addition of Rs.25,74,000/- made by the A.O. in respect of Salary.
For that the confirmation of disallowance to the extent of 90% of the total claim was otherwise high & excessive.
Assessment Year: 2015-2016 Highrise Marketing Pvt. Limited
For that the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds”.
As submitted by the ld. Counsel for the assessee, Grounds No. 1 and 5 raised by the assessee in this appeal are general in nature, which do not call for any specific adjudication.
As regards the common issue involved in Grounds No. 2 to 4 relating to the disallowance of Rs.25,74,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) out of various expenses, the relevant facts are that the assessee is a Company, which filed its return of income for the year under consideration on 19.09.2015 declaring total income of Rs.82,740/-. In the Profit & Loss Account filed along with the said return, a sum of Rs.25,74,000/- was debited by the assessee on account of employee benefit expenses. During the course of assessment proceedings, the details and documents required by the Assessing Officer to support and substantiate its claim for the said expenses could not be furnished by the assessee. The Assessing Officer also noted that the assessee-company had no manufacturing or trading business during the year under consideration and had earned its revenue only from interest on loan amounting to Rs.26,63,520/-. Keeping in view this factual position, he held that the claim of the assessee of having employed 14 employees during the year under consideration was not acceptable and the commercial expediency of the employees benefit expense claimed by the assessee was not established. He accordingly disallowed Rs.25,74,000/- claimed by the assesese on account of employee benefit expense.
4. The disallowance made by the Assessing Officer out of employee benefit expenses was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submission made by the assessee as well as the material available on record, the ld. 2 Assessment Year: 2015-2016 Highrise Marketing Pvt. Limited CIT(Appeals) restricted the disallowance made by the Assessing Officer on account of employee benefit expenses to 90% for the following reasons given in paragraph no. 4.3 of his impugned order:- “4.3. After perusal of the P&L Account, balance sheet, assessment order and the assessee submission I get the impression that the assessee has hardly any activity to support so many staff members. The investments are in private equities showing very little movement. The P&L Account shows as revenue of Rs.26,62,520/- on interest and all the said interest has been liquidated by claiming almost the same amount of expenditure, Such huge expenditure against employee and other expenses booked are abnormal in view of the nature of income being interest. I agree with the AO's view that the employee expenses are not genuine and have been booked to reduce the interest income to almost NIL. As the identities of the names claimed as employees could not be proved by the assesse'7 I confirm the addition of 90% of the sums involved. The balance 10% of employee benefits expenses is deleted from the AO's addition, The ground is thus, partly allowed”.
Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
5. I have heard the arguments of both the sides and also perused the relevant material available on record. The ld. Counsel for the assessee has submitted that the assessee is an investment-company and the interest income was earned by it during the year under consideration on fixed deposits and inter-corporate deposits. He has submitted that total 14 employees were employed by the assessee-company during the year under consideration and the relevant details of them such as names, addresses, etc. were furnished before the Assessing Officer. He has contended that even though the entire expenditure claimed by the assessee on account of employees benefit expense was not fully justified keeping in view the limited activity carried on by the assessee-company, the disallowance made by the Assessing Officer and sustained by the ld. CIT(Appeals) to the extent of 90% is excessive and unreasonable. The ld. D.R., on the other hand, has strongly relied on the orders of the authorities below in support of the revenue’s case on this issue.
Assessment Year: 2015-2016 Highrise Marketing Pvt. Limited
After considering the submissions of both the sides and perusing the relevant material available on record, I find that the claim of the assessee of having employed 14 employees and incurred expenses of Rs.25,74,000/- on employees benefits is not fully justified, especially when the activity carried on by the assessee during the year under consideration was limited and the commercial expediency of such huge expenses incurred on employees benefit was not fully justified. The disallowance out of such expenses therefore is warranted in the facts and circumstances of the assessee’s case. However, at the same time, I also find merit in the contention of the ld. Counsel for the assessee that the disallowance sustained by the ld. CIT(Appeals) to the extent of 90% is excessive and unreasonable keeping in view the facts of the case including especially the fact that the assessee is a Company and it requires to employ certain staff for maintaining its status as a Company as well as for the investment activity carried on during the year under consideration. Having regard all the facts of the case, I am of the view that it would be fair and reasonable to disallow 60% of the expenses claimed by the assessee on employees benefit. I accordingly modify the impugned order of the ld. CIT(Appeals) on this issue and restrict the disallowance out of employee benefit expenses to 60%. Grounds No. 2 to 4 of the assessee’s appeal are thus partly allowed.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on November 08, 2019.