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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI R.C. SHARMA, HONBLE & SHRI C.N. PRASAD, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) – 20, Mumbai dated 23.11.2017 for the Assessment Year 2014-15.
The only issue in assessee’s appeal is Ld.CIT(A) erred in confirming the disallowance to the extent of ₹.13,74,379/- out of ₹.22,30,405/- in respect of salaries paid to employees.
(A.Y: 2014-15) M/s. Alif Overseas Pvt. Ltd., 3. Briefly stated the facts are that, while completing the assessment the Assessing Officer noticed that during the current Assessment Year assessee claimed huge employees cost of ₹.59,53,837/- as compared to the Assessment Year 2013-14 at ₹.24,68,585/-. He noticed that in view of the huge employees cost and staff welfare expenses claimed by the assessee the net profit came down to 1.97% during the current Assessment Year as against 3.20% of the preceding Assessment Year. Assessee was called to submit the salary register and the assessee furnished list of the employees to whom salary paid in Excel format. Not convinced with the submissions of the assessee Assessing Officer restricted the employees cost including staff welfare expenses on the basis of the receipts/expenses ratios of Assessment Year 2013-14 and disallowed the difference of ₹.22,30,405/- observing that out of 83 employees most of the employees did not have PAN Numbers, the employees are getting only gross salary, in most of the cases no TDS was made, the basis for fixing of the salary is not known and no appointment letters were produced. On appeal the Ld.CIT(A) considering the submissions of the assessee and the details furnished before him the Ld.CIT(A) restricted the disallowance to ₹.13,74,379/- being the employee cost of 38 employees whose addresses were not produced by the assessee.
(A.Y: 2014-15) M/s. Alif Overseas Pvt. Ltd., 4. Before us, Learned Counsel for the assessee submitted that all the payments of salaries were paid through account payee cheques and the addressees available with the assessee were produced. In respect of the employees out of 38 employees in fact PAN Numbers of 7 employees were also furnished and submitted that genuineness of the payments cannot be doubted. Ld. Counsel for the assessee submitted that in any case the disallowance made by the lower authorities is excessive and he prayed that a reasonable disallowance may be made to end the litigation.
Ld. DR vehemently supported the orders of the authorities below.
We have heard the rival submissions, perused the orders of the authorities below. It is not in dispute that all the salary payments were made through account payee cheques. We have perused the Annexure–1 of the Ld.CIT(A) order and find that except in the case of four employees all other employees drawn salaries ranging between ₹.1,839/- to ₹.91,512/- which is obviously the salary is not liable to tax and out of the remaining four employees only one employee Supriya Sambarekar had drawn a salary of ₹.2,13,773/- and the other three employees have drawn salary between ₹.1,03,552/- to 1,59,486/- and in the case of Supriya Sambarekar the assessee also produced the PAN Number before the Ld.CIT(A). As the salary paid to employees are not liable to tax as they
(A.Y: 2014-15) M/s. Alif Overseas Pvt. Ltd., are all below the taxable limits, the entire salary of these employees cannot be disallowed simply because the addressees of the employees were not produced, especially when the salaries were paid through account payee cheques. In the circumstances and taking the totality of the facts and circumstances into consideration, we direct the Assessing Officer to restrict the disallowance to 25% of the disallowance made in the Assessment Order and recompute the income accordingly.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on the 10th August, 2018