M/S. THINK LINK SUPPLY CHAIN SERVICES PVT. LTD.,GURGAON vs. ITO, DEHRADUN

Facts of the case, in brief, are that the assessee filed its return of income on 30.9.2013 declaring an income of Rs. 3,51,590/-. Subsequently the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had debited a salary of Rs. 15,00,000/- to Mrs. Manvi Goyal wife of Shri. Saurabh Goyal, Director. He asked the assessee to justify the salary paid in terms of provisions of Section 40(a)(2)(b) of the Income Tax Act, 1961 (hereinafter referred to the as ‘the Act’) and to prove the reasonable of the same. The assessee submitted that salary was paid to Ms. Manvi Goyal W/o Shri Saurabh Goyal, Director who was looking after the H.R. department of the company. The assessee also submitted a copy of profile of Dr. Manvi Goyal which revealed that her educational qualification was a bachelors degree in dental surgery. The AO observed that it was not understood as to how she managed the H.R. Department of the company when she was professionally a doctor in dental surgery and even if it was to be considered that she looked after the H.R. Department of the company the salary paid to her at Rs. 15,00,000/- was excessive and unreasonable within the meaning of Section 40(a)(2)(b) of the Act. The AO considered the salary of Rs. 12,00,000/- per annum as genuine and made the disallowance of Rs. 3,00,000/-.

Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under:- “Sir, to work in the Human Resource Department it does not require any specific professional qualification. To work in the H.R. Department it requires good communication skills, ability to interact and identify the correct human resource and to provide the correct motivation. These skills can be cultivated and honed by any educated person. Mrs. Manvi Goyal is a skilled, talented and well educated lady and therefore it has been a sort of natural induction into the HR. Department of the company and also looking after general administration. Therefore, being a Dental Surgeon has not impaired her working in any manner. People are the most important asset for all organizations, which arguably makes Human Resources Management one of the more important functions for any company. It goes without saying - Companies want the best HR talent out there and are willing to pay the price. Respectfully it is submitted that -work of assessee company is Service Oriented, with high end use of Computerized Information Technology. Rate of attrition in such type of industry / organization is very high. Constant endeavour has to be made to find suitable replacements. It is evident that Ld.AO has accepted the legitimate business need to the assessee and the benefits derived from the services of Mrs. Manvi Goyal as head of H.R. Department; From the above submissions, it is abundantly clear that the salary paid by assessee to Mrs. Manvi Goyal is justified and the provisions of section 40A(2)( a) are not attracted. The Ld. AO has not brought on record any cogent reason for considering the the salary of Mrs Manvi Goyal as more than the fair market value. Ld. AO has arbitrarily invoked the provisions of section 40A(2) to make disallowance from salary paid to her. ”

The CIT(A) did not find merit in the submissions of the assessee and confirmed the disallowance by observing as under:- “The issue in this ground is disallowance of Rs. 3,00,000/- u/s 40A(2)(b) from Salary paid to Mrs. Manvi Goyal, wife of Sri Saurabh Goyal, Director. It is seen that she has been paid Rs 15,00,000/- as salary by the Appellant. The submissions as above of the Appellant have been considered, it is however seen that her qualifications are not related to the running of a company or HR work as she is a Dentist by qualification. It may be mentioned that she is being paid Rs 1,25,000/- @ month without being qualified in HR work, which is a specialized field needing professional qualification and as admitted by the Appellant is very important for the functioning of the company. Therefore there is insufficient justification for such a substantial payment and the Appellant has been unable to submit any details of her functions or substantiate its contention regarding her expertise in the field of HR. Accordingly the contentions of the Appellant cannot be accepted and the disallowance made by the AO of Rs 3,00,000/- is confirmed.”

Now the assessee is in appeal.

The learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that a similar disallowance made by the department in the preceding year i.e. 2012-13 has been deleted by the learned CIT(A) vide order dated 29.3.2016. Copy of the said order was furnished which is placed on record. It was further stated that in the subsequent year i.e. the assessment year 2014-15 the assessment was framed under Section 143(3) of the Act and no addition was made on account of the similar salary paid to Mrs. Manvi Goyal. In his rival submissions, the learned DR strongly supported the orders of the authorities below.

We have considered the submissions of both the parties and carefully through the material available on the record. In the present case, it is noticed that the salary paid to Mrs. Manvi Goyal in similar circumstances has been accepted by the AO in the succeeding year which is evident from the assessment order dated 23.12.2016 passed under Section 143(3) of the Act and that the similar disallowance made for the assessment year 2012-13 has been deleted by the learned CIT(A), Muzaffarnagar vide order dated 29.3.2016. I, therefore, by considering the consistent stand of the department, deem it appropriate to delete the addition made by the AO and sustained by the learned CIT(A).

In the result, the appeal of the assessee is allowed. Pronounced in the open court at the time of hearing itself i.e. on 23.10.2017.