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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH, JM & SHRI RAJESH KUMAR, AM
O R D E R
PER RAJESH KUMAR, AM
This is an appeal filed by the assessee challenging the order of ld.CIT(A) - 17, Mumbai dated 21.12.2012 for the assessment year 2005-06.
Despite of service of notice, none appeared on behalf of the assessee, therefore, we proceed to decide the appeal ex-parte without presence of assessee on the basis of material available before us and after hearing the ld.DR.
2 3. The issue raised in grounds of appeal no.1 is against the upholding the disallowance of Rs.64000/- as made by the AO on account of not allowing salary.
Brief facts of the case are that the assessee filed return of income on 29.3.2006 declaring a total income at Rs.3,00,840/-. The assessee company was engaged in the business of commission agent of pharmaceutical products. During the course of assessment proceedings, the AO observed that a sum of Rs.1,08,000/- was outstanding to five persons as salary for three months. The AO observed that no employee could remain without salary for a period of three months and hence issued notice dated 26.12.2007 to the assessee calling upon the assessee to show cause as to why the amount of Rs.1,08,000/- should not be disallowed as non genuine expenses. The assessee in reply to the said show cause notice submitted that the salary payable to the employees was legitimate business expenses and was rightly claimed. However, the AO not finding the reply of the assessee as tenable, rejected the claim of the assessee and added the same to the total income of the assessee by framing the assessment u/s 143(3) of the Act vide order dated 31.12.2007 and the income was assessed at Rs.5,78,840/-. Aggrieved by the order of the AO, assessee preferred an appeal before the ld.CIT(A), who has given part relief to the assessee by holding that the assessee could produce proofs only in respect of Rs.44,000/-, therefore, 3 remaining amount of Rs.64,000/- could not be verified and accordingly upheld the same.
After hearing the ld.DR and on perusal of the material placed before us including the orders of authorities below, we find that the assessee has failed to produce records as regard salary payments, of Rs.64,000/-. We are, therefore, in agreement with the findings of the ld.CIT(A) that unvouched salary which could not be proved by the assessee during the appellant proceedings could not be allowed. Accordingly, after considering the merits of the case and orders of the authorities below, we are inclined to uphold the order of ld.CIT(A). This ground of appeal is dismissed.
The issue raised in second ground of appeal
is with respect to confirmation of addition of Rs.1,70,000/- by the ld. CIT(A) which was disallowed by the AO for non deduction of tax at source u/s 40(a)(ia) of the Income Tax Act, 1961.
7. Assessing Officer observed that the assessee has debited a sum of Rs.1,70,000/- under the head “Consultancy Charges” on which no TDS has been deducted by the assessee. Accordingly, assessee was given show cause notice which was replied by the assessee from time to time during assessment proceedings. During the assessment proceedings, it was submitted by the assessee before the AO that the said consultation charges represented salary 4 paid to Mr. K L Narayan who is a ful time employee of the company. The said payment was shown under the sub- head “Consultancy Charges” under the main head “Selling and Distribution” expenses. The ld.AR further submitted before the AO vide letter dated 3.10.2007 Rs.1,70,000/- were paid as delivery charges. The assessee also submitted before the AO that salary paid to Shri K L Narayan who was full time employee on which professional tax was deducted and deposited to the government treasury. The AO rejected the submissions of the assessee as being self contradictory and disallowed the amount of Rs.1,70,000/- being consultancy charges and added to the total income of assessee u/s 40(a)(ia) of the Act r.w.s.200(1) of the Act for non deduction of tax u/s 194J of the Act.
In the appellate proceedings, the ld. CIT(A) upheld the action of the AO on this issue by observing and holding as under : “6.3 I have considered the submissions of the appellant and the order of the AO. The appellant has been continuously changing its stance and claimed the amount to be initially as consultancy charges and then mentioned the same as delivery charges and also gave bifurcation of the same and later claimed the same as salary paid to Shri K.L. Narayan. The appellant has not been able to satisfactorily explain the changes in the stance taken by it. The appellant has also not deducted any TDS if the same was paid as consultancy charges. If it was paid as delivery charges even then u/s. 194C, TDS should have been deducted, which has not been done. Therefore, the stand of the AO is upheld and the ground of appeal
of the appellant is dismissed."
9. After hearing the ld.DR and on perusal of the orders of authorities below, we find that the payment made to Shri K L Narayan on account of salary was 5 disallowed by the AO by holding that the assessee had made self contradictory statements. The AO observed that if the payment was by way of salary how, it could be shown under the head “Consultancy Charges”, whereas the assessee time and again reiterated before the AO that the payment was on account of salary on which processional tax has been deducted. The ld. CIT(A) dismissed the appeal of the assessee on the ground that no TDS was deducted and deposited in the government treasury. In our opinion, ends of justice would meet, if the matter is restored back to the file of the AO for verifying whether the recipient of the salary has paid tax on the said income by filing his return of income and if so, the AO to allow the claim of the assessee as per second proviso to section 40(a)(ia) of the Act. The second ground of appeal is allowed for statistical purposes.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.