DEEPAK DAMJI POLADIYA,,JALGAON vs. DEPUTY COMMISSIONER OF INCOME-TAX,,

This appeal by the assessee against the order dated 08-07-2016 passed by the Commissioner of Income Tax (Appeals)-2, Nashik [„CIT(A)‟] for assessment year 2011-12.

Ground No. 1 raised by the assessee challenging the action of CIT(A) in confirming the disallowance made by the AO u/s. 40A(2)(b) of the Act in the facts and circumstances of the case.

Heard both the parties and perused the material available on record. We note that the ld. AR submits that the AO disallowed the salary paid to specify persons by holding being excessive and determined the cost of the services rendered as by the relatives. We note that the assessee has submitted the details of the work done by the specified persons, along with the details of salary paid in earlier years. The ld. AR, Shri Pramod S. Shingte submits that the AO cannot step in the shoes of the businessman to decide and evaluate the cost of the employee and prudent businessman was always try to reduce the cost of business expenditure. According to him, the salary was paid was totally justifiable to the nature of services they have rendered and responsibilities shared by them. He further submits that there is hike in the salary considering the work they are doing and time devoting and the turnover has no any relation with the salary.

The details of salaried persons for A.Y. 2010-11 such as date of birth, education, salary, TDS, services rendered and length of service with the assessee is on record at Page No. 7 of the paper book and also such details involving earlier A.Ys. 2009-10 and 2010-11 are placed on record at Page No. 8 of the paper book. On perusal of the Page No. 7, we note that all the said persons except one are working with the assessee from 2003- 04 onwards and it is also mentioned the department of which the said persons rendering services. Further, it is also reflecting the details of TDS effected from their salaries. Coming to the Page No. 8 involving the earlier years, we note that the TDS were deducted on the said salaries. In A.Y. 2009-10 we note that no salaries were paid to those persons but however brokerage was paid for deducting TDS on such brokerage. Further, the acknowledgment of ITR at Page No. 9 of the paper book for A.Y. 2011-12 and computation regarding Nirav Deepak Poldiya who is in purchase and sales department with the assessee declared total income at Rs.9,96,871/-. On perusal of the computation of total income at Page No. 10 of the paper book which discloses major component of his income is from salary. The job profile of the said persons provided at Page No. 13 of the paper book which discloses the duty in purchase department includes raw cotton, cotton seed and cotton bales and regarding the sale department includes sales of cotton bales, cotton seed, oil cake and cotton seed wash. Therefore, in our opinion as rightly pointed by the ld. AR that all the details relating to details of date of birth, education, salary, TDS, services rendered and length of service were furnished before the AO but nowhere in the assessment order and also in the impugned order they have been referred to by the both the authorities below. We find the view of the AO and the CIT(A) disputing the same. Therefore, we find force in the arguments of ld. AR that both the authorities below disallowed such amount only on the basis of presumption and surmises without having anything on record. Likewise, regarding the ITR details, computation and job profile of remaining persons were filed from Page Nos. 14 to 26 of the paper book on which no dispute raised by the ld. DR. We find the respondent-revenue had not placed on record supporting the view taken by the CIT(A) in confirming the disallowance made by the AO to show as to how the salary payments made to specify persons were excessive or unreasonable. Therefore, the disallowance made by the AO as confirmed by the CIT(A), in our opinion, is not justified in the absence of any contrary evidences on record. Thus, ground No. 1 raised by the assessee is allowed.

Ground No. 2 is against the confirmation of disallowance of Rs.50,000/- and ground No. 3 is against the confirmation of addition of Rs.7,000/- out of total loan processing charges paid to Rs.31,969/-. Briefly stated facts concerning the first issue are that the assessee claimed deduction of Rs.34,30,405/- out of total various expenses incurred, the AO found that these expenses were supported by such self made vouchers. He, therefore, made disallowance @ 10% expenses at Rs.3,43,041/-. The ld. CIT(A), considering the totality of the facts and circumstances of the case reduced disallowance to Rs.30,000/-. As regard the other issue, the assessee claimed deduction of Rs.36,375/- towards processing charges paid. On perusal of the details, it was observed that the processing charges related to car loan and housing loan treating such expenses are capital in nature. The AO disallowed the same and thereafter allowed depreciation @ 15%. The ld. CIT(A) noticed that a sum of Rs.29,375/- related to car loan for the business purpose, after giving effect to the depreciation allowed by the AO, the CIT(A) deleted the addition to the extent of Rs.24,969/-. As regard the processing charges of Rs.7,000/- paid as housing loan, the ld. CIT(A) disallowed the same.

Heard both the parties and perused the material available on record. We find that the authorities below have taken a reasonable view in restricting the disallowance on account of expenses which are not properly supported by vouchers and the processing charges for housing loan which are not made for business purpose. The impugned order, therefore, affirmed to this extent and both the grounds raised by the assessee are dismissed.

In the result, the appeal of assessee is partly allowed.