2010 (11) TMI 1035 - AT - Income Tax

Summary

Issues involved: Appeal by revenue against deletion of addition made u/s 40A(2)(b) for excessive salary paid to Chief Executive.

Summary:

Assessment Year 2006-07:
The revenue appealed against the deletion of an addition of Rs. 9.00 lakhs made by the AO for excessive salary paid to Shri Anil Gupta, Chief Executive and father of the partner. The AO considered the salary excessive as Shri Anil Gupta lacked the required qualification and experience for the position. The ITAT noted that no specific assignment was given to Shri Anil Gupta, and his salary was not commensurate with his qualifications. The AO quantified the excessive salary at Rs. 9.00 lakhs.

Assessment Year 2007-08:
Similar disallowance of Rs. 6.00 lakhs was made by the AO for excessive salary paid to Shri Anil Gupta, along with salaries paid to other employees. The AO considered a salary of Rs. 50,000/- p.m. to be reasonable and invoked section 40A(2)(b) for the disallowance.

Decision:
The CIT(A) deleted the additions for both years, noting that Shri Anil Gupta was assessed at the maximum marginal tax rate and the firm derived substantial income. The ITAT found that no evidence was presented to show the fair market value of services rendered by Shri Anil Gupta was less than the actual amount paid. As a result, the appeals by the revenue were dismissed.