2013 (11) TMI 136 - AT - Income Tax

Disallowance out of salary paid to managers persons specified under section 40A(2)(b) - Held that - The Assessing Officer has neither brought on record any reason why he has estimated disallowance nor brought out any comparative case to show that the salary paid is unreasonable or any evidence to show that the said relatives have not provided any services as claimed by assesse - Commissioner of Income-tax (Appeals) has not examined the plea raised or services rendered by the persons The two employees rendered services and treating salary payment as genuine and reasonable Decided in favour of assesse.

Summary

Issues:
Disallowance of salary paid to managers under section 40A(2)(b) of the Income-tax Act, 1961.

Analysis:

The case involved an appeal by the assessee against the order of the Commissioner of Income-tax (Appeals) sustaining the disallowance of Rs. 98,000 on account of salary paid to managers specified under section 40A(2)(b) of the Income-tax Act. The Assessing Officer disallowed one-third of the salary paid to the son and daughter-in-law of the assessee, who were the managers, stating it appeared to be on the higher side considering the business volume.

During the proceedings, the assessee contended that the son looked after marketing, procurement, and collection, while the daughter-in-law handled invoicing, banking operations, and payments full-time. However, the Commissioner of Income-tax (Appeals) did not examine the services rendered by these managers or the reasons behind the disallowance estimated by the Assessing Officer. The Tribunal noted that there was no evidence to suggest that the relatives had not provided services as claimed by the assessee.

The Tribunal found the disallowance amount to be small and decided not to send the issue back to the lower authorities. Considering the explanation provided by the assessee and the lack of comparative cases or evidence showing unreasonableness in the salary paid, the Tribunal deemed the salary payment as genuine and reasonable. Therefore, the Tribunal accepted the claim of the assessee and allowed the appeal, overturning the disallowance of the salary paid to the managers.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the genuine and reasonable nature of the salary payment to the managers specified under section 40A(2)(b) of the Income-tax Act.