2022 (1) TMI 1441 - AT - Income Tax

Bogus purchases u/s 69C - HELD THAT - We are afraid that the assessee s claim of having made genuine purchases from the aforementioned party is not proved to the hilt. Backed by the aforesaid facts, we are of the considered view that the assessee s claim of having made genuine purchases from the aforementioned party, viz. M/s Nidhi Printer cannot be accepted. We find that the A.O had not doubted much the less dislodged the sales of the assessee company for the year under consideration - sales of the assessee company had been accepted by the department, we are of the considered view, that it can safely be concluded that the assessee had purchased the goods in question not from the aforementioned party, i.e M/s Nidhi Printer (supra), but at a discounted value from the open/grey market. We, thus, are of the considered view that in all fairness the disallowance of purchases claimed by the assessee to have been made from the aforementioned party can safely be restricted to 12.5% of the aggregate value of the impugned purchases in question. The Ground of appeal No. 1 is partly allowed in terms of our aforesaid observations. Addition u/s 40A(2)(b) - salary paid by the assessee company to daughter of one of the director of the assessee company Ms. Anita Podda - HELD THAT - It is only in a case where the expenditure claimed by the assessee qua the related parties is found by the AO to be excessive or unreasonable having regard to the fair market value of the goods, service or facilities, it is only there that the disallowance of that part of the expenditure as is considered by the A.O to be excessive or unreasonable is to be made by invoking the provisions of Sec. 40A(2)(a) of the Act. In the case before us, we find that there is not even a whisper on the part of the A.O as to how the expenditure incurred on the salary paid director of the assessee company, a qualified MBA, was found by him to be either excessive or unreasonable having regard to the fair market value of the services which were rendered by her for the legitimate needs of the business of the assessee company. In sum and substance, the A.O had summarily scaled down the assessee s claim of salary paid to Ms. Anita Poddar (supra) by an amount of Rs.6 lac, i.e, 50% of the total amount of salary paid, merely for the reason that the turnover of the assessee company was reduced to one half during the year under consideration. The very basis for taking recourse to the provisions of Sec. 40A(2)(a) and disallowing the assessee s claim for deduction of the salary paid to Ms. Anita Printer (supra) is absolutely misconceived, and thus, cannot be sustained in the eyes of law. We, thus, not being able to persuade ourselves to subscribe to the disallowance u/s 40A(2)(b) of Rs. 6 lac made by the A.O, therein, vacate the same. Accordingly, the order passed by the CIT(A) sustaining the said disallowance is set-aside. The Ground of appeal No. 2 is allowed.

Summary

Issues involved: The judgment involves the disallowance of purchases under Section 69C of the Income-Tax Act and the disallowance under Section 40A(2)(b) of the salary paid to an employee.

Disallowed Purchases Issue: The Assessing Officer (A.O) disallowed purchases made by the assessee from a certain party due to discrepancies in the confirmation received. The A.O also disallowed a portion of the salary paid to the director's daughter under Section 40A(2)(b) without sufficient justification. The CIT(A) upheld the A.O's decision, leading the assessee to appeal.

Disallowed Purchases Resolution: The Appellate Tribunal found discrepancies in the A.O's disallowance of purchases and disagreed with the basis of the disallowance. The Tribunal observed that the purchases made from one party were genuine, supported by confirmations and invoices. However, purchases from another party lacked essential details, leading to the conclusion that they were not genuine. The Tribunal restricted the disallowance to 12.5% of the value of the disputed purchases.

Salary Disallowance Issue: The A.O disallowed 50% of the salary paid to the director's daughter without proper justification under Section 40A(2)(b). The Tribunal found the A.O's reasoning for the disallowance to be misconceived and lacking in merit. The Tribunal highlighted that the A.O did not establish how the salary paid was excessive or unreasonable, as required by the law.

Salary Disallowance Resolution: The Tribunal overturned the disallowance of the salary paid to the director's daughter, stating that the A.O's decision was not supported by valid reasons. The Tribunal emphasized that the disallowance under Section 40A(2)(b) was unjustified and set aside the CIT(A)'s decision. As a result, the appeal filed by the assessee was partly allowed based on the Tribunal's observations.