2017 (2) TMI 27 - AT - Income Tax

Disallowance of salary expenses - CIT(A) deleting the 50% of disallowance in connection with its business of cargo handling operations - Held that - The assessee has identified the personals who were involved in cargo handling activity and those who were involved in cost construction activity and computed the salary cost of these employees. The assessee has debited total cost to the assessee on account of these employees amounting to ₹ 7.53 crores out of which an amount of ₹ 2.47 crores pertains to those, who were involved in the business of cargo handling operation and ₹ 5.06 crores pertains to the employees who were involved in the construction work. The AO has not doubted the genuineness of the claim of expenses. It is also note that the case of the AO that the assessee failed to prove the expenditure or fail to produce cogent and convincing evidence in support of the claim of expenditure and therefore, there is no good reason to disallow the expenditure claimed by the assessee on adhoc basis. It is also not in doubt that the expenditure is not for the purpose of business. The only reason for disallowance of expenses was that the assessee is unable to submit any log-sheet bifurcating salary expenses for CWIP and the claim made against cargo handling activities. In reply to this the assessee has to explain that on the basis of ratio of receipt the expenditure has been split between the P&L and CWIP. In view of these facts, we find no infirmity in the order of CIT(A) and hence the same is confirmed. Hence, this issue of Revenue s appeal is dismissed.

Summary

Issues:
- Disallowance of salary expenses for cargo handling operations

Analysis:
The Revenue appealed against the CIT(A)'s decision to delete the disallowance of salary expenses related to cargo handling operations. The Revenue contended that the disallowed amount was 50% of the total salary expenditure incurred by the assessee. The AO disallowed this amount due to insufficient proof that the expenses were exclusively for cargo handling work. The AO raised concerns about the allocation of salary expenses between revenue-generating activities and capital work-in-progress (CWIP). The CIT(A) reversed the disallowance, emphasizing that the assessee had properly bifurcated the expenditure between revenue-generating and capital activities. The CIT(A) shifted the burden to the AO to disprove the assessee's claim. The Tribunal noted the assessee's detailed allocation of salary costs for cargo handling and construction activities. The Tribunal found no fault in the CIT(A)'s decision and confirmed the deletion of the disallowance.

The Tribunal highlighted that the assessee meticulously identified employees involved in cargo handling and construction activities, accurately computing their salary costs. The genuineness of the expenses was not in question. The AO's disallowance was based on the absence of a log-sheet segregating salary expenses for CWIP and cargo handling activities. However, the assessee clarified that expenses were split based on a receipt ratio. The Tribunal concluded that the disallowance lacked substantial evidence and upheld the CIT(A)'s decision. Consequently, the Revenue's appeal was dismissed, affirming the deletion of the disallowance of salary expenses for cargo handling operations.