2019 (5) TMI 888 - AT - Income Tax

Disallowance of salary expenses - salary expenses had gone up by 268% as compared to last year while turn over showed only marginal increase from ₹ 6.96 Crores to ₹ 7.04 Crores - HELD THAT - Salary has been paid to 7 persons out of which 4 persons are newly employed during the year. The 3 persons to whom salary was being paid last year also are Shri S.B. Jajoo in whose case salary has been increased by ₹ 5,000/- per month. Shri S.B. Jajoo has more than 34 years of experience of running of industry and business. The increase in his salary is by ₹ 5,000/- only and looking to his profile/experience such increase cannot be adversely viewed and no disallowance of salary paid to Shri S.B. Jajoo is warranted. In the case of Smt. Santosh Jajoo the increase in salary is of ₹ 10000/- per month. She has been with the company since 2007-08. No special qualification of Smt. Santosh Jajoo or her work experience to justify the increase in her salary of ₹ 10000/- as against that of ₹ 5000/- in the case of Shri S.B. Jajoo and Shri Pankaj Jajoo has been placed on record. She is one of the family members of the director the increased payment of salary by ₹ 5000/- per month is considered to be excessive and the disallowance of salary in her case to the above extent is confirmed which works out to ₹ 60000/-. In the case of Shri Pankaj Jajoo it has been explained that comparison with last year is not justified as last year salary for two months was paid it was also pointed out that increase in salary is of ₹ 5000/- per month only which looking to the qualification of Shri Pankaj Jajoo who as an engineer was looking after the production was justified. Coming to the salary payment to newly employed personnel, salary is paid to Shri V.S. Gaud at the rate of ₹ 12000/- per month as Accounts Officer and to Shri Sanjay Dixit at the rate of ₹ 10000/- per month as Accountant. As against this salary at the rate of ₹ 25000/- per month has been paid to Smt. Richa Jajoo and Smt. Divya Jajoo employed as office in charge and factory supervisor. No special qualification/experience of Smt. Richa Jajoo and Smt. Divya Jajoo have been placed on record to justify the higher salary paid to them except stating that being family members they were responsible for overall administration etc. and were more trustworthy and dependable. It is seen that, even Smt. Santosh Jajoo was being paid salary of ₹ 15000/- per month from A.Y. 2007-08 before her salary was increased in this year. Considering that both Smt. Richa Jajoo and Smt. Divya Jajoo do not have any other special qualification ₹ 10000/- is considered to be excessive and hence the disallowance to the above extent is confirmed. Disallowance of travelling expenses - HELD THAT - As perused the materials available on record and gone through the orders of the authorities below. We find that the A.O. in para-5 of the assessment order has made addition merely on estimate basis. A.O. has not given any reasoning as to why the expenditure is being disallowed. Therefore, we do not see any infirmity into the order of the Ld. CIT(A) and the same is affirmed. Ground raised in this appeal is dismissed. Addition on account of suppression of sales - HELD THAT - As evident that the CIT(A) has noted the fact that during the course of assessment proceedings as well as appellate proceedings, appellant had pointed out that in respect of trading goods for the assessment year 2009-10, the turnover of ₹ 32,84,698/- was included the turnover of ₹ 14,83,939/- pertaining to the manufactured goods, which was wrongly booked as turnover of the traded goods and hence the profit percentage was showing major variation. CIT(A) has given a finding that the assessee has filed complete details of traded goods for the year under consideration and also the comparative details for the previous year. It is observed by the CIT(A) that the contention of the assessee was found to be verifiable. The revenue has not rebutted these observations by placing any other material on record. Therefore, we do not see any infirmity in the findings of the CIT(A) and the same is hereby affirmed.

Summary

Issues Involved:
1. Disallowance of salary expenses
2. Disallowance of traveling expenses
3. Suppression of sales

Issue 1: Disallowance of Salary Expenses:
The appeal filed by the revenue concerns the disallowance of salary expenses by the Assessing Officer (A.O.) and the subsequent partial allowance by the Commissioner of Income Tax (CIT-A). The A.O. observed a significant increase in salary expenses compared to the previous year, leading to an estimated gross profit addition and other salary-related additions. The Ld. CIT(A) partially allowed the appeal by deleting the addition made on profit estimation and restricting the salary-related additions. The Ld. CIT(A) provided detailed reasoning for each employee's salary increase, considering factors like experience, qualifications, and family relationships. The Revenue's contention was refuted as no contrary material was presented. Consequently, the Tribunal affirmed the Ld. CIT(A)'s decision, dismissing the revenue's appeal.

Issue 2: Disallowance of Traveling Expenses:
The second issue involves the disallowance of traveling expenses by the A.O., which was challenged in the appeal. The A.O. made the disallowance without providing specific reasoning, leading to the Ld. CIT(A) deleting the addition. The Tribunal found that the A.O.'s decision lacked justification and affirmed the Ld. CIT(A)'s order, dismissing the revenue's appeal regarding traveling expenses.

Issue 3: Suppression of Sales:
The final issue pertains to the addition made by the A.O. for the alleged suppression of sales, which was deleted by the Ld. CIT(A). The A.O. based the addition on a decrease in gross profit compared to the previous year. However, the appellant reconciled the discrepancy by explaining the turnover increase and providing detailed information on traded goods. The Ld. CIT(A) accepted the appellant's explanation, noting the verifiability of the information provided. The Tribunal upheld the Ld. CIT(A)'s decision, dismissing the revenue's appeal on the grounds of suppression of sales.

In conclusion, the Tribunal dismissed the revenue's appeal across all issues, affirming the decisions made by the Ld. CIT(A) regarding the disallowance of salary and traveling expenses, as well as the deletion of the addition for the alleged suppression of sales.