2020 (2) TMI 544 - AT - Income Tax

Disallowance on account of salary expenditure - failure of the assessee to furnish the relevant details and documents - addition sustained by the ld. CIT(Appeals) to the extent of 90% - HELD THAT - In view the factum and quantum of these investment activities carried on by the assessee-company during the year under consideration, which is duly taken note of by the Assessing Officer in paragraph no. 2.1 of the assessment order and having regard to the fact that the status of the assessee being a Company, which is required to comply with the statutory requirement, we are of the view that the disallowance of 90% of the expenditure claimed by the assessee on account of salary and bonus as sustained by the ld. CIT(Appeals) is highly excessive and unreasonable. According to us, it would be fair and reasonable in the facts and circumstances of the case to restrict the disallowance made by the Assessing Officer on account of salary and bonus to 50%. We accordingly modify the impugned order of the ld. CIT(Appeals) on this issue and restrict the disallowance made by the Assessing Officer on account of salary and bonus to 50%. - Appeal of the assessee is partly allowed.

Summary

Issues: Disallowance of salary expenditure

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of ?17,55,000 made by the Assessing Officer on account of salary expenditure. The assessee, an Investment Company, declared a total income of ?51,350 and debited ?17,64,680 on account of salary and bonus in the Profit & Loss Account. The Assessing Officer disallowed the expenditure as bogus due to the failure of the assessee to provide relevant details of salary and bonus paid to nine employees. The ld. CIT(Appeals) upheld the disallowance to the extent of 90%. The Tribunal found the disallowance excessive and unreasonable, considering the investment activities of the company, which had increased its investment in unlisted equity shares significantly during the year. The Tribunal modified the order, restricting the disallowance to 50%.

The Tribunal noted that the assessee, being a Company engaged in investment activities, had significantly increased its investment in unlisted equity shares during the relevant year. The Tribunal considered the recovery of loans and advances amounting to ?2.89 crores, which were invested in equity shares of unlisted companies. The Tribunal found the 90% disallowance of the salary and bonus expenditure to be excessive and unreasonable, given the company's investment activities and statutory compliance requirements. Therefore, the Tribunal reduced the disallowance made by the Assessing Officer from 90% to 50%, considering the facts and circumstances of the case.

In conclusion, the Tribunal partly allowed the appeal of the assessee by modifying the order of the ld. CIT(Appeals) and restricting the disallowance of salary and bonus expenditure to 50%. The order was pronounced in the open court on January 08, 2020.