2020 (2) TMI 1230 - AT - Income Tax

Addition u/s 37(1) under the Head Salary Expenses - HELD THAT - The Assessee Corporation is receiving grants on annual basis and the said grants have been used by the Corporation in accordance with the directions of the Government. In preceding assessment year, A.O. has accepted the same claim of the assessee without any objection. Therefore, when same policy have been followed by the assessee and accepted by the A.O, he should not have taken a different stand. Further assessee has made it very specifically clear that salary is paid to all old employees who worked for the assessee and expenses are genuine. All TDS have been deducted on the salary and paid to the Government. All the employees have worked for assessee. It is, therefore, clear that assessee incurred the salary expenses which are exclusively for the purpose of business activities. No case is made out by the A.O. by making salary payment, if the same is offence or which is prohibited by Law. Therefore, Explanation-1 to Section 37 would not be attracted in the case of assessee, which is contended in the grounds of appeals by the Revenue. There is, thus, no justification to interfere with the Orders of the Ld. CIT(A). We confirm his finding and dismissed the appeal of the Revenue.

Summary

Issues Involved:
- Challenge of deletion of addition under section 37(1) of the I.T. Act, 1961 for the A.Y. 2011-2012 and 2012-2013.

Analysis:
- Issue 1: Addition of Salary Expenses for A.Y. 2011-2012
- The Department challenged the deletion of an addition of ?1.78 crores under section 37(1) related to salary expenses. The Assessee maintained that the expenses were legitimate and in line with the policy of accounting for grants received. The A.O. contended that the sudden rise in salary expenses was due to diverting grant-related expenditure to regular accounts.
- The Assessee explained that the grants received were used as per government directions, and any excess expenditure over grants was shown as a liability. The Ld. CIT(A) deleted the addition, emphasizing that the Assessee had consistently followed the policy, and the salary expenses were justified for business activities.

- Issue 2: Addition of Salary Expenses for A.Y. 2012-2013
- The Department challenged the addition of ?2,37,60,000 under section 37(1) for salary payment. The Ld. CIT(A) deleted the addition based on the decision for the previous year. The Tribunal dismissed the appeal, following the same reasoning as for the A.Y. 2011-2012.

- Conclusion:
- The Tribunal dismissed both appeals by the Revenue, upholding the decisions of the Ld. CIT(A) regarding the deletion of salary expense additions for both A.Y. 2011-2012 and 2012-2013. The Assessee's consistent adherence to grant accounting policies and the genuine nature of the expenses were key factors in the decisions.