2022 (4) TMI 969 - AT - Income Tax

Disallowance of management salaries - HELD THAT - It is abundantly clear that the ITAT order shows that the head management salaries is not included to be considered by the AO, to keep the assessee company alive and very much necessary to be incurred. Therefore, ITAT has not remitted the issue back to the file of the AO. Hence, we do not find any infirmity in the order passed by the Ld.CIT(A) and uphold the same. Accordingly, appeal of the assessee on this ground is dismissed. Disallowance of expenditure in respect of staff salaries - AO disallowed the expenditure related to staff salaries observing that some employees of the assessee company were attending to the obligation to the lessor with regard to the poultry equipment / shed etc and the staff who are regularly attending the duties are paid less @₹ 650/- and @ ₹ 700/- per month, but those who had worked occasionally are paid maximum salaries upto ₹ 3000/- per month - HELD THAT - It is evident that the assessee leased out entire poultry complex. The assessee could not justify as to why an expenditure of around ₹ 80,000/- per month is incurred to maintain one bore well at the cost which is less than ₹ 50,000/- only. We are of the view that when the entire poultry complex has been leased out, there is no justification to pay salaries to six employees. We find no infirmity in the order passed by the Ld.CIT(A) and uphold the same. Accordingly, this ground raised by the assessee is dismissed. Disallowance of expenditure towards vehicle repairs and vehicle maintenance - HELD THAT - The assessee company has leased out the entire poultry complex. The assessee agreed before the AO that the expenditure amounting to ₹ 34,871/- and ₹ 94,274/- incurred related to tractor but not lease income. CIT(A) has allowed only an amount of ₹ 10,033/- spent towards petrol for vehicles used by the staff as there is possibility of incurring this expenditure. We do not find any infirmity in the order passed by the Ld.CIT(A) and uphold the same. Accordingly, the ground raised by the assessee is dismissed. Disallowance of poultry equipment repairs - AO disallowed an amount incurred towards poultry repairs u/s 57(iii) of the Act, observing that the said expenditure was capital expenditure which, as per the lease deed, has to be borne by the lessor i.e. the assessee - HELD THAT - We are of the view that since the poultry complex was leased out, as per the lease agreement, the lessee should bear all the repairs, claims etc. arising out of the maintenance during the lease period. CIT(A) observed from different bills produced that the items are petty in nature, which are to be borne by the lessee. No evidence was produced for the amount claimed of value before the CIT(A) nor before the Tribunal to enhance the capacity of asset under lease, which was treated as the expenditure to be borne by the lessee, but not the lessor. We do not find any infirmity in the order passed by the Ld.CIT(A) and accordingly, uphold the same. Hence, the ground of the assessee is dismissed.

Summary

Issues Involved:
1. Disallowance of management salaries.
2. Disallowance of staff salaries.
3. Disallowance of vehicle repairs and maintenance expenses.
4. Disallowance of poultry equipment repairs.

Issue-wise Detailed Analysis:

1. Disallowance of Management Salaries:
The assessee contested the disallowance of ?72,000/- towards management salaries, arguing that these are essential to keep the company operational. However, the CIT(A) upheld the AO's decision, noting that "management salaries do not qualify for any deduction as it is not essential expenditure to keep the company alive." The Tribunal confirmed this position, stating that the ITAT's prior order did not include management salaries as necessary expenses to keep the company alive. Thus, this ground of appeal was dismissed.

2. Disallowance of Staff Salaries:
The AO disallowed expenses related to staff salaries, noting discrepancies in salary payments and questioning the necessity of such expenses given the leasing arrangement. The CIT(A) upheld this disallowance, observing that "when the entire poultry complex has been leased out, there is no justification to pay salaries to six employees." The Tribunal agreed, finding no infirmity in the CIT(A)'s order and dismissed this ground of appeal as well.

3. Disallowance of Vehicle Repairs and Maintenance Expenses:
The AO disallowed ?34,871/- and ?94,274/- for vehicle repairs and maintenance, respectively, but allowed ?10,033/- for petrol costs. The CIT(A) upheld this decision, noting that the expenses were related to a tractor and not the lease income. The Tribunal found that the CIT(A) correctly allowed only the petrol expenses, as the other costs were not justified. This ground of appeal was also dismissed.

4. Disallowance of Poultry Equipment Repairs:
The AO disallowed ?1,88,242/- for poultry equipment repairs and ?14,870/- for bore well maintenance, citing that these were capital expenditures to be borne by the lessee per the lease agreement. The CIT(A) upheld this, noting that the expenses were routine and should be borne by the lessee. The Tribunal confirmed this view, emphasizing that no evidence was provided to justify the claimed expenses. Consequently, this ground of appeal was dismissed.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on all grounds, finding no infirmities in the disallowances made by the AO. The appeal filed by the assessee was dismissed in its entirety. The order was pronounced in the open court on 19th April 2022.