2023 (8) TMI 1577 - AT - Income Tax

Disallowance of salary expenses made to related party covered u/s 40(A)(2)b) - Ad-hoc addition made to the returned loss - assessee has paid salary to the relatives of the directors who, as per their qualification and experience, are not eligible for such high salary and AO held that the assessee can hire employee of same qualification and experience on a one half of the salary given to the relatives - CIT(A) affirms the action of the AO holding that there is no justification and correlation between the payment of the salary and their contribution to the company. HELD THAT - We find that the AO has not brought anything on record by giving comparable cases to prove that the salary paid to these 11 persons are more than the market average. The disallowance made by the AO was certainly on ad-hoc basis and without any cogent material on record, hence, the disallowance made is hereby directed to be deleted. Appeal of the assessee is allowed.

Summary

The ITAT Delhi allowed the appeal of the assessee against the order of the CIT(A)-22, New Delhi dated 27.06.2018. The AO disallowed salary expenses made to related parties under section 40A(2)(b) of the IT Act, but the ITAT found the disallowance to be ad-hoc and lacking supporting evidence, thus directing its deletion.