2021 (8) TMI 500 - AT - Income Tax

Disallowance 50% of salary and bonus expenses - reliance on books of account lying seized with the department. HELD THAT - From perusal of contents of assessment order dated 29.03.2016 passed under section 143(3) r.w.s. 145C/254, we find that the matter was restored back to the file of the A.O. with the direction to consider the books of account lying seized with the department, though the assessee was directed to provide documents and details when called by the A.O - as directed to provide the information within the fifteen days of receipt of order or fixing the date of hearing. A.O. nowhere recorded that he has considered the books of account lying seized with the department. A.O. observed that salary and bonus expenses are increased comparative to earlier assessment and disallowed 50% of salary and bonus expenses. A.O. has not rejected the books of accounts. There is not finding that salary and bonus expenses are bogus and not verifiable. CIT(A) conferred the order of A.O. by taking that no details were furnished. At the cost of repetition, we may note that ld. CIT(A) passed the order of ex parte without verification of facts and following the mandate of order of Tribunal. CIT(A) in A.Y. 2007-08 while deleting the addition find that no discrepancy in the books of account was pointed out while making disallowance of salary and bonus. Further, reasonableness of salary was not questioned. The ld. CIT(A) in subsequent year also observed that the A.O. has not appreciated Star TV has increased their rates many times because of broadcasting system from analogue system to digital system by Telecom Regulatory Authority of India (TRAI). Considering the details discussion and the relief granted by ld. CIT(A) in subsequent year, on identical facts, we find that the ground of appeal raised by Revenue is squarely covered in favour of assessee.

Summary

Issues:
1. Disallowance of 50% of salary and bonus expenses.
2. Failure to furnish requisite details and evidences before the authorities.
3. Consideration of books of accounts seized with the department.
4. Comparison with a similar case for A.Y. 2007-08.

Analysis:
1. The appeal was against the addition of ?10,55,000 on account of disallowance of 50% of salary and bonus expenses. The initial assessment under section 143(3) r.w.s. 153C made significant additions to the income. The matter was sent back to the Assessing Officer (AO) as the books of accounts seized were not considered. The AO added ?10.55 lakhs as 50% of salary and bonus expenses in the subsequent assessment order. The CIT(A) dismissed the appeal ex parte, citing lack of necessary documents and explanations from the assessee. The Tribunal noted that the AO did not reject the books of accounts and did not find the expenses to be bogus. The Tribunal referred to a similar case for A.Y. 2007-08 where the addition was deleted due to lack of defects or discrepancies in the books of accounts. As the facts were identical, the Tribunal allowed the appeal, as no useful purpose would be served by sending the matter back to the CIT(A).

2. The assessee failed to provide necessary details and evidences before the authorities, leading to the dismissal of the appeal by the CIT(A). The AO observed a significant increase in salary and bonus expenses but did not find them to be unjustified or unverifiable. The Tribunal emphasized that the reasonableness of salary payments is based on commercial expediencies and business requirements, which the AO failed to consider. The Tribunal referenced a case for A.Y. 2007-08 where similar grounds were allowed due to lack of defects or discrepancies in the books of accounts.

3. The direction to consider the books of accounts seized with the department was not fully complied with by the AO. Despite being asked to provide necessary documents and details, there was no explicit mention in the assessment order that the seized books of accounts were considered. The Tribunal found that the AO did not reject the books of accounts and made the disallowance without sufficient justification or verification.

4. The Tribunal compared the present case with a similar case for A.Y. 2007-08, where the addition of salary and bonus expenses was deleted due to lack of defects or discrepancies in the books of accounts. The Tribunal noted that the CIT(A) in the subsequent year granted full relief to the assessee based on similar facts and directions from the Tribunal. As a result, the appeal for the current year was allowed based on the precedent set in the earlier case.

This detailed analysis highlights the key issues raised in the appeal and the Tribunal's decision based on the facts and legal considerations presented during the proceedings.