2022 (6) TMI 788 - AT - Income Tax

Disallowance of expenses - interest payment or salary payments - HELD THAT - It is an undisputed fact that the assessee was a working partner in three firms viz., M/s. Ganesh Metal Industries, M/s. Muthalamman Metal Industries and M/s. Ramana Metals. In order to cope up with the firms' activities and as per allocation of work to the assessee-partner, such as, day-today banking operations, collections from parties in and around Chennai, staff management, production supervision, stock management control and general office administration, etc., the assessee has engaged employees and made payments from her own remuneration. In fact, as per work allocation, the assessee-partner was permitted to hire personnel to assist her in clerical works by way of paying salary to them out of her share of partner salary received by her without any further delegation from the firm. On perusal of the details of employees engaged by the assessee and confirmation letters of having receipt of salary and also proved identity of the employees beyond doubt for the assessment year 2013-14, which is similar to the assessment year 2010-11 as has been submitted by the ld. Counsel for the assessee, we are of the considered opinion that the assessee should be allowed to claim the expenses incurred by her as the firms have already debited all expenses in their books of accounts in respect of the business activities. The assessee was not prohibited from making such claim of expenditure, which she has actually incurred and directly related to the income earned. Under the above facts and circumstances, the expenditure claimed by the assessee is allowed. Revision u/s 263 - AY 2013-14 - HELD THAT - Similar claim of expenses for the assessment year 2010-11 has been accepted by the Tribunal, herein above, in lieu of furnishing confirmation from the employees and their identity for the assessment year 2013-14. Since the Tribunal has accepted similar claim of expenses for the assessment year 2010-11, the claim of expenses for the assessment year 2013-14 is also accepted and the revision order passed by the ld. PCIT for the assessment year 2013-14 is quashed.

Summary

Issues:
1. Delay in filing appeals for assessment years 2010-11 and 2013-14.
2. Reopening of assessment under section 147 of the Income Tax Act, 1961.
3. Disallowance of expenses claimed by the assessee for assessment year 2010-11.
4. Disallowance of expenses claimed by the assessee for assessment year 2013-14.

Issue 1: Delay in filing appeals
The appeals filed by the assessee were delayed by 79 days for the assessment year 2010-11 and 275 days for the assessment year 2013-14. The assessee filed a petition for condonation of delay, explaining detailed reasons for the delay. The Tribunal, considering the reasonable cause for the delay, condoned the delay and admitted the appeals for adjudication.

Issue 2: Reopening of assessment under section 147
The first effective ground raised in the appeal for the assessment year 2010-11 related to the reopening of assessment under section 147 of the Income Tax Act. The assessee did not press this ground during the hearing, leading to the dismissal of this ground.

Issue 3: Disallowance of expenses for assessment year 2010-11
The significant issue was the confirmation of disallowance of expenses claimed by the assessee amounting to ?5,92,160 for the assessment year 2010-11. The Assessing Officer disallowed the expenses claimed by the assessee as there was no evidence supporting the expenses incurred by the assessee and their nexus to the remuneration earned. The CIT(A) confirmed the addition. However, the Tribunal allowed the claim of expenses after considering the detailed submissions and evidence provided by the assessee, including confirmation letters of employees and their identity, proving a direct nexus between the expenses and the income earned.

Issue 4: Disallowance of expenses for assessment year 2013-14
A similar claim of expenses amounting to ?6,12,548 for the assessment year 2013-14 was also under dispute due to a revision order passed under section 263 of the Income Tax Act. The Tribunal, having accepted the claim of expenses for the assessment year 2010-11 based on evidence provided, also allowed the claim of expenses for the assessment year 2013-14. Consequently, the revision order passed by the ld. PCIT for the assessment year 2013-14 was quashed.

In conclusion, both appeals filed by the assessee were allowed by the Tribunal on 8th June 2022 in Chennai, based on the detailed analysis and evidence presented regarding the expenses claimed by the assessee for the respective assessment years.