2023 (8) TMI 761 - AT - Income Tax

Disallowance of salary expenses - allowable business expenses or not? - AO considering the volume of business activities of providing credit facility, the staff is sufficient and disallowed the salary of employee engaged for collection charges - assessee submits that the expenses was incurred for the employee engaged for daily collection and expenses were incurred wholly and exclusively for the purpose of its business - HELD THAT - As the assessee is the best person to assess its requirement for smooth functioning of its affairs. The existence of person to whom such salary was paid is not doubted by the assessing officer, rather held that there is sufficient staff with the assessee. The action of AO was not justified to assess the justification of number of employees or their expenses, therefore, direct AO to allow the salary expenses to the assessee. Decided in favour of assessee.

Summary

Issues Involved:
The appeal involves the following grounds:
1. Deduction u/s 80P not granted as per rectification and restricted amount.
2. Deduction of interest and dividend not allowed as claimed u/s 80P.
3. Disallowance of Rs. 1 lakh from salary.
4. Non-granting of deduction for interest and dividend received from Co.Op Bank.
5. Increase in tax amount from Rs. 29,059 to Rs. 5.19 lakhs.
6. Failure to appreciate various decisions in favor of the appellant.

Delay Condonation Application:
The appellant filed an appeal against the order of the Commissioner of Income Tax (Appeals) with a delay of 152 days, citing the illness and subsequent death of the secretary's father as the reason for the delay. The Authorized Representative explained the circumstances leading to the delay, emphasizing that it was beyond their control. The Senior Departmental Representative opposed the condonation, claiming insufficient reasons for the delay. The Judicial Member found the explanation reasonable and condoned the delay, emphasizing the principle of substantial justice prevailing over technical considerations.

Grounds of Appeal Dismissed:
During the hearing, the appellant decided not to press grounds 1, 2, 4, and 6 of the appeal, which were subsequently dismissed. Ground 5 regarding the tax demand was deemed premature as the rectification application was still pending before the Assessing Officer.

Disallowed Salary Expenses:
The appeal contested the disallowance of Rs. 1 lakh from salary expenses by the Assessing Officer. The appellant, a cooperative society, explained that the expenses were incurred for an employee engaged in daily collection activities, essential for its business operations. The Commissioner of Income Tax (Appeals) upheld the disallowance, prompting the appeal to the Tribunal. The Judicial Member, after hearing both parties, concluded that the Assessing Officer's disallowance was unjustified. The Tribunal directed the Assessing Officer to allow the salary expenses of Rs. 1 lakh to the appellant, resulting in the appeal being allowed.

This summary provides a detailed overview of the issues involved in the legal judgment, the delay condonation application, the dismissal of certain grounds of appeal, and the decision regarding the disallowed salary expenses.