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TMI Blog2011 (1) TMI 1369X X X X Extracts X X X X X X X X Extracts X X X X ..... ee cheque/draft to M/s. Ram Saran Rakesh Saran. In response to the query, the assessee submitted that no cash payment has been made to party for ₹ 27,674. The AO, therefore disallowed 20% of the same under Section 40A(3) of the Income-tax Act,1961(In short the Act ). On appeal, the ld.CIT(A) confirmed the addition. 5. We have heard the rival submissions. Shri Prakash Narain, Advocate and Shri S.D.Seth, Advocate,ld. Counsels for the assessee submitted that payment made to M/s. Ram Saran Rakesh Kumar, as the AO has himself stated, was made by pay order. Shri Prakash Narain, Advocate and Shri S.D.Seth, Advocate,ld. Counsels for the assessee submitted that the authorities below have failed to understand the fact that pay order is a banker cheque and is account payee only and provisions of Section 40A(3) do not apply to payment by pay order. 6. In view of the above submissions of Shri Prakash Narain, Advocate and Shri S.D.Seth, Advocate,ld. Counsels for the assessee, we allow ground No.2 of the appeal. 7. Grounds No.3 to 7 of the appeal are directed against the action of the ld. CIT(A) in disallowing salary of ₹ 1,86,000. 8. The AO has discussed this issue in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, Advocate and Shri S.D.Seth, Advocate, ld. Counsels for the assessee pointed out that during the course of appellate proceedings before the ld. CIT(A), the following submissions were made : The Leaned Assessing Officer has made addition of ₹ 2,23,700 out of salary expenses as under : Total salary of 10 persons 1,86,200 Part Salary of Dipti Singh 31,500 Part Salary of Kuldeep Mishra 6,000 Total 2,23,700 The Learned Assessing Officer had vide notice u/s 143(3) of 7.12.2007 desired to record the statement of these 12 persons. Earlier during the proceedings, the Learned Assessing Officer has asked for and was provided the details of salary register and on 8.10.2007 was also provided for photocopy of salary register (Page 93 to 127 of Paper Book).All salary paid is vouched and verifiable through salary register. In past salary was never disallowed (Page 128 129 of Paper Book).The comparative chart is as under : Asstt.Year Total Sales In Core Salary a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se casual labours who were to be produced. were working with the appellant. It is to be considered that it is now more 2 years when these labours were working with us. The address was given to the Learned Assessing Officer as was provided to us by these labours that are migratory in nature and appellant cannot first verify their address and then let them work on manual labor work. The Learned Assessing Officer has disallowed entire wages of these 10 labourers who could not be produced. The Learned Assessing Officer has disallowed the part salary of Ms Dipti Singh on the basis of her statement, during examination Ms Dipti Singh has referred Devlok Hatcheries as Devlok Distributors as the office is more dominantly known as Devlok Distributors and major portion of office is used by them and maximum staff working in that building belongs to Devlok Distributors this fact has been clarified by Ms Dipti Singh in her cross examination statement but ITO has however chosen to ignore this fact. ITO has also disallowed the salary of Mr. Kuldeep on basis of his statement that he does not remember his exact salary in year 2004-05 still an addition of ₹ 6,000/- has been made by partly d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Lower Court erred in disallowing 10% ₹ 35,604 of the following expenses on ad hoc basis when the expenses were fully supported. 1. Travelling and Conveyance 67,634 2. Telephone 83,443 3. Car running 89,946 4. Car Depreciation 1,20,024 9. That the expenses disallowed are too excessive, arbitrary and without any basis. 13. During the course of assessment proceedings, the AO found that the assessee claimed Travelling and Conveyance expenses of ₹ 67,634, Postage and Telephone expenses of ₹ 83,443 and car and moped running expenses at ₹ 84,946. The AO asked the assessee to furnish the log book and Call Register to verify whether the expenses were for business purposes or not. The assessee failed to produce any voucher, Call Register and Log Book and hence the AO disallowed 20% of these expenses and also disallowed depreciation for personal use as well as unvouched expenditure as under : 1. Travelling and Conveyance 67,634 2. Telephone 83,443 3. Car running 89,946 4. Car Depreciation 1,20,024 Rs.3,56,047 X 20% = ₹ 71,209 14. On appeal, the ld.CIT(A) reduced the disallowance to 10% of the aggregate of above expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard the rival submissions and have also perused the materials available on record. We find that the issue is directly covered in favour of the assessee and against the Revenue by the decision of the I.T.A.T., Delhi Bench in the case of Dy.CIT vs. P.U.R.Polyurethene Products (P.) Ltd., 1999-(64)-TTJ-597 (TDEL),wherein vide para 11 of the order, the Tribunal held as under : 11. Coming to the assessee's appeal in ITA No. 64/Del/1992 the first ground relates to loss on chit of ₹ 66,947. The AO disallowed the claim of the assessee on the ground that the participation in the chit fund did not constitute the business of the assessee and the disallowance made in this regard was called for in view of the decision of the Punjab Haryana High Court in the case of Soda Silicate Chemical Works vs. CIT, (1989) 179 ITR 588 (P H). The learned CIT(A) confirmed the finding of the AO on the same reasoning as given by the AO. In this context, we find that the assessee was a regular subscriber to the chit fund. It participated in the auction of the chit and in that process received a fixed money which was used for the purposes of business. In the process a loss was incurred by him w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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