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TMI Blog2017 (3) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... nce on account of salary being excessive has been made by the Revenue authorities. We further find that Hon’ble Bombay High Court in the case of CIT Vs. Indo Saudi Services (Travel) P. Ltd (2008 (8) TMI 208 - BOMBAY HIGH COURT) after considering the CBDT Circular No.6-P, Dt. 6th July, 1968 has held that no disallowance of expense can be made when the person to whom the payment is made is also assessed at higher rate and there is no evasion of tax. Thus we are of the view that in the present case, no disallowance of expenses u/s 40A(2)(b) is called for and therefore direct its deletion. - Decided in favour of assessee - ITA No.724/PUN/2014 - - - Dated:- 1-3-2017 - MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM Appellant by : Shri Nikhil Pathak Respondent by : Shri Suhas Kulkarni ORDER Per Anil Chaturvedi, AM This appeal filed by the assessee is emanating out of the order of Commissioner of Income Tax (A) V, Pune dt.11.02.2014 for the assessment year 2010-11. 2. The relevant facts as culled out from the material on record are as under :- 2.1 Assessee is a company stated to be engaged in the business of trading in sports accessories and goods. Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pholding the addition u/s 40A(2)(b) of ₹ 8,40,000/- made in respect of disallowance of 50% of salary paid to Mrs. Divya Kharbanda, wife of the director without appreciating that the said addition was not warranted on facts of the case. 7. The learned CIT(A) erred in holding that the salary of ₹ 16,80,000/- paid to Mrs. Divya Kharbanda was in excess of the salary paid to other employees doing similar work and therefore, the disallowance of ₹ 8.40 lacs made by the learned A.O. u/s 40A(2)(b) was justified on facts of the case. 8. The learned CIT(A) failed to appreciate that Mrs. Kharbanda was in charge of the entire operations of the assessee company in the Northern India region including overall administration of the company and various other functions and hence, the salary of ₹ 16.80 lacs paid to her was quite reasonable considering the services rendered by her and therefore, the addition made was not justified on facts of the case. 9. The learned CIT(A) ought to have appreciated that the income of Mrs. Kharbanda was taxable at maximum marginal tax rate and therefore, there was no loss of revenue and hence, the addition made by the learned A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d back unserved in respect of the above parties, This being so, the onus again shifted on the appellant to produce the parties and file present addresses of those parties so that necessary verification could be carried out. The appellant has not been able to discharge this onus. The appellant has relied upon the decision of Hon'ble Bombay High Court in the case of CIT- 1, Mumbai Vs. Nikunj Eximp Enterprises Pvt. Ltd., for the proposition that addition cannot be made even if purchases are found to be bogus. I have gone through the order of Hon'ble Bombay High Court and it is seen that the appeal filed by the Revenue has been dismissed on the ground that no question of law arises as Tribunal's order was based on proper reasoning taken into account all the facts before concluding that purchases of ₹ 1.33 crores was not bogus. Since the appeal filed by the Revenue was dismissed on the ground that no substantial question of law arises the appellant cannot derive any support from the above judgment of Hon'ble Bombay High Court, as the Assessing Officer has held that the purchases are not genuine on the basis of enquiries conducted. The appellant has not been able to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to which the assessee inter-alia submitted that she is a whole-time employee of the company and in-charge of entire operations of North India and is which is based in Jalandhar. It was further submitted that she represents the management of the company. The submission of the assessee was found not acceptable to AO inview of the fact that the other employees of the assessee having similar designations were paid salary of ₹ 2,50,000/- to ₹ 3,00,000/- per annum, as against the salary of ₹ 16,80,000/- paid to Mrs. Divya Kharbanda, no documents were furnished by assessee to establish that the salary paid to Mrs. Divya Karbanda was commensurate with the services rendered by her. AO therefore concluded that the salary paid was excessive and disproportionate and accordingly disallowed 50% of salary amounting to ₹ 8,40,000/-. Aggrieved by the order of AO, assessee carried the matter before ld. CIT(A), who upheld the order of AO by holding as under : 13. I have carefully considered the facts of the case as well as reply of the appellant. In this case it is seen that the appellant company has wrongly mentioned the disallowance amount at ₹ 15 lacs though i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services reported in (2009) 310 ITR 306 (Bom). Ld. D.R. on the other hand supported the order of AO and ld. CIT(A). 11. We have heard the rival submissions and perused the material on record and the issue in the present case is with respect to disallowance of salary expenses u/s 40A(2)(b) of the Act. It is an undisputed fact that assessee has paid salary of ₹ 16,80,000/- to Mrs. Diviya Kharbanda who is a person specified u/s 40A(2)(b) of the Act. In terms of Sec.40A(2)(a) of the Act, the onus is on the AO to form an opinion that the expenditure claimed as excessive / unreasonable having regard to the fair market value for which the payment is made. This opinion of the AO of the expenditure being excessive / unreasonable cannot be arbitrary but must be on the basis of determining the fair market value for which the payment is made. The opinion of the AO should be formed objectively from the point of view of a prudent businessman and after taking into account all relevant circumstances and should not be, influenced by immaterial considerations. If the AO was of the opinion that the payment for which deduction is claimed is excessive / unreasonable then in that case it is for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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