×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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This appeal filed by the revenue against order of the CIT(A)-1, Indore dated 28.2.2017 pertaining to the assessment year 2010-11.
2. The facts in brief are that case of the assessee was selected for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) was framed vide order dated 21.3.2013. While framing the assessment, the assessing officer observed that assessee is manufacturing and trading in absorbent cotton and gauge and also trading in medicines. Turnover during the year is Rs.7,04,16,818/-. It was further observed that sales during the year was Rs.7,04,16,818/- and profit before tax was declared at Rs.17,22,229/-. However, turnover in the immediate previous financial year was Rs.6,96,06,648/- and profit before tax was declared at Rs.18,13,435/-. The A.O. noticed that there was increase in salary expenses by 268% as compared to the last year. On the contrary, the turnover has increased marginally to 6.96%. The A.O. rejecting the explanation offered by the assessee estimated gross profit and made addition of Rs.93,35,000/-. The A.O. also made addition out of salary expenses of Rs.9,74,000/- and out of travelling expenses of Rs.3 lakhs. Aggrieved by this, the assessee preferred an appeal before the Ld. CIT(A), who after considering the submissions partly allowed the appeal. Thereby, the Ld. CIT(A) deleted the addition made on account of estimation of profit of Rs.93,35,000/- and also the other additions from the salary was restricted to Rs.3 lakhs. Against this order of the Ld. CIT(A), revenue has preferred the present appeal.
3. Ground No.1 of the revenue’s appeal reads as under:
“1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law by restricting the addition of Rs.9,74,000/- to Rs.3,00,000/- made by the A.O. on account of disallowance of salary expenses by ignoring the finding of the A.O.”
4. Ld. D.R. vehemently argued that the Ld. CIT(A) was not justified in restricting the addition made by the A.O. to Rs.3 lakhs in respect of the disallowance of salary expenses. Ld. D.R. supported the order of the A.O. and submitted that the assessee failed to demonstrate as what work was assigned to the newly employed employees.
5. On the contrary, Ld. Counsel for the assessee supported the order of the A.O. and submitted that all evidences were placed before the A.O. in support of the expenses incurred by the assessee. He submitted that Ld. CIT(A) has thoroughly examined this issued.
6. We have heard the rival submissions, perused the materials available on record and gone through the orders of the authorities below. Ld. CIT(A) has decided this issue by giving finding on fact as under:
5.1 As stated in the assessment order A.O. noticed that salary expenses had gone up by 268% as compared to last year while turn over showed only marginal increase from Rs.6.96 Crores to Rs.7.04 Crores. A.O. also took an adverse view on excessive salary paid to family members of director. From the material placed on record it is seen that salary has been paid to 7 persons out of which 4 persons are newly employed during the year. The 3 persons to whom salary was being paid last year also are Shri S.B. Jajoo in whose case salary has been increased by Rs.5,000/- per month. Shri S.B. Jajoo has more than 34 years of experience of running of industry and business. The increase in his salary is by Rs.5,000/- only and looking to his profile/experience such increase cannot be adversely viewed and no disallowance of salary paid to Shri S.B. Jajoo is warranted.
5.2 In the case of Smt. Santosh Jajoo the increase in salary is of Rs.10000/- per month. She has been with the company since 2007-08. No special qualification of Smt. Santosh Jajoo or her work experience to justify the