Remand Required to Verify Dual Salary Ledgers and Cash Payment Claims Under Section 40A(3)

ORDER

Ratnesh Nandan Sahay, Accountant Member.- This is an appeal filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi [In short, ‘the ld.CIT(A)’] dated 22/07/2025 for the assessment year (AY) 2018-19 wherein the assessee has raised following grounds of appeal:

“1. On the facts and in the circumstances of the case as well in law, the learned CIT (Appeals), NFAC, New Delhi has erred in upholding AO’s action making disallowance of business expenditure incurred on account of salaries paid to the employees to the extent of Rs. 22,41,000/-, purely on gross misinterpretation, misconstruction and misapplication of the provisions of Section 40A(3) of the Act and under misconceptual, arbitrary and perverse observations and hence, being without jurisdiction, bad in law, in-valid, illegal, unwarranted of facts, is liable to be quashed or annulled in toto.

2. On the facts and in the circumstances of the case as well in law, the learned CIT (Appeals), NFAC, New Delhi has erred in providing proper opportunity of being heard and passed the ex-parte order, without granting hearing through Video Conferencing even though specifically requested to the CIT(A) and hence, the order passed by the CIT(A) is against the principles of natural justice and hence, being without jurisdiction, bad in law, in-valid, illegal, is liable to be quashed or annulled in toto.

3. Your appellant further reserves his rights to add, alter, amend or modify any of the aforesaid grounds before or at the time of hearing of an appeal.”

2. Facts of the case, in brief, are that the assessee is a commission agent of Gujarat Gas Limited and running a CNG Filling Station. Original return of income was filed by the assessee on 06/10/2018 for the assessment year under consideration declaring total income at Rs. 6,54,710/-. The said return of income was processed under Section 143(1) of the Income Tax Act, 1961 (in short, the Act) and thereafter selected for scrutiny under CASS. Notice under Section 143(2) and 142(1) of the Act were issued from time to time. In response to which, the assessee submitted the details called for under e-filing portal under the faceless assessment scheme. During the assessment proceedings, the assessee was asked by the Assessing Officer to furnish party-wise details of expenses mentioning name, address, PAN, total payment paid during the year, balance outstanding, mode of payments alongwith supporting documents. In response to which, the assessee filed ledger extract of the expenses before the Assessing Officer. The Assessing Officer on verification, found that the assessee has submitted two ledger accounts of supervisor salary expenses for the same period (F.Y. 2017-18). On perusal of the ledger accounts of salary expenses, it was found by the Assessing Officer that the assessee had made cash payment of Rs. 3,45,600/- (Rs. 28,800/- per month) and Rs. 35,28,000/- (Rs. 2,94,000/- per month) to supervisor and filler respectively. The Assessing Officer has noted in the assessment order that on a plain sight of these ledger accounts reveals that in salary expenses there are same amount debited to ledgers each month on a certain date (mostly on the last date of month) during the year. Further the Assessing Officer observed on perusal of the submissions made by the assessee uploaded on 05/03/2021 that in the first ledger of supervisor salary contains the name of three supervisors i.e. Karan Shah, Sanjay Vaniwala & Sagar Gandhi and shown the payment of Rs. 9,500, Rs. 9,800 & Rs. 9,500/- per month respectively and payment shown in cash. Whereas the second ledger of supervisor salary submitted on 06/03/2021, contains the name of two supervisors i.e. Hasmukh Budhiyabhai Patel & Sanjay Vaniwala and shows payment of Rs. 21,300 & Rs. 7,500 respectively for each month and payment is shown in cash. Further in the covering letter submitted on 05/03/2021, the total amount paid to supervisors mentioned at Rs. 2,55,600/- to Hasmukh Budhiyabhai Patel and Rs. 90,000/- to Sanjay Vaniwala. Hence there is mismatch in details submitted by assessee on different dates regarding payment to Supervisors and it appears that assessee has submitted different details to mislead assessment proceedings.

Similarly, monthly salary above Rs. 10,000/- is shown to 8 fillers and payments were made in cash. The Assessing Officer, therefore, held that it was clear that the salary expenses of supervisors and fillers are similar for each month during the year under consideration. The Assessing Officer, therefore, has stated in the assessment order that it is hard to believe that these statements are genuine as salary expenses for each month cannot be same due to leaves, quitting job and addition of new employees on the ground that the assessee failed to produce any supporting documents explaining the same and the ledger accounts submitted by the assessee, the same to be not genuine and fabricated. The Assessing Officer, accordingly, added a sum of Rs. 22,41,000/-under Section 40A(3) of the Act and added the same to the total income of the assessee.

3. Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the ld. CIT(A), who vide the impugned order, dismissed the appeal of the assessee and confirmed the addition made by the Assessing Officer on the ground that the assessee was not able to show that the decision of the Assessing Officer was arbitrary, biased, irrational, vindictive or capricious without any basis on the ground that the assessee did not file any explanation to substantiate the expenses incurred by the assessee despite the fact that several notices were issued to the assessee as per the details given on page No. 4 of the impugned order.

4. Aggrieved by the order of the ld. CIT(A), the present appeal has been filed before this Tribunal.

5. During the course of appellate proceedings, detailed written submissions alongwith ledger extracts, copy of cash book etc. were filed before us and it was claimed that the expenses incurred were genuine.

6. On the other hand, the ld. Sr. DR supported the orders of the lower authorities.

7. We have carefully considered the facts of the case and the material available on record and also considered the submissions made by the appellant’s counsel. Since the appellant has submitted voluminous details of the expenses incurred and claimed to have been duly reflected in the books of account, we consider it appropriate to restore the matter back to the file of the Assessing Officer to examine the same after affording the appellant adequate opportunity of being heard. The appellant is also directed to appear before the Assessing Officer alongwith all the details which was submitted before us and substantiate the genuineness of the expenses made by the appellant.

8. In the result, this appeal of the assessee is allowed for statistical purposes only.