Salary paid to son not disallowable for want for qualification if due to his efforts receipts of business has increased
IN THE ITAT CHANDIGARH BENCH ‘A’
Assistant Commissioner of Income-tax
AND T.R. SOOD, ACCOUNTANT MEMBER
IT APPEAL NO. 684 (CHD.) OF 2012
[ASSESSMENT YEAR 2008-09]
MAY 25, 2015
Sudhir Seghal and Ashok Goyal for the Appellant. S.K. Mittal for the Respondent.
Bhavnesh Saini, Judicial Member – This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax (Appeals)-II, Ludhiana dated May 28, 2012 for the assessment year 2008-09.
2. We have heard the learned representatives of both parties and perused the material available on record.
3. Ground No. 1 is general and needs no adjudication.
4. On ground No. 2, the assessee challenged the addition of Rs. 1,53,000 made on account of disallowance under section 40A(2)(b) of the Income-tax Act, 1961.
5. The brief facts are that during the year under consideration the assessee had claimed an amount of Rs. 11,76,000 under the head “Salary and wages”. Out of this, the assessee has paid salary of Rs. 2,25,000 to his son Shri Amandeep Kumar and Rs. 1,59,000 to his son Shri Daniel. The Assessing Officer noted that during the year maximum salary paid to the other employees is Rs. 84,000 per annum. The Assessing Officer further noted that Shri Amandeep Kumar was only 10th pass and not technically qualified. The Assessing Officer accordingly held that salary paid to Shri Amandeep Kumar was excessive. The Assessing Officer disallowed Rs. 1,53,000 out of salary paid to Shri Amandeep Kumar under section 40A(2)(a) of the Act.
6. The assessee challenged the addition before the learned Commissioner of Income-tax (Appeals) and written submission is quoted in the impugned order, in which the assessee briefly explained that the assessee is approximately 57 years of age and is engaged in the business/profession of providing services of crane on job work basis for construction of bridges, heavy load machinery and in uplifting of machinery in furnaces meaning thereby the business/profession of providing the services with the aid of cranes which can basically be done by the young and energetic persons. The cranes could not be operated by every labourer and need experience to operate the same. Any mishappening of the cranes can cost in lakhs of rupees for its repair and maintenance. The safety of the cranes is also required. The assessee could hire the services from outside sources but which would cost more. The sons of the assessee would be in a better position to take care of the cranes. Therefore, the salary paid to them was quite genuine and reasonable. The salary paid to Shri Daniel, who is a mechanical engineer and has knowledge, the salary was reasonable in the present assessment year. The total receipts of the assessee in the preceding year were of Rs. 35.17 lakhs and the salary/wages paid were Rs. 7,20,000 whereas during the year under appeal the receipts are of Rs. 76.72 lakhs, against which salary/wages were paid to the tune of Rs. 11.76 lakhs. The expenses are lesser as compared to the earlier years ratio and receipts are more as compared to the earlier years. Therefore, no unreasonable salary has been paid. It was also submitted that both the sons of the assessee were doing job for about 11 to 13 hours in a day, whereas the workers would be available for 6 to 7 hours in a day and considering the more receipts the Assessing Officer should not have made disallowance. The learned Commissioner of Income-tax (Appeals), however, did not accept the contention of the assessee because the salary paid to other employees was lesser. Shri Amandeep Kumar was not technically qualified. It was the first year in which he has worked for the assessee. Therefore, this ground of appeal of the assessee was dismissed.
7. After considering the rival submissions, we are of the view that addition is on excessive side. The assessee explained that both the sons have been working for the assessee for operating the cranes. The assessee is about 57 years of age and the nature of the work performed by the assessee was such that the help of others are required for operating the cranes. The Assessing Officer did not disallow any salary/wages paid to other son of the assessee Shri Daniel in a sum of Rs. 1,59,000. Both the sons of the assessee are doing same job for the assessee and merely because Shri Amandeep Kumar was not technically qualified would not give occasion for the Assessing Officer to disallow the salary substantially. It is not in dispute that the total receipts of the assessee were substantially higher in assessment year under appeal as compared to the preceding year and it is also not in dispute that the salary/wages paid was comparably lower in percentage as was paid in the earlier years. These facts would clearly support the case of the assessee that both the sons of the assessee have been working whole heartedly for the business of the assessee and through their efforts total receipts of the assessee have increased. Therefore, the Assessing Officer has failed to make out a case of any unreasonable payment to the sons of the assessee. However, considering the fact that Shri Amandeep Kumar was not qualified as against the qualification of other son Shri Daniel, it would be reasonable and appropriate to restrict the salary paid to Shri Amandeep Kumar slightly lesser as was given to Shri Daniel because both of them were doing the same job for the assessee. Considering the above discussion, it would be reasonable and appropriate to allow salary paid to Shri Amandeep Kumar in a sum of Rs. 1,50,000 as against the payment of salary of Rs. 2,25,000, thereby the addition is restricted to Rs. 75,000 only. The orders of the authorities below are accordingly modified to the extent that the addition on account of disallowance for paying salary to Shri Amandeep Kumar would be restricted to Rs. 75,000 only.
8. In the result, this ground of appeal of the assessee is partly allowed.
9. On ground No. 3, the assessee challenged the addition of Rs. 1,74,000 on account of disallowance of depreciation on crane.
10. The brief facts are that the Assessing Officer noted that the assessee had claimed depreciation of Rs. 1,74,000 at 15 per cent. on a crane, which has been shown to have been purchased on April 1, 2007 for Rs. 11,60,000. The Assessing Officer noted that this crane was purchased from M/s. Indo Construction, New Delhi. The Assessing Officer further noted that M/s. Indo Construction had purchased this crane in August, 2006 from Continental Construction Ltd., New Delhi, who had purchased this crane in the year 1990. On the bill of Indo Construction, it was mentioned that the crane is old used and unserviceable. The Assessing Officer asked the assessee to produce the purchase bill for the aforesaid crane. The assessee did not produce any documentary evidence in the form of purchase bill from M/s. Indo Construction and accordingly it was held that the assessee had not produced any evidence for ownership as well as usage for business purpose and accordingly disallowance was made.
11. The written submission of the assessee is incorporated in the impugned order, in which the assessee explained that payment of Rs. 15 lakhs was made to M/s. Indo Construction Company and after negotiation Rs. 3,40,000 were returned back. The copy of the same has already been placed on assessment record. It was submitted that the crane though unserviceable as per bill on account of the fact that original crane is 5 to 6 times of this value. The second hand crane and unserviceable it to put on the bill to identify quantity of the crane for making verification for transit and at State borders. The total receipts from the crane have increased substantially, which were more than double. Therefore, it would prove that the assessee used the crane in question for the purpose of business. It was submitted that the assessee has submitted documents of ownership of machinery along with the reply. The payments are made by means of account payee cheques, which have not been doubted. Therefore, the Assessing Officer should have allowed the depreciation on the crane so purchased. The learned Commissioner of Income-tax (Appeals), however, did not accept the contention of the assessee and dismissed this ground of appeal. The findings of the learned Commissioner of Income-tax (Appeals) in para 5.3 of the appellate order are reproduced as under :
“5.3 I have carefully considered the appellant’s submission. The appellant has claimed that Rs. 15,00,000 was paid to M/s. Indo Construction on March 26, 2007 as advance for purchase of crane and after negotiation the rate was settled for Rs. 11,60,000. Rs. 3,40,000 was received back by the appellant on April 12, 2007. The appellant submitted a copy of account of M/s. Indo Construction in its books. The account reads as under :
|Date||Particulars||Voucher type||Voucher No.||Debit||Credit|
|1.4.2007||To advance for crane trf. from advance for crane Ch. No. 170935 for P. N. Bank||Journal||03||15,00,000|
|By crane (Indo Const.)||Journal||04||11,60,000|
In support of its claim for purchase of crane, the appellant submitted the bill issued by Indo Construction. As per this bill dated March 24, 2007, the crane has been sold to the appellant for Rs. 10,40,000 including value added tax. The appellant submitted another bill dated March 24, 2007 for Rs. 1.20 lakhs which mentions cost of loading, transportation, unloading and reassembling of crane. There is apparent contradiction in the appellant’s submission. While the appellant has claimed that the crane was purchased on April 1, 2007 for which advance of Rs. 15 lakhs was given on March 26, 2007, the purchase bill shows the date of sale on March 24, 2007. If the cost of crane was already settled on March 24, 2007 there was no reason of giving advance of Rs. 15 lakhs on March 26, 2007. Further, while in the written submission the appellant has claimed that cost of crane is Rs. 11,60,000, as per the purchase bill the cost is Rs. 10,40,000. The appellant also submitted a copy of account of the appellant in the books of M/s. Indo Construction. The account reads as under:
|Date||Particulars||Vch Type||Vch No.||Debit||Credit|
|26.3.2007||By ICICI Bank 028805002027 Ch. No. 170935||Receipt||171||15,00,000|
|To Coles Crane 54/60 No. 2||Journal||1208||11,60,000|
|31.03.2007||To ICICI Bank 028805002027||Payment||2149||3,40,000|
A perusal of the account shows that M/s. Indo Construction had not shown the bills dated March 24, 2007 in its account.
In these circumstances it is quite apparent that the bill submitted by the appellant is not genuine and claim for purchase of crane remains unsubstantiated. In view of these facts the disallowance made by the Assessing Officer on this account is confirmed. This ground of appeal is accordingly dismissed.”
12. We have considered the rival submissions and perused the material available on record.
13. Learned counsel for the assessee filed copy of the balance-sheet of the assessee for the preceding assessment year ending on March 31, 2007, in which under the head “Loans and advances” as on March 31, 2007 a sum of Rs. 15 lakhs had been shown as advance for crane. It would mean that in the preceding assessment year the assessee has given advance of Rs. 15 lakhs for purchase of crane. The assessee submitted copy of account of M/s. Indo Construction in the books of the assessee before the learned Commissioner of Income-tax (Appeals), which is reproduced above. It would show that on April 1, 2007 advance was shown against M/s. Indo Construction through cheque No. 170935 in P.N. Bank. Therefore, the advance is given by the assessee to the seller through banking channel. On the same date on April 1, 2007, another entry is made of Rs. 11,60,000 for crane. The copy of the same ledger account is filed at page 12 of the paper book, which further explained that the cost of the crane was Rs. 10,40,000 and Rs. 1,20,000 was the cost of loading of the crane from Delhi to Ludhiana and transportation, etc. Thus the total cost of the purchase of crane was Rs. 11,60,000. The rest of the advance amount of Rs. 3,40,000 was returned to the assessee on April 12, 2007 through banking channel. The copies of the purchase bill dated March 24, 2007 of crane is filed on page 13 of the paper book and the cost of transportation, loading and unloading of the crane dated March 24, 2007 is filed at page 14 of the paper book. The learned Commissioner of Income-tax (Appeals) found contradiction in the submission of the assessee because the assessee claimed that the crane was purchased on April 1, 2007 as per the ledger account but the purchase bill shows the date of sale as March 24, 2007. There is no such contradiction in the explanation of the assessee because advance of Rs. 15 lakhs was given in the preceding assessment year ending March 31, 2007. Therefore, the same would be the opening balance on April 1, 2007 in a sum of Rs. 15 lakhs as advance for crane. The purchase and transportation bills are of March 24, 2007, which were accounted for in the assessment year under appeal. Therefore, there is no ambiguity in the explanation of the assessee. May be the bill is issued on March 24, 2007 but the advance could be given on March 26, 2007. If any explanation was to be called for on this point, the Assessing Officer should examine the seller of the crane M/s. Indo Construction, New Delhi but no efforts have been made by the Assessing Officer to make verification of the same facts. The learned Commissioner of Income-tax (Appeals) further noted that the cost of the crane claimed in a sum of Rs. 11,60,000 but the cost of the crane is of Rs. 10,40,000. The learned Commissioner of Income-tax (Appeals) failed to note that the cost of transportation, loading and unloading of Rs. 1,20,000 shall be added to the cost of the crane, which in fact, has been added in the ledger account of M/s. Indo Construction as is noted above. Therefore, there is nothing unusual in the explanation of the assessee. If the Assessing Officer was having any doubt in his mind regarding the purchase of the crane by the assessee from M/s. Indo Construction, the Assessing Officer should have verified any fact from the seller. The Assessing Officer has failed to note that all the transactions have been done through banking channel and as such, it is unbelievable that the assessee has not purchased the crane in question. The authorities below have also failed to note that after purchase of the crane in question in assessment year under appeal, the total receipts of the assessee from crane business have substantially increased. Therefore, without purchase of the crane in question the receipts of the assessee would not have substantially increased. The Assessing Officer has not doubted the payments by means of account payee cheques and all transactions carried out through banking channels. Therefore, there was no material available with the Assessing Officer to doubt the purchase of crane by the assessee. Thus the assessee has been able to prove that the crane in question was purchased in the year under consideration and was used for the purpose of business. Therefore, the depreciation was allowable. Considering the above discussion, the orders of the authorities below are set aside and the addition is deleted. The Assessing Officer is directed to grant depreciation to the assessee as is claimed.
14. This ground of appeal of the assessee is allowed.
15. In the result, the appeal of the assessee is partly allowed.