Disallowance out of employees’ benefit expenses under the Income Tax Act, 1961

The Income Tax Appellate Tribunal considered a case where an assessee's claim for employee benefit expenses was partially disallowed by the Assessing Officer. The disallowance of Rs. 61,06,094/- was based on the officer's view that the incentive component of the expenses lacked sufficient detail and appeared excessive relative to turnover. The CIT(A) upheld this decision. However, the Tribunal noted that a similar issue for a previous assessment year was decided in favour of the assessee by a co-ordinate bench, as the Assessing Officer had not rejected the books of account.

IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD “SMC” BENCH
(Conducted Through Virtual Court)

 Before: Shri Amarjit Singh, Accountant Member
 And Ms. Madhumita Roy, Judicial Member

ITA No. 2325/Ahd/2018
 Assessment Year 2015-16 

Surrel Enterprise Pvt. Ltd.
513/B National High way
Road Chhatral
Ta. Kalol -382729
PAN: AADCS5160K
(Appellant)

Vs

The DCIT,
Mehsana Circle,
Mehsana
(Respondent)

 Revenue by: Dr. Shyam Prasad, Sr. D.R.
 Assessee by: Ms. Urvashi Shodhan, A.R.

 Date of hearing : 07-06-2021
 Date of pronouncement : 12-07-2021

ORDER

PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-

This assessee’s appeal for A.Y. 2015-16, arises from order of the CIT(A), Gandhinagar, Ahmedabad dated 08-10-2018, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.

2. The solitary ground of appeal filed by the assessee is arisen from the order of ld. CIT(A) in confirming the disallowance out of employees’ benefit expenses of Rs. 61,06,094/-. 

3. The fact in brief is that at the time of assessment, the AssessingOfficer noticed that assessee has debited an amount of Rs. 9,00,53,013/- under the head employees’ benefit expenses. The employees’ benefits expenses were consisted of sales, wages, provident funds, incentive, leave encashment etc. The Assessing Officer observed that claim of employeesbenefit expenses of Rs. 9,00,53,013/- was at excessive level compared to turnover of Rs. 9,49,43,108/-. On query, the assessee submitted the relevant details with supporting documents. On perusal of the details, the AssessingOfficer noticed that the assessee has made payment under the head incentive to the amount of Rs. 1,22,12,187/- The Assessing Officer was of the viewthat assessee has not furnished details on the basis of which the incentive was worked out. The Assessing Officer observed that it is difficult to believe that the expenditure claimed to have incurred were genuine as a whole, therefore, 50% of the expenditure which comes to Rs. 61,06,094/- was disallowed and added to the total income of the assessee.

4. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee reiterating the facts mentioned by the Assessing Officer.

5. During the course of appellate proceedings before us, at the outset, theld. counsel submitted that similar issue on identical facts has been adjudicated in the case of the assessee itself by the Co-ordinate Bench of the ITAT Ahmedabad vide ITA No. 1868/Ahd/2017 for assessment year 2013-14 where the issue was decided in favour of the assessee as the Assessing Officer has not rejected the books of account before making such estimated  addition. The ld. Departmental Representative is fair enough not to controvert this undisputed fact that identical issue on similar fact has been adjudicated by the Co-ordinate Bench of the ITAT as referred above.

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