2002 (2) TMI 20 - HC - Income Tax

High Court Upholds Tribunal's Decision on Reasonable Remuneration

The Tribunal's decision to allow payments made to close relatives of partners as reasonable remuneration for work done for the firm under section ... Whether the provisions of section 40A(2)(b) are applicable in the present matter where the salaries/payments were made to the close relatives of partners of the assessee-firm ? - Whether the Assessing Officer is bound to admit the entries made in the cash books even if their genuineness is doubted and further is it necessary for the Assessing Officer to first reject the cash books, purchase vouchers and expenses bills, etc., even if he disagrees with the same for the purpose of making addition or for rejecting the claim of the assessee-firm ? - Whether the learned Income-tax Appellate Tribunal was right in its wisdom to allow the claim of Rs. 2,13,000 on account of depreciation in new bodies even if the bills for the same were not produced and in spite of it expenditure written on letter head that too without any sales tax number on it was produced ? Whether the Income-tax Appellate Tribunal was right in its wisdom to allow deletion of disallowance of Rs. 1,16,000 out of salary Rs. 28,341 out of diesel and oil consumption ? Issues:1. Applicability of section 40A(2)(b) to payments made to close relatives of partners.2. Assessment Officer's discretion in admitting entries in cash books and rejecting claims.3. Allowance of depreciation without producing bills for new bodies.4. Alleged perversity in the order passed by the Income-tax Appellate Tribunal.5. Deletion of disallowance of salary and diesel/oil consumption.6. Relevance of Supreme Court judgments in the case.Analysis:1. The first issue pertains to the applicability of section 40A(2)(b) to payments made to close relatives of partners. The Assessing Officer disallowed the salary paid to close relatives as unreasonable, invoking the said provision. However, the Tribunal found the payments justified as remuneration for work done for the firm, thereby rejecting the AO's disallowance. The Tribunal's factual finding that the payments were for business purposes and accounted for was deemed reasonable in the circumstances.2. The second issue revolves around the Assessment Officer's discretion in admitting entries in cash books and rejecting claims. The Tribunal held that without rejecting the books of account and considering statements confirming salary payments, no disallowance should be made solely based on net profit comparisons. The Tribunal's decision was based on the affidavits filed by employees confirming salary payments and the lack of grounds for disallowance based on net profit variances.3. Regarding the allowance of depreciation without producing bills for new bodies, the Tribunal upheld the allowance of Rs. 2,13,000 for new bodies of dumpers, despite evidence being limited to a receipt on a letterhead. The Tribunal found the evidence provided by the body builder and his acceptance of the work done as sufficient, considering it a question of fact rather than perversity.4. The issue of alleged perversity in the Income-tax Appellate Tribunal's order was addressed, with the High Court finding no grounds for interference when the Tribunal's findings were based on facts and evidence on record. The Court upheld the Tribunal's decision as not being perverse.5. The Tribunal's deletion of disallowance of salary and diesel/oil consumption was upheld by the High Court. The Court found no fault in the Tribunal's decision, especially when supported by vouchers and confirmed in the books of account. The Court concluded that there was no basis for interference in the Tribunal's order on these matters.6. Lastly, the relevance of Supreme Court judgments in the case was considered. The Court found no significant bearing of the cited Supreme Court cases on the present matter, as the issues at hand were decided based on factual findings and applicable provisions. The Court dismissed the appeal, affirming the Tribunal's decisions on the various issues raised during the assessment year.