Tribunal reduces disallowance under Income-tax Act, overturns salary addition

The Tribunal partially allowed the appeal, reducing the disallowance under section 14A of the Income-tax Act to Rs. 6.89 lakhs and overturning the addition of Rs. 1.01 lakhs made in respect of salary paid to an individual. The Tribunal held that stock in trade (shares) could not be considered for disallowance under section 14A and found discrepancies in the Assessing Officer's claim regarding the individual's salary increase, ultimately ruling in favor of the appellant.

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Issues:
1. Disallowance under section 14A of the Income-tax Act, 1961.
2. Addition made in respect of salary paid to an individual.

Issue 1: Disallowance under section 14A of the Income-tax Act, 1961:
The appellant challenged the disallowance made by the Assessing Officer under section 14A amounting to Rs. 11.04 lakhs. The AO found that the assessee had earned dividend income and disallowed expenses incurred to earn exempt income. The AO made a disallowance of Rs. 13.22 lakhs, resulting in the disallowance of Rs. 11,04,298. The appellant argued that no disallowance was warranted as all expenses were routine business expenses necessary to keep the business afloat. The Tribunal found that the disallowance made by the AO was on the higher side and directed the AO to restrict the disallowance to Rs. 6.89 lakhs based on a previous judgment. The Tribunal held that stock in trade (shares) could not be considered for disallowance under section 14A, and the disallowance should be reduced.

Issue 2: Addition made in respect of salary paid to an individual:
The second ground of appeal related to the addition of Rs. 1.01 lakhs made by the AO in respect of salary paid to an individual. The AO found the payment excessive compared to the previous year's salary to the individual. The appellant contended that the individual was promoted and her salary increase was justified. The FAA upheld the AO's order due to lack of supporting documents from the appellant. The Tribunal noted discrepancies in the AO's claim that the individual was a director and found in favor of the appellant, stating that the AO had not made any disallowance in subsequent years for the increased salary. The Tribunal reversed the FAA's order and decided in favor of the appellant.

In conclusion, the Tribunal partially allowed the appeal filed by the assessee, reducing the disallowance under section 14A and overturning the addition made in respect of the salary paid to the individual.

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