Tribunal overturns disallowance of manager salary payment, deeming it genuine and reasonable

The Tribunal allowed the appeal of the assessee, overturning the disallowance of salary paid to managers under section 40A(2)(b) of the Income-tax Act. The Tribunal deemed the salary payment genuine and reasonable, noting the lack of evidence suggesting the managers did not provide services as claimed. The Tribunal found the disallowance amount small and decided not to remand the issue to lower authorities, ultimately accepting the claim of the assessee.

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Issues:
Disallowance of salary paid to managers under section 40A(2)(b) of the Income-tax Act, 1961.

Analysis:

The case involved an appeal by the assessee against the order of the Commissioner of Income-tax (Appeals) sustaining the disallowance of Rs. 98,000 on account of salary paid to managers specified under section 40A(2)(b) of the Income-tax Act. The Assessing Officer disallowed one-third of the salary paid to the son and daughter-in-law of the assessee, who were the managers, stating it appeared to be on the higher side considering the business volume.

During the proceedings, the assessee contended that the son looked after marketing, procurement, and collection, while the daughter-in-law handled invoicing, banking operations, and payments full-time. However, the Commissioner of Income-tax (Appeals) did not examine the services rendered by these managers or the reasons behind the disallowance estimated by the Assessing Officer. The Tribunal noted that there was no evidence to suggest that the relatives had not provided services as claimed by the assessee.

The Tribunal found the disallowance amount to be small and decided not to send the issue back to the lower authorities. Considering the explanation provided by the assessee and the lack of comparative cases or evidence showing unreasonableness in the salary paid, the Tribunal deemed the salary payment as genuine and reasonable. Therefore, the Tribunal accepted the claim of the assessee and allowed the appeal, overturning the disallowance of the salary paid to the managers.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the genuine and reasonable nature of the salary payment to the managers specified under section 40A(2)(b) of the Income-tax Act.

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