Tribunal allows part of appeal: disallows Rs. 75,000 under section 40A(2)(b), approves crane depreciation.

The tribunal partly allowed the assessee's appeal, restricting the disallowance under section 40A(2)(b) to Rs. 75,000 and deleting the disallowance of depreciation on the crane. The tribunal found the salary paid to the assessee's sons reasonable despite technical qualifications, considering increased receipts and lower wages percentage. The tribunal noted banking transactions supporting the crane purchase for business use, allowing the depreciation claim. The order was pronounced on May 25, 2015.

---

---

Issues Involved:
1. Disallowance under section 40A(2)(b) of the Income-tax Act, 1961.
2. Disallowance of depreciation on crane.

Issue-wise Detailed Analysis:

1. Disallowance under section 40A(2)(b) of the Income-tax Act, 1961:
The assessee challenged the addition of Rs. 1,53,000 made on account of disallowance under section 40A(2)(b). The facts reveal that the assessee claimed Rs. 11,76,000 under "Salary and wages," including Rs. 2,25,000 paid to his son, Shri Amandeep Kumar, and Rs. 1,59,000 to another son, Shri Daniel. The Assessing Officer (AO) noted that the maximum salary paid to other employees was Rs. 84,000 per annum and considered the salary to Shri Amandeep Kumar, who was only 10th pass and not technically qualified, as excessive, disallowing Rs. 1,53,000.

The assessee contended that the nature of the business required young and energetic persons to operate cranes, which could not be done by every laborer. The assessee argued that hiring external services would be costlier and that his sons were better suited to handle the cranes, making the salary paid to them genuine and reasonable. The Commissioner of Income-tax (Appeals) did not accept this contention, as the salary paid to other employees was lesser and Shri Amandeep Kumar was not technically qualified, leading to the dismissal of this ground.

Upon review, the tribunal found the addition excessive. It was noted that both sons were working for the assessee, and despite Shri Amandeep Kumar not being technically qualified, the total receipts for the year were substantially higher, and the salary/wages paid were comparably lower in percentage than in previous years. The tribunal concluded that the AO failed to prove any unreasonable payment to the sons. However, considering the qualification difference, it was deemed reasonable to restrict the salary paid to Shri Amandeep Kumar to Rs. 1,50,000, reducing the disallowance to Rs. 75,000. Thus, this ground of appeal was partly allowed.

2. Disallowance of depreciation on crane:
The assessee also challenged the addition of Rs. 1,74,000 on account of disallowance of depreciation on a crane. The AO noted the crane, purchased on April 1, 2007, for Rs. 11,60,000 from M/s. Indo Construction, was described as old, used, and unserviceable. The AO disallowed the depreciation due to the lack of documentary evidence proving ownership and business use.

The assessee explained that Rs. 15 lakhs was paid to M/s. Indo Construction, with Rs. 3,40,000 returned after negotiation. The crane, though unserviceable as per the bill, was used for business, evidenced by increased receipts. The Commissioner of Income-tax (Appeals) dismissed this ground, citing contradictions in the appellant's submission regarding the purchase date and cost.

The tribunal reviewed the submissions and found no contradiction in the assessee's explanation. The advance of Rs. 15 lakhs was given in the preceding year, with the purchase and transportation bills dated March 24, 2007, accounted for in the assessment year under appeal. The tribunal noted that all transactions were through banking channels, and the AO failed to verify facts from the seller. The substantial increase in receipts from crane business further supported the purchase claim. The tribunal concluded that the crane was purchased and used for business, allowing the depreciation claim. Consequently, this ground of appeal was allowed.

Conclusion:
The appeal of the assessee was partly allowed, with the disallowance under section 40A(2)(b) restricted to Rs. 75,000 and the disallowance of depreciation on the crane deleted. The order was pronounced in open court on May 25, 2015.

---