Bogus purchases disallowance limited to 12.5% under section 69C, salary payment to director's daughter allowed

ITAT Mumbai partially allowed the appeal. Regarding bogus purchases under section 69C, the tribunal found the assessee failed to prove genuine purchases from M/s Nidhi Printer, concluding goods were likely purchased from grey market at discounted rates. Disallowance was restricted to 12.5% of impugned purchase value. For section 40A(2)(b) addition concerning salary paid to director's daughter, the tribunal found AO's 50% disallowance misconceived as no evidence showed excessive/unreasonable expenditure. The Rs. 6 lakh disallowance was vacated, setting aside CIT(A)'s order sustaining it.

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Issues involved: The judgment involves the disallowance of purchases under Section 69C of the Income-Tax Act and the disallowance under Section 40A(2)(b) of the salary paid to an employee.

Disallowed Purchases Issue: The Assessing Officer (A.O) disallowed purchases made by the assessee from a certain party due to discrepancies in the confirmation received. The A.O also disallowed a portion of the salary paid to the director's daughter under Section 40A(2)(b) without sufficient justification. The CIT(A) upheld the A.O's decision, leading the assessee to appeal.

Disallowed Purchases Resolution: The Appellate Tribunal found discrepancies in the A.O's disallowance of purchases and disagreed with the basis of the disallowance. The Tribunal observed that the purchases made from one party were genuine, supported by confirmations and invoices. However, purchases from another party lacked essential details, leading to the conclusion that they were not genuine. The Tribunal restricted the disallowance to 12.5% of the value of the disputed purchases.

Salary Disallowance Issue: The A.O disallowed 50% of the salary paid to the director's daughter without proper justification under Section 40A(2)(b). The Tribunal found the A.O's reasoning for the disallowance to be misconceived and lacking in merit. The Tribunal highlighted that the A.O did not establish how the salary paid was excessive or unreasonable, as required by the law.

Salary Disallowance Resolution: The Tribunal overturned the disallowance of the salary paid to the director's daughter, stating that the A.O's decision was not supported by valid reasons. The Tribunal emphasized that the disallowance under Section 40A(2)(b) was unjustified and set aside the CIT(A)'s decision. As a result, the appeal filed by the assessee was partly allowed based on the Tribunal's observations.

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