The Delhi High Court granted appellant/assessee opportunity to prove legitimacy of salary payment.
Facts
The only aspect that the court intended to examine is that which is framed as the first issue. Accordingly, the following substantial question of law is framed for consideration by the Court: (i) Whether the Tribunal erred in not appreciating that before the Assessing Officer could have taken recourse to the provisions of Section 40A(2)(b) of the Act, he ought to have given an opportunity to the appellant/assessee to produce the relevant evidence?
Submissions
Counsel for appellant/assessee contended that the orders impugned in these appeals are not sustainable in the eyes of law because the appellant had described in detail circumstances under which no salary was paid to the persons concerned i.e. Shri Charanjeet Lal Mehra, Smt. Lata Rani Mehra, Smt. Namita Mehra and Ms. Sakshi Mehra in Financial Years 2008-09 and 2009-10 as well as circumstances under which a meagre salary was paid to them for subsequent years relevant for present purposes.
Decision
The division bench of Justice Girish Kathpalia And Justice Rajiv Shakdher noted that there is no dispute that the said persons, namely Shri Charanjeet Lal Mehra, Smt Lata Rani Mehra, Smt Namita Mehra and Smt Sakshi Mehra are persons covered under Section 40A(2)(b) of the Act. As reflected from record, the appellant/assessee was not granted fair opportunity to lead evidence in order to prove its justification for payment of salaries to the said persons.
“No evidence at all was adduced before any of the authorities by the appellant/assessee as regards the educational qualification, experience and work profile of any of the persons concerned, which could be taken as their contribution in the growth of business of the appellant/assessee”, the court said.
It was observed by the court that the provision under Section 40A(2)(a) of the Act, shows that before recording disallowance, the Assessing Officer has to form an opinion; and that opinion has to be having regard to inter alia legitimate needs of the business or benefit derived or even what would be the fair payment outgo for services rendered.
The bench stated hat Such an opinion cannot be arrived at without adducing necessary evidence. That being so, the Assessing Officer was duty bound to provide an opportunity to the appellant/assessee to place on record the requisite evidence to justify its claim.
The court granted an opportunity to the appellant/assessee to adduce appropriate evidence – documentary or otherwise before the Assessing Officer in order to establish its claim regarding educational qualification, experience, the work profile and in particular the duties discharged by the concerned persons to justify claim of the appellant/assessee qua payment of salary to the persons concerned.
Case title: Mehra Jewel Palace Pvt Ltd V/S Pr. Commissioner Of Income Tax
Citation: ITA 15/2021