Merely on non-disclosure of mode of payment of salary to security guards disallowance shall not be made

Fact and Issue of the case

Facts of the case, in brief, are that the assessee is an individual and is proprietor of the concern styled Tirupati Indane, engaged in the business of Indane Gas Service at Samalkha. She filed her return of income 17.09.2012 declaring taxable income at Rs.5,05,730/-. During the course of assessment proceedings, the AO noted that the assessee claimed security expenses at Rs.3,24,000/-. However, she has not deducted TDS as per the provisions of section 194-C of the Income Tax Act, 1961. In absence of any reply to the query raised by the AO, invoking the provisions of section 40a(ia), the AO made disallowance of Rs.3,24,000/-. Similarly on account of non-deduction of TDS from the godown rent of Rs.2,36,379/- and shop rent of Rs.1,20,000/-, the AO made an addition of Rs.3,56,379/- in absence of any reply to the query raised by him. The AO also disallowed proportionate interest @15% on interest free advance of Rs.5,59,159/- in absence of any plausible explanation. Since, the assessee had shown withdrawal of household expenses of Rs.1,06,000/- only for meeting the expenses and considering the fact that the assessee has two children in the age group of 14 year and 11 years who are both school going and husband of the assessee is earning only Rs.2.50 lakhs per annum, the AO made estimated addition of Rs.25,000/- on account of withdrawals for house hold expenses. Similarly, the AO disallowed an amount of Rs.62,176/- being 1/6th of the total expenses to Rs.3,73,060/-incurred by the assessee on account of car running expenses, car depreciation, maintenance expenses, car insurance, telephone/mobile bill and interest on car loan for probable personal use. Thus, the AO determined the total income of the assessee at Rs.13,59,700/- as against the returned income of Rs.5,05,750/-.

In appeal, the learned CIT(A) called for a remand report from the AO. After considering the remand report of the AO and rejoinder of the assessee to such remand report, he restricted the disallowance of various expenses from 1/6th to 1/10 of the expenses and sustained the remaining additions. Aggrieved with such order of the learned CIT(A), the assessee is in appeal before the Tribunal.

Observation of the Tribunal

The Tribunal heard the rival arguments made by the both the sides, perused the orders of the Assessing Officer and the learned CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The first issue raised in the grounds of appeal relates to the disallowance of Rs.3,24,000/- paid to four individual security guards appointed by the assessee. We find the AO disallowed an amount of Rs.3,24,000/- being the salary paid to the security guards on the ground that such payments have been made to the contractor without deducting tax u/s 194-C of the Act.

After hearing both the sides, we find the AO disallowed the amount of Rs.3,56,379/- i.e. (Rs.2,36,379 + Rs.1,20,000) incurred by the assessee as shop rent and godown rent on the ground that the assessee did not file any reply to the query raised by him. We find before the learned CIT(A) has submitted that godown rent of Rs.2,36,379/- was paid to four person who are joint owners of the godown and whose details are as under:-

Jagdish Parshad Jain S/o Sh. Umrav Singh Jain of Samalkha,
Jai Pal Jain S/o Sh. Murav Singh Jain of Samalkha
Manoj Jain S/o Sh. Ramesh Jain of Samalkha
Mahavir Prasad Jain S/o Sh. Umrav Singh Jain of Samalkha

After hearing both the sides, we find the AO disallowed of Rs.25,000/- on estimate basis being probable house hold expenditure on the ground that the assessee’s withdrawal is only Rs.1,06,000/- and her husband is earning approximate Rs.2.50 laksh per annum and the family of the assessee consists of the assessee, her husband and two school going children in the age group of 14 and 11 years. It is the submission of the learned counsel for the assessee that contribution of her husband is about Rs.2 lakhs and the assessee has shown withdrawal at Rs.1,06,000/- and such combined withdrawal is reasonable for meeting house hold expenses. We find some force in the above arguments of the learned counsel for the assessee. The addition made by the AO is purely on surmises and conjectures and nothing has been brought on record to show any extravagant expenditure incurred by the assessee during the year. Since, the addition made by the AO is based on surmises and conjectures, which has been upheld by the learned CIT(A), therefore, we set-aside the order of the learned CIT(A) and direct the AO to delete the disallowance. Grounds No.4 and 5 are accordingly allowed. Ground no.6 and 7 being general in nature are dismissed.