PRATAP NARAYAN DESAI,RATNAGIRI V. INCOME TAX OFFICER, RATNAGIRI

ITA 1723/PUN/2025

AI Insights

The case involves Pratap Narayan Desai, an individual engaged in providing manpower, who appealed against the order of the National Faceless Appeal Centre (NFAC), which upheld the additions made by the AO in the assessment year 2018-19. The AO had added Rs.9,18,951 to the assessee's income as excess contributions to Provident Fund and Superannuation fund, exceeding the permissible limit of 27% of salary. Additionally, a salary of Rs.3.60 lakh paid to the assessee's wife was disallowed under section 40A(2)(b) of the Income-tax Act, 1961, as it was deemed excessive. The Tribunal found merit in the assessee's arguments regarding the PF and Superannuation contributions, leading to the setting aside of that addition, but partially upheld the disallowance on the salary paid to the wife.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 774904 (ITAT-PUNE)
• Duration Of Justice: 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2018-2019
• Appeal Filed On: 15-07-2025
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY DHIVARE
• Assessee Lawyers: PRAMOD S SHINGTE
• Keywords: Set aside; Fair market value; Salary income

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “SMC”, PUNE BEFORE DR.MANISH BORAD, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.1723/PUN/2025 Assessment Year : 2018-19 Pratap Narayan Desai B-7, Sankeshwar Samuh, Arogya Mandir, Ratnagiri, 415611, Ratnagiri, Maharashtra PAN: AGNPD7603B Vs. ITO, Ward-1, Ratnagiri Appellant Respondent आदेश / ORDER The captioned appeal at the instance of assessee pertaining to A.Y. 2018-19 is directed against the order dated 16.05.2025 of National Faceless Appeal Centre (NFAC), Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of Assessment Order dated 05.03.2021 passed u/s.143(3) r.w.s143(3A) & 143(3B) of the Act. 2. Brief facts of the case are that the assessee is an individual and based on the information about excess contribution to Provident Fund, Superannuation Fund and Gratuity fund, case for A.Y. 2018-19 selected for Complete Scrutiny. Assessee is in the business of providing manpower to various business entities. During the course of assessment proceedings, ld. Assessing Officer observed that against the salary expenditure of Rs.8,70,653/- contribution to PF and Appellant by : Shri Pramod S Shingte Respondent by : Shri Sanjay Dhivare Date of hearing : 13.08.2025 Date of pronouncement : 04.09.2025 Printed from counselvise.com ITA No.1723/PUN/2025 Pratap Narayan Desai 2 Superannuation fund amounts to Rs.11,54,028/-. Ld. AO observed that maximum limit to which employer’s contribution to PF and Superannuation fund could be made is at 27% which comes to Rs.2,35,076/- and accordingly excess amount of contribution has been added in the hands of assessee. Ld. AO also disallowed the claim of salary expenses of Rs.3.60 lakh given to the wife invoking section 40A(2)(b) of the Act. Income assessed at Rs.47,39,720/-. 3. Aggrieved assessee preferred appeal before ld.CIT(A) but failed to succeed on the additions/disallowances made by ld. AO. 4. Now the assessee is in appeal before this Tribunal raising following grounds of appeal : “1. On the facts and circumstances of the case and in law the CIT(A), NFAC erred in confirming the action of the AO of disallowance of payments of contribution to Provident Fund of Rs.9,18,951 not appreciating the fact that such payment does not exceed limit as per Rule 87 of 27% of salary, the appellant being the business of man power supplier and his main expenditure is salary for staff at various locations. The appellant prays that the AO be directed to delete the addition. 2. On the facts and circumstances of the case and in law the CIT(A), NFAC erred in confirming the action of the AO of disallowance u/s 40A(2)(b) of salary to wife of Rs.3,60,000 not accepting the contention of the appellant that the payment is reasonable not warranting any such disallowance. The appellant prays that the AO be directed to delete the addition. The appellant craves leave to add to, amend, alter, delete or modify all or any of the above ground of appeal or raise a new ground of appeal before or at the time of hearing.” 5. Ld. Counsel for the assessee submitted that ld. AO failed to observe that in the profit and loss account there is an Printed from counselvise.com ITA No.1723/PUN/2025 Pratap Narayan Desai 3 expenditure on labour charges amounting to Rs.2,33,25,713/- which is also subject to deduction of PF and superannuation fund contribution. Therefore, the impugned addition of Rs.9,18,951/- is uncalled for. 5.1 So far as the salary disallowance is concerned, he submitted that assesse’s wife is regularly carrying out the business affairs and in the past also salary has been given to her. Reference is made to page 76 of the paper book showing the details of salary paid to the assessee’s wife from F.Y. 2016- 17 to F.Y. 2019-20 are mentioned. He also submitted that the salary income is duly offered to tax in the income-tax return. 6. On the other hand, ld. Departmental Representative supported the order of ld.CIT(A). 7. I have heard the rival contentions and perused the record placed before me. So far as disallowance of payment of contribution to PF at Rs.9,18,951/- is concerned, I find merit in the contention of ld. Counsel for the assessee. Going through the GSL labour charges ledger and GSL salary ledger for F.Y. 2017-18 along with PF summary and challans placed at pages 9 to 74, I note that the assessee had made the contribution to PF and Superannuation fund on the labour charges as well as salary and since ld. AO failed to take note of the labour charges paid during the year, in my considered view the impugned addition is uncalled for. Finding of ld.CIT(A) is set aside and Ground No.1 raised by the assessee is allowed. Printed from counselvise.com ITA No.1723/PUN/2025 Pratap Narayan Desai 4 8. Ground No.2 is raised against the disallowance of salary expenditure of Rs.3.60 lakh paid to the assessee’s wife. Ld. AO has made the disallowance u/s.40A(2)(a) of the Act as the expenditure in the nature of salary paid to the wife who is a person referred as a relative in section 40A(2)(b) of the Act. Since section 40A(2)(a) has a direct bearing on this issue the same is reproduced below : (2)(a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction : 9. Now from perusal of the above section, I observe that in case the Assessing Officer noticed that the payments have been made to the person referred to in section 40A(2)(b) of the Act which in this case is admittedly the relative of the assessee. Ld. AO prior to making any disallowance has to form an opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities. Now in absence of any specific finding of the ld. AO about the excessive or unreasonable expenditure having regard to the fair market value of the services for which the salary has been paid, ld. AO could not have disallowed the total salary of Rs.3.60 lakh paid by the assessee to his wife. It is also not the case of the Revenue that the nature of services provided by the assessee wife require Printed from counselvise.com ITA No.1723/PUN/2025 Pratap Narayan Desai 5 any technical expertise. I however considering the fact that the salary to the wife has been paid consistently for past many years and duly offered to tax and also taking into account that the assessee has not filed sufficient details to justify the quantum of salary given to assessee’s wife, I disallow 10% of the alleged sum and confirm the addition of Rs.36,000/-. The assessee gets part relief of Rs.3.24 lakh. Ground No.2 raised by the assessee is partly allowed. 10. In the result, appeal of the assessee is partly allowed. Order pronounced on this 04th day of September, 2025. Sd/- (MANISH BORAD) ACCOUNTANT MEMBER पुणे / Pune; \u0001दनांक / Dated : 04th September, 2025. Satish आदेश क\u0002 \u0003ितिलिप अ ेिषत / Copy of the Order forwarded to : 1. अपीलाथ / The Appellant. 2. \u000eयथ / The Respondent. 3. The Pr. CIT concerned. 4. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, “SMC” ब\u0014च, पुणे / DR, ITAT, “SMC” Bench, Pune. 5. गाड\u0004 फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune. Printed from counselvise.com "