TYNOR ORTHOTICS PRIVATE LIMITED,MOHALI V. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 6(1), MOHALI, MOHALI

ITA 1032/CHANDI/2024

AI Insights

Tynor Orthotics Private Limited appealed against the order of the Commissioner of Income Tax (Appeals) which had dismissed their earlier appeal concerning the additions made by the Assessing Officer under Section 40A(2) and other sections related to under-reporting and misreporting of income for the Assessment Year 2017-18. The primary contention was regarding the addition of Rs. 85,00,000 as disallowed expenses under Section 40A(2) related to excessive salary payments to directors, which the CIT(A) had initially found to be revenue neutral but incorrectly dismissed the grounds of the assessee. The Tribunal corrected this error, allowing the ground and directing the deletion of the addition. Other issues raised were found to be unrelated to the assessee and thus not considered.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396354 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANJIT KAUR
• Assessee Lawyers: TEJMOHAN SINGH
• Section: 142(1)

Judgement Text

"आयकर अपीलीयअिधकरण,चǷीगढ़ Ɋायपीठ “बी” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी मनोज क ुमार अŤवाल, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM &SHRI. MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No. 1032/Chd/ 2024 िनधाŊरण वषŊ / Assessment Year : 2017-18 Tynor Orthotics Private Limited C/o Daljit Singh Sandhu, Advocate #527, Sector 10-D, Chandigarh- 160011 बनाम The Asstt. CIT Circle-6(1) Mohali ˕ायी लेखासं./PAN NO: AABCT1253C अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Tejmohan Singh, Advocate राजˢ की ओर से/ Revenue by : Dr. Ranjit Kaur, Addl. C IT, Sr. DR सुनवाई की तारीख/Date of Hearing : 19/05/2025 उदघोषणा की तारीख/Date of Pronouncement : 26/05/2025 आदेश/Order PER LALIET KUMAR, J.M: This is an appeal filed by the Assessee against the order of the Ld. CIT(A) / NFAC, Delhi ddt. 26/09/2024 pertaining to Assessment Year 2017-18. 2. In the present appeal Assessee has raised the following grounds: 1. That the Ld. Commissioner of Income Tax(Appeals) has erred in mentioning in Para 6.1.4 of the appellate order that ground no.1 and 2 raised by the appellant is hereby dismissed in respect of addition of Rs.85,00,000/- made by AO applying the provisions of Section 40A(2) though he deleted the addition being revenue neutral and as such it should be mentioned that the ground no.1 and 2 have been allowed. 2. That the Ld. Commissioner of Income Tax(Appeals) has further erred in deciding issue in respect of Section 148/151 in para 6.3 on page 13 of the appellate order which are unrelated to the assessee in as much as no such grounds have been raised by the assessee. 3. That the L.d. Commissioner of Income Tax(Appeals) has further erred in deciding a issue in Para 6.2 page 15 of the appellate order in respect of addition of Rs.5,78,95,494/- u/s 69 which is unrelated to the assessee in as much as neither any such addition has been made by the assessing officer nor there is any such investment made as mentioned in the order. 2 4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. 5. That the order of Ld. Commissioner of Income Tax(Appeals) Officer is arbitrary, opposed to the facts of the case and thus untenable. 3. Briefly, the facts of the case are that the assessee i.e; Tynor Orthotics Pvt. Ltd., located in Mohali, Punjab, and engaged in manufacturing orthotic aids, filed its income tax return for the Assessment Year 2017–18 on 25/10/2017. The company declared a taxable income of Rs.15,06,75,850/- under the head \"Profits and gains from business or profession,\" after claiming a deduction of Rs.1,00,000/- under Chapter VI-A of the Income Tax Act, 1961. The return was processed under Section 143(1) and selected for scrutiny through CASS. Statutory notices under Sections 143(2) and 142(1) were issued on 08/08/2018, and 04/09/2019 respectively. 4. During assessment, the Ld. AO examined related party payments under Section 40A(2)(b), focusing on salaries paid to three female directors: Smt. Gurjeet Kaur Rs.42,00,000/-, Smt. Harpreet Kaur Rs.42,00,000/-, and Smt. Kulwant Kaur Rs.21,00,000/ 4.1 The company justified these salaries citing non-core functions such as CSR activities, canteen management, and festival coordination. However, the AO found their involvement irregular and non-technical, disallowing Rs.32,00,000/- each for Gurjeet Kaur and Harpreet Kaur, and the entire Rs.21,00,000 for Kulwant Kaur due to lack of evidence and her absence from summons proceedings. This led to a total disallowance of Rs.85,00,000 under Section 40A(2). 4.2 Further, out of Rs.14,04,936/- claimed as software expenses, the company could substantiate only Rs.9,32,785/-. The remaining Rs.4,72,151/- was questioned, and upon clarification, Rs.3,88,300/- was found to relate to prior period expenses from 2014 and was disallowed due to insufficient documentation. 4.3 The AO recomputed the company’s taxable income as Rs.15,95,64,150/-, adding disallowances of Rs.85,00,000 excess salary and Rs.3,88,300/- software expenses. Penalty 3 proceedings under Section 270A were initiated for under-reporting and misreporting of income, and interest was charged under Sections 234A, 234B, and 234C. A demand notice under Section 156 was also issued. 5. Against the order of the Ld. AO the assessee went in appeal before the Ld. CIT(A) who has since dismissed the appeal of the Assessee. 6. Against the order of the Ld. CIT(A) the assessee came in appeal before us. 7. During the course of hearing the the Ld. AR had drawn our reference to page 11 to 13 of the order passed by the Ld. CIT(A) more particularly para 6.1.4 which is to the following effect: 6.1.4 In view of the above and case laws relied by the appellant. the payment of salary is thus revenue neutral and is not causing any loss to the revenue. Hence AO is directed to delete the addition made us/ 40A(2) amounting to Rs. 85,00,000/-. Accordingly ground no. 01 & 02 raised by the appellant is hereby dismissed. 7.1 It was contended by the Ld. AR that the Ld. CIT(A) had given a finding that the salary payment by the assessee to its Directors was revenue neutral, and accordingly directed the AO to delete the addition of Rs. 85,00,000/- made in the hands of the assessee. However, despite this finding, the Ld. CIT(A) erroneously stated that the grounds raised by the assessee were dismissed. 7.2 The Ld. AR further submitted that, in relation to the above, the assessee has also filed a rectification application before the Ld. CIT(A). Nevertheless, since the issue is currently before this Hon’ble Tribunal, it was requested that the mistake committed by the Ld. CIT(A) in paragraph 6.1.4 of the order is to be corrected by the Tribunal. 7.3 Additionally, it was submitted that the other grounds adjudicated by the Ld. CIT(A) do not pertain to the assessee. These grounds appear to have been incorrectly incorporated from another case's facts and are irrelevant to the present assessee. 8. Per contra, the Ld. DR relied on the order of the lower authority. 9. We have heard the rival contention and perused the material available on the record. Admittedly in para 6.1.4 and prior thereto after reproducing the return of income of the Directors have been noted down that both company as well as the 4 Directors are liable to be taxed at higher rate of tax i.e; 30% and therefore the payment of salary by the assessee to its Directors are tax neutral and hence directed the AO to delete it. 10. We noticed that after directing the Ld. Assessing Officer to delete the addition of Rs. 85,00,000/-, the Ld. CIT(A) had wrongly dismissed the ground of the assessee. We failed to comprehend the same as the same is contrary to reasoning given by the Ld. CIT(A). In fact after noting down that the payment of Rs. 85,00,000/- to its Directors by the assessee, being tax neutral the Assessing Officer is required to delete the addition and therefore the ground raised by the assessee is required to be allowed. 10.1 In the light of the above we direct the Ld. Assessing Officer to delete the addition of Rs. 85,00,000/- made in the hands of the assessee and thus the ground raised by the assessee is allowed. No other ground have been raised by the assessee as the remaining part of the order does not pertain to the assessee. In the light of the above the appeal of the assessee is partly allowed. 11. In the result, appeal of the Assessee is partly allowed. [ Order pronounced in the open Court on 26/05/2025 Sd/- Sd/- मनोज क ुमार अŤवाल लिलत क ुमार (MANOJ KUMAR AGGARWAL) (LALIET KUMAR) लेखा सद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟/JUDICIAL MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "