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Commissioner of Income Tax-I, Ludhiana Versus M/s. Kudu Industries, Ludhiana

2015 (4) TMI 266 - PUNJAB & HARYANA HIGH COURT

Disallowance u/s 40A(2)(b) - huge salary paid to Mr. R.S.Saluja vis-avis the profits & turnover of the firm as well as average salary being paid to the management personnel by its group company, i.e. SEL Manufacturing Ltd. which has more than 13 times the turnover than the assessee firm - ITAT deleting the disallowance - Held that:- The said person is successfully running the business of the group which had a return of more than thousand crores, on account of his experience. The main company he .....

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of straw. The CIT and the Tribunal both have recorded a finding that it is not that the said person was taxed at a lower rate than that of the assessee-firm and therefore, they had correctly held that the AO could not substitute the wisdom of the partners of the firm to hold that the salary was excessive and unreasonable. The findings which have been recorded are purely on facts arising out of the peculiar circumstances of the case and no question of law, as such, arises out of the facts of the .....

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ner of Income Tax-I, Ludhiana (for short, the 'CIT'). CM No.24209-CII of 2014 Application for exemption to file true copies of the assessment order dated 16.12.2011 (Annexure A-I), CIT(A)'s order dated 06.09.2012 (Annexure A-II) and ITAT's order dated 23.12.2013 (Annexure A-III), is allowed, in view of the averments made in the application, which are duly supported by an affidavit of the CIT. ITA No.382 of 2014 The present appeal, preferred by the Revenue, has been filed under Se .....

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n deleting the disallowance u/s 40A(2)(b) made by the Assessing Officer after examining the unreasonableness of the huge salary paid to Mr. R.S.Saluja vis-avis the profits & turnover of the firm as well as average salary being paid to the management personnel by its group company, i.e. SEL Manufacturing Ltd. which has more than 13 times the turnover than the assessee firm. (b) Whether on the facts and in the circumstances of the cases and in law, the Hon'ble ITAT was correct in deleting .....

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I), noticed that the respondent-assessee/firm had paid an amount of ₹ 24 lacs to Shri R.S.Saluja, who is father of one of the partners and a person covered under Section 40A(2)(b) of the Act. Accordingly, justification was sought as to why the salary should not be treated as excessive and the reply of the assessee was rejected wherein the background of the person was explained as to how he could contribute towards the direction in which the company could be taken. The fact that the turn-ov .....

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g to ₹ 18 lacs was disallowed under Section 40A(2) and added back to the income of the assessee. The CIT, vide order dated 06.09.2012 (Annexure A-II), rejected the contention of the Revenue and allowed the appeal by holding that the AO could not substitute the wisdom of the partners of the firm to hold that the salary was excessive and unreasonable. Accordingly, the disallowance made by the AO was directed to be deleted by noticing that both the assessee/firm as well as Shri R.S.Saluja wer .....

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, held that except doubting the genuineness of the said expenditure, there was no other finding that the expenditure was excessive or unreasonable. Resultantly, the appeal of the revenue was dismissed, which led to the filing of the present appeal, challenging the said findings recorded. Counsel for the Revenue has argued that the monthly profits of the assessee/firm was only ₹ 1.47 lacs while the salary of Shri R.S.Saluja was ₹ 2 lacs and therefore, the question of law, framed above .....

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d the establishment and growth of the RS Saluja Group (Group) and development. He has over 40 years of experience in the textile industry. He has started with a modest business to manufacture hosiery products and knitted fabrics catering to the domestic market. Over the years he has evolved as an integrated textile player with presence in all the value added segments, from yarn manufacturing, dyeing to manufacture of dyed knitted cloth and garments. Kudu Industries is the flagship concern of R S .....

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