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TMI Blog2011 (1) TMI 1369X X X X Extracts X X X X X X X X Extracts X X X X ..... therwise than account payee cheque/draft to M/s. Ram Saran Rakesh Saran. In response to the query, the assessee submitted that no cash payment has been made to party for ₹ 27,674. The AO, therefore disallowed 20% of the same under Section 40A(3) of the Income-tax Act,1961(In short "the Act"). On appeal, the ld.CIT(A) confirmed the addition. 5. We have heard the rival submissions. Shri Prakash Narain, Advocate and Shri S.D.Seth, Advocate,ld. Counsels for the assessee submitted that payment made to M/s. Ram Saran Rakesh Kumar, as the AO has himself stated, was made by pay order. Shri Prakash Narain, Advocate and Shri S.D.Seth, Advocate,ld. Counsels for the assessee submitted that the authorities below have failed to understand the fact that pay order is a banker cheque and is account payee only and provisions of Section 40A(3) do not apply to payment by pay order. 6. In view of the above submissions of Shri Prakash Narain, Advocate and Shri S.D.Seth, Advocate,ld. Counsels for the assessee, we allow ground No.2 of the appeal. 7. Grounds No.3 to 7 of the appeal are directed against the action of the ld. CIT(A) in disallowing salary of ₹ 1,86,000. 8. The AO has discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akash Narain, Advocate and Shri S.D.Seth, Advocate, ld. Counsels for the assessee pointed out that during the course of appellate proceedings before the ld. CIT(A), the following submissions were made : " The Leaned Assessing Officer has made addition of ₹ 2,23,700 out of salary expenses as under : Total salary of 10 persons 1,86,200 Part Salary of Dipti Singh 31,500 Part Salary of Kuldeep Mishra 6,000 Total 2,23,700 The Learned Assessing Officer had vide notice u/s 143(3) of 7.12.2007 desired to record the statement of these 12 persons. Earlier during the proceedings, the Learned Assessing Officer has asked for and was provided the details of salary register and on 8.10.2007 was also provided for photocopy of salary register (Page 93 to 127 of Paper Book).All salary paid is vouched and verifiable through salary register. In past salary was never disallowed (Page 128 & 129 of Paper Book).The comparative chart is as under : Asstt.Year Total Sales In Core Salary and wages expenses 2005-06 1.71 7,13,7,33 2004-05 1.57 7,06,171 2003-04 1.41 6,45,405 2002-03 0.85 5,33,658 The salary and wages paid was much less than the minimum wages as prescribed by the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t remember his exact salary in year 2004-05 still an addition of ₹ 6,000/- has been made by partly disallowing the salary as the exact salary paid to him was ₹ 2750/- per month. ITO has not got verified the signatures of both Dipti Singh and Kuldeep during their statement even though photocopy of salary register was available with him" 10.1 Shri Prakash Narain, Advocate and Shri S.D.Seth, Advocate,ld. Counsels for the assessee submitted that the ld.CIT(A) has not correctly appreciated the above submissions of the assessee and he, therefore, submitted that the same may be considered and the addition sustained by the ld.CIT(A) be deleted. 11. We have heard the rival submissions and perused the materials available on record. It seems that the ld. CIT(A) has not correctly appreciated the submissions of the assessee while sustaining the addition of ₹ 1,86,000. We find that the assessee has provided the details of Salary Register and also submitted photo copy of salary register to the AO. The salary payments are vouched and verifiable through the Salary Register. It is also seen that in the past salary was never disallowed. In this regard, the asessee has given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld.CIT(A) reduced the disallowance to 10% of the aggregate of above expenses. 15. We have heard the rival submissions. At the time of hearing, Shri Prakash Narain, Advocate and Shri S.D.Seth, Advocate,ld. Counsel for the assessee submitted that the addition sustained by the ld.CIT(A) is on the higher side, particularly when the assessee has produced all the relevant documents in support of its claim. The AO has not pointed out any single instance when the expenditure was incurred for non-business purposes. Keeping in view the entire facts and circumstances of the present case, we are of the view that the disallowance of 5% under the above heads will meet the ends of justice. Thus, these grounds of appeal are allowed partly. 16. Ground No.10 of the appeal reads as under: "10. That the Learned Lower Court erred in disallowing ₹ 7,500 being amount paid to staff on Diwali incentives." 17. At the time of hearing, Shri Prakash Narain, Advocate and Shri S.D.Seth, Advocate,ld. Counsels for the assessee did not press for this ground of appeal and accordingly we dismiss the ground no.10 as not pressed. 18. Ground No.11 of the appeal reads as under : "11. That the L. Lower Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of business. In the process a loss was incurred by him which was claimed as a deduction. Kind of a loss claimed by the assessee was held to be not allowable by the Punjab & Haryana High Court in the case of Soda Silicate & Chemical Works (supra). However, in terms of Board's circular in case the funds so raised are used for the purposes of business, the loss is held to be allowable. The same view has been reiterated by them after considering the judgment of Punjab & Haryana High Court in the case of Soda Silicate & Chemical Works (supra). This was as per Instructions F.No.72- IT(A1) dt. 16th May,1978. Thus as per Department's own instructions the loss so suffered has been held to be allowable. The aforesaid view has also been taken by the Andhra Pradesh High Court in the case of CIT vs. Kovur Textile Co. (1982) 136 ITR 61(AP). Considering the beneficial circular as well as the judgment of the Andhra Pradesh High Court in favour of the assessee, we would hold that the chit fund loss claimed by the assessee is allowable and would accordingly direct the AO to allow the same." 21.1 Respectfully following the order of the Tribunal(supra), we allow this ground of appeal and d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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