Youth Potent Potation Vs ITO (ITAT Kolkata)
Income Tax Appellate Tribunal (ITAT), Kolkata, has ruled in favor of M/s Youth Potent Potation, a liquor trading firm, allowing its appeal against the order of the National Faceless Appeal Centre (NFAC), Delhi, for the Assessment Year 2015-16. The tribunal, in an order pronounced on April 1, 2025, set aside disallowances made by the Assessing Officer (AO) and upheld by the Commissioner of Income-tax (Appeals) [CIT(A)] on multiple grounds, providing relief to the assessee.
The initial hurdle was a delay of 20 days in filing the appeal. However, after considering the condonation petition and hearing both sides, the ITAT deemed the reasons for the delay to be genuine and sufficient, subsequently admitting the appeal for adjudication. The substantive issues raised by the assessee revolved around the disallowance of ₹3,81,115 under Section 40(b) of the Income Tax Act concerning partners’ salaries, ₹1,33,239 related to salary, bonus, and staff welfare expenses, ₹35,000 for accounting charges, and ₹10,000 claimed as donation expenses.
Regarding the disallowance of partners’ salaries, the AO had contended that the assessee failed to prove that all seven partners were actively working in the business. Despite the partnership deed stipulating the salaries, the AO allowed remuneration for only two partners. The ITAT, however, disagreed with the lower authorities, stating that the determination of partners’ salaries is the prerogative of the partners and is authorized by the partnership deed, subject to the overall limits prescribed under Section 40(b) of the Act. The tribunal found no basis to question the genuineness of the salaries based on the AO’s observation and directed the AO to delete the disallowance.
On the issue of salary, bonus, and staff welfare expenses, the AO had disallowed 25% of the total amount, citing the non-production of detailed supporting evidence. The CIT(A) upheld this disallowance. The ITAT took a different view, stating that a partial disallowance on an estimation basis was unsustainable. The tribunal opined that if the expenses were deemed not genuine, a complete disallowance could have been considered, but a partial disallowance without a clear basis was incorrect. Consequently, the ITAT set aside the CIT(A)’s order and directed the AO to remove the addition.
The disallowance of accounting charges of ₹35,000 stemmed from the AO’s observation that the assessee had not deducted tax at source (TDS) on these payments. The CIT(A) confirmed this disallowance. However, the ITAT, after reviewing the facts, noted that the payment was made to a part-time accountant for writing the books of accounts. The tribunal held that such remuneration did not attract TDS provisions, thus setting aside the CIT(A)’s order and directing the AO to delete the addition.
Finally, concerning the donation expenses of ₹10,000 given to various puja pandals in Kolkata, the AO disallowed these, and the CIT(A) upheld the decision. The assessee argued that these donations were essential for the smooth running of their liquor business in the city. The ITAT concurred with the assessee’s contention, citing precedents that have held puja expenses paid to pandals on various occasions as allowable business expenses. The tribunal reasoned that these expenses were incurred wholly and exclusively for the purpose of the business, leading to the setting aside of the CIT(A)’s order and a direction to the AO to delete the addition. In conclusion, the ITAT allowed the appeal of M/s Youth Potent Potation in its entirety, providing relief on all the contested disallowances.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
