Sonone Surgical and Ophthalmic Hospital Vs ITO (ITAT Pune)
ITAT Deletes Disallowance of Cash Payments to Partners and Employees
Brief Facts:
- The assessee, a partnership firm running a hospital, did not file a regular return of income for A.Y. 2019-20.
- Based on information of large transactions, the AO issued a notice u/s 148.
- Return was filed on 10.03.2023 declaring income of ₹34,93,220.
- Books were audited u/s 44AB, audit report was e-filed on 30.10.2019, but return was missed due to consultant’s oversight.
During reassessment, AO noted the gross revenue was not in dispute but disallowed ₹55,05,000 expenses:
1. Remuneration to partners – ₹18.00 lakh (paid in cash)
2. Salary to employees – ₹35.88 lakh (paid in cash)
3. Rent paid – ₹1.70 lakh
AO assessed income at ₹89,98,220.
The assessee’s appeal before CIT(A) was dismissed.
ITAT Findings:
1. Remuneration to Partners (₹18.00 lakh)
- Assessee furnished ledger accounts of partners.
- Payment was as per partnership deed, within the limits of Section 40(b)(v).
- There is no bar under the Act on paying remuneration to partners in cash.
Remuneration has been given to the partners within the limit prescribed u/s.40A(b)(v) of the Act and there is no dispute to this extent. Therefore, since the remuneration to partners have been given as per the partnership deed and within the limit prescribed under the income-tax Act, the genuineness of the said payment is not in doubt and further assessee being a partnership firm can make payment of remuneration to partners in cash, therefore the alleged disallowance of Rs. 18.00 lakh is hereby deleted.
- Genuineness of payment not disputed.
- Held: Disallowance deleted.
2. Salary to Employees (₹35.88 lakh)
- AO had details of employees (recorded in assessment order).
- Payroll register was furnished.
- AO did not show that any single cash payment exceeded the limit u/s 40A(3).
- Assessee, being a hospital, required staff; expenses were genuine.
- Net profit before remuneration = 43.53% of gross receipts, indicating no inflation of expenses.
- Books were not rejected; receipts undisputed. Details have been duly maintained. Revenue/Gross Receipts are not in dispute.
Considering all these facts, we fail to find any justification in the disallowance made by the Assessing Officer and sustained by Id. CIT(A). Finding of Id. CIT(A) is set aside and the impugned disallowance of salary expenses at Rs.35.88 lakh is hereby deleted.
- Held: Disallowance deleted.
FULL TEXT OF THE ORDER OF ITAT PUNE
