Case Law Details
Jasibai Dayaram Amlani Vs DCIT (ITAT Nagpur)
FMV Rent Addition Related Party Salary Disallowance Deleted – Inspector Report Isolated Statement Held Insufficient – ITAT Nagpur
In this case, the AO enhanced rental income alleging under-statement of rent received from assessee’s son by adopting higher fair market value and also disallowed salary paid to the son u/s 40A(2)(b). The CIT(A) confirmed both additions.
ITAT observed that FMV rent was estimated based on properties at Nagpur whereas the subject property was situated at Amravati and no comparable evidence was brought on record. Considering AMC standard rent, consistent rent declared, and both parties being taxed at maximum rate, the Tribunal held that rent of ₹1.80 lakh p.a. was reasonable and deleted addition of ₹1.92 lakh.
Regarding salary disallowance, ITAT noted that the son had been working in the family business for many years, rendering services at multiple locations, and the payment was duly offered to tax in his hands. The AO relied mainly on a portion of statement without disproving actual services. Tribunal held that disallowance was unjustified and allowed the claim. Appeal partly allowed.
FULL TEXT OF THE ORDER OF ITAT NAGPUR
This appeal at the instance of the assessee is directed against the order of Ld. ADDL/JCIT (Appeals), Udaipur [“CIT(A)”], dated 07/10/2025 passed u/s. 250 of the Income Tax Act, 1961 (for short, ‘the Act’) which is arising out of assessment order dated 13.12.2016 passed u/s. 144(3) of the Act by the DCIT, Amravati Circle, Amravati for the Assessment Year 2013-14 (A.Y.)
2. The assessee has raised the following grounds of appeal:-
“(1) That the order of the learned Deputy Commissioner of Income Tax, Amravati Circle u/s 143(3) is bad in law and wrong on facts and the learned CIT(A) erred in confirming the same.
(2) That the learned CIT(A) erred in law and on facts in confirming the action of AO in making addition of Rs. 1,92,000/- as rent received from son, by considering Rs. 3,72,000/- as fair market value. On the facts and circumstances of the case, the rent of Rs. 1,80,000/- received from son, Shri Rajesh Amlani was reasonable and at fair market rate of property. The action of authorities is hence, unwarranted.
(3) That the learned CIT(A) erred in law and on facts in confirming the action of AO in making addition of Rs. 3,00,000/- by disallowing the salary expenses paid to Shri Naresh Amlani by holding the same to be bogus. On the facts and circumstances of the case, the salary paid was wholly and exclusively for business purpose and was reasonable. The learned authorities were unjustified in holding otherwise.
(4) That the learned CIT(A) erred in law and on facts in confirming the action of AO in determining and charging interest u/s. 234A and 234B. On the facts and circumstances of the case and in law, the calculation is improper.
(5) That for any other ground with kind permission of your honour at the time of hearing of appeal.”
3. At the outset, learned counsel for the assessee requested for not pressing ground No.1. Accordingly, ground No.1 is dismissed as not pressed.
4. So far as grounds raised on merits at ground Nos. 2 & 3 are concerned, facts of the case in brief are that assessee is an individual carrying on business of wholesale and retail trading in cement, GI sheets, CG sheets etc. Income of ₹ 25,87,080/-declared in the return of income for A.Y. 2014-15 furnished on 26.11.2014. The case picked up for scrutiny through CASS followed by validly serving statutory notices u/s. 143(2) and 142(1) of the Act. Ld.AO in the course of assessment proceedings, apart from examining various issues, also observed that assessee has received rental income of ₹1,80,000/- p.a for 3000 sq.ft. located at Sundaram Tower, Sahakar Nagar, Amravati. Such rent was received from assessee’s son. Ld.AO based on the verification conducted by the Inspector of the Income tax Department, came to a conclusion that fair market value of rent is much higher and calculated it at ₹ 3,72,000/-, as accepted fair market rent i.e. ₹ 31,000/- p.m. Ld.AO observed that assessee on one hand is paying rent at a higher rate, but is charging nominal rent from her son and concluded the proceedings making addition for under-statement of rental income at ₹ 1,92,000/- (3,72,000 – 1,80,000).
5. Ld. AO also observed that assessee has charged salary expenses of ₹ 3,00,000/- paid to her son Mr. Naresh Amlani. For examining these details under the provisions of section 40A(2)(b) of the Act applicable to the payments made to the related parties, Ld.AO observed that her son Mr. Naresh Amlani does not work for assessee and that the claim made towards salary expense of ₹3,00,000/- is bogus and disallowed the same and assessed at ₹ 30,79,080/-
6. Aggrieved, assessee preferred appeal before the Ld.CIT(A), but failed to succeed. Now assessee is in appeal before this Tribunal.
7. Learned counsel for the assessee submitted that fair market rent estimated by the Ld.AO is a very higher side because the period relates to F.Y. 2013-14 and the verification by the Inspector has been conducted during the F.Y. 2016-17 and certainly there has been increase in the rate of rent in this period. He also stated that the property in question is located at Amravati being a three tier city, whereas the comparison has been made with the rent paid at Nagpur and therefore, such comparison is not justified. He also submitted that standard rent of the premises let out by the appellant as per Amravati Municipal Corporation (AMC) recknor sheet, is ₹20,084/- p.a. and that the rent charged by the assessee is ₹1,80,000/- p.a. is much higher side. He also submitted that total income of the tenant Mr. Naresh Amlani is ₹11,94,390/-and is paying the tax at the Maximum Marginal Rate (MMR) and therefore there is no loss to Revenue.
8. As regards disallowance of salary expenses, he submitted that assessee carries on the business having its location at Amravati as well as Nagpur. Payment has been made to her son who is employed for last 10 years and provides services relating to purchase and sale at both the locations and also looks-after loading and unloading of cement and other bank related works. He also submitted that being a family owned business, the lump-sum salary is credited at the end of the assessee and that the total taxable income of Mr.Naresh Amlani is ₹ 9,08,728/-. He also submitted that turnover of the assessee has increased from 63.94 cr. to 73.02 cr. during the year under consideration, net profit has is also increased from 25.07 lakhs to 31.54 lakhs. He prayed that the impugned addition deserves to be deleted.
9. On the other hand, Ld. Departmental Representative (DR), vehemently argued supported the findings of the Ld. CIT(A).
10. I have heard rival contentions and perused the records placed before me. First issue for my consideration raised in ground No.2 is regarding the addition for under-statement of rental income from the business premises located at Amravati. I observe that the assessee has received rent at ₹ 1,80,000/-p.a. Ld.AO based on the report of the Inspector has estimated the fair market rent at ₹ 3,72,000/-. Fair market rent estimated by the Ld.AO is based on similar commercial property located at Nagpur whereas the property in question is located at Amravati. Ld. DR also failed to controvert the fact that the standard rent of the premises let out by the appellant as per AMC reckoner is ₹ 20,084/- p.a. whereas the assessee has charged rent of ₹ 1,80,000/- p.a. The assessee is showing increased sales as well as higher gross and net profit. Both the assessee and the tenant, who is assessee’s son are subject to maximum rate of taxation. Except the Inspector’s report, no other credible evidence about the property located at Amravati in the same location fetching higher amount of rent has been placed before me. Considering the consistent rental income shown by the assessee and also the standard rent as per the record of AMC, I find that the assessee has charged reasonable rent of ₹1,80,000/- p.a. and that Ld.AO grossly erred in estimating higher amount of rental income. I therefore, reverse the finding of Ld.CIT(A) and delete the addition of ₹ 1,92,000/- made by the Assessing Officer. Ground No.2 raised by the assessee is allowed.
11. Ground No.3 relates to disallowance of salary expenditure of ₹ 3,00,000/- paid to the assessee’s son Mr.Naresh Amlani. The alleged disallowance made by the Ld.AO is majorly based on some portion of statement of Mr.Naresh Amlani and that too, have been utilized by the Ld.AO for the purpose of making disallowance. I find that Ld.AO has completely disregarded the fact that Mr. Naresh Amlani is son of the appellant, who gave services in the family under business. The assessee i.e. mother is the proprietor and the son and other family members jointly work in the family business. Mr. Naresh Amlani is looking after the business work of the assessee at Nagpur as well as Amravati and mainly takes care of loading and unloading of cement and other goods and also takes care of bank related work. Salary is being paid for last 10 years. There is no history of such disallowance in the past. The turnover of the assessee along with gross profit and net profit is on increasing trend and there does not seem any planning of the assessee to reduce tax liability. The alleged salary expenditure is duly offered to tax by Mr. Naresh Amlani in his return of income. Under these given facts and circumstances, I am of the considered view that the alleged disallowance of salary expenditure is uncalled for. Finding of the Ld.CIT(A) is set aside and ground No.3 raised by the assessee is allowed.
12. Ground Nos. 4 & 5 are general and consequential in nature, which need no adjudication.
13. In the result, appeal of the Assessee is partly allowed.
Order pronounced in the open Court on 12.02.2026
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