Case Law Details
M S Hostel Vs DCIT (ITAT Ahmedabad)
The case of M S Hostel vs. DCIT (ITAT Ahmedabad) revolves around the disallowance of salary payment to Smt. Palak A. Shah under Section 40A(2)(b) of the Income Tax Act, 1961. The appellant, M S Hostel, paid a salary of Rs. 4,20,000 to Smt. Palak A. Shah, the Administrative Head, and deducted TDS. The tax authority disallowed the expense, claiming it to be excessive and a sham transaction to evade tax. However, the appellant argued that the salary was justified for the services rendered by Smt. Palak A. Shah, who possessed an MBA degree and managed various aspects of the hostel.
The appellate tribunal found that the expenditure was incurred exclusively for business purposes and was not excessive or unreasonable. It noted that the tax was deducted, the salary was as per prevailing market rates, and Smt. Palak A. Shah discharged her tax liability. The tribunal emphasized that the disallowance under Section 40A(2)(b) requires proving excessive or unreasonable payment, which was not established in this case. Hence, the tribunal allowed the appeal, quashing the disallowance.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The instant appeal filed at the instance of the assessee is directed against the order dated 21.06.2023 passed by the National Faceless Appeal Centre (NFAC), Delhi, arising out of the order dated 08.12.2017 passed by the DCIT, Circle 1(3), Vadodara, under Section 143(3) of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’) for Assessment Year 2015-16.
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