Salary expense jumped by 174% from Previous year.
Rs 1.92 Cr disallowed by the Assessing Officer.
But where did the 10% limit come from? ЁЯСА
The business was bank-loan recovery, with 100+ employees, most working in the field.
Salaries rose from Rs 1.17 Crors to Rs 3.21 Crors.
The Assessing officer found the increase excessive growth in Salary and considered only a 10% increase over the previous year reasonable and Rs 1.92 Crors disallowance by the officer ,Then the case has been referred to the CIT (A) and CIT(A) deleted the addition ,because AO did not point out any specific bogus salary payment.
The Revenue appealed to ITAT.
ITAT upheld the deletion.
The Tribunal noted that if the AO believed the details were inadequate,
He could have rejected the books and proceeded with a best-judgment assessment.
And if income was to be estimated, the estimate had to be reasonable.
A 10% cap, without that proper exercise, wasn’t enough.
A higher expense can raise a question.
It cannot by itself become a disallowance.