INCOME TAX ACT 1961

Section 40A(2)(b)

Business disallowance under section 40A(2)(b) - Excessive or unreasonable payment - Ad hoc disallowance of salary paid to relatives -

Assessee filed appeal against the order of AO restricting the salary thereby making disallowing of excessive salary paid to relatives under the provisions of section 40A(2)(b). Held: AO failed to bring on record the fair market value of the alleged services to be provided by the employees and also failed to show the basis of computing the legitimate salary for the work to be performed. AO had not made any efforts in this regard and without making any enquiry about the fair market value of the services or the experience of the employees or the comparison of similar type of salary paid for the work performed by other employees of the concern has just resorted to make disallowance which was uncalled for. AO also could not show that whether the alleged payments were not paid through account payee cheque or they were not disclosed in the regular return of income of the payee. Hence, disallowance made by AO could not be held as justified.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

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