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2017 (3) TMI 663 - AT - Income TaxDisallowance of salary paid to the employees relatives of the partners of the assessee - Held that - Both AO as well as CIT(A) have estimated the salary for determining the excess / unreasonable payment without considering the FMV of the services provided by these persons. The AO while invoking the provisions of section 40A(2)(a) considered the FMV of the services by comparing the salary paid to the partners. Whereas it is not ascertainable from the record whether the services rendered by these persons can be compared with the services of the partners to whom the salaries were paid by the assessee firm. It is pertinent to note that the comparison would have been more proper if the salary paid to the unrelated employees of the assessee firm was to be considered as FMV of the services provided by these persons. Therefore this issue has not been properly examined by the authorities below and requires to be reconsidered in the light of the above observation. Hence this issue is set aside to the record of AO for re-computation of the FMV of the services provided by these persons having regard to the salaries paid to the non-related employees of the assessee firm instead of the partners of the assessee firm who cannot be considered as unrelated party. Disallowance u/s. 40A(3) - assessee has made cash payment of Rs. 2 Lakhs to a sister concern - Held that - It appears that this amount of Rs. 2 Lakhs was paid to the sister concern through the partners account. However the assessee has not claimed this amount as an expenditure. Therefore the provisions of section 40A(3) cannot be invoked in the absence of any claim of expenditure. In view of the above fact that this amount was not claimed as an expenditure no disallowance is called for u/s. 40A(3). Accordingly this disallowance made by the AO is deleted.
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