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2021 (2) TMI 730 - AT - Income TaxAddition u/s 40A(2)(B) - selecting the case for limited scrutiny is the “payment to related person mismatch” - HELD THAT:- In the Annexure 3CD to Form 3CB of the Act read with section 44AD of the Act one of the point to be examined by the auditor is with regard to the payment made to related parties and in case excessive amount is paid the same needs to be reported. Post audit u/s 44AB of the Act when the assessee files the return there is a specific column in the Income Tax Return form, where the assessee has to report any such disallowance u/s 40A(2)(b) of the Act. Before us neither the audit report is placed nor copy of Income Tax Return form is produced. Even in the assessment order the Ld. A.O has not made any observation in this regard. There are no specific guidelines before us which could show that under limited scrutiny what needs to be examined by Ld. A.O for the reasons “payment to related persons mismatch”. In absence of these details which have not been provided by either the parties, the legal ground raised by the assessee deserves to be dismissed. Salary to wives of the partners of the firm - Disallowance of expenses paid to the relatives can be made by the Ld. A.O if he is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market of the goods, services or facilities for which the payment is made or the legitimate needs of the business or professional of the assessee or the benefit derived by accruing there from are considered to be excessive or unreasonable. A.O 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 ₹ 1,00,000/- as the legitimate salary for the work to be performed. Ld. A.O has 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 in our view is uncalled for. Ld. Departmental Representative 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. We find no justification in the order of Ld. A.O for making the adhoc disallowance - delete the disallowance made by the Ld. A.O u/s 40A(2)(b) - Decided in favour of assessee.
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