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2020 (4) TMI 263 - AT - Income TaxDisallowance u/s. 40A(3) - Proof of cash payment on specific request - assessee had failed to produce evidence from the payee, i.e., SPM & Sons, Kollam that it insisted on cash payments - HELD THAT:- The assessee has now produced a letter from SPM & Sons, Kollam wherein it was stated that it had insisted for cash payments in view of the fact that the goods sold to them were mill goods, which is in high demand - as stated that the assessee’s Bank account was located at Punalur and for encashing the cheque/draft would require time. It was further mentioned in the said letter of SPM & Sons, Kollam that the purchases were effected in most of the days after the banking hours. Rule 6DD(j) of the I.T. Rules states that when payments are required to be made on dates on which the Banks are closed either on account of holiday or strike, such cash payments would not be liable for disallowance u/s. 40A(3) - assessee has to prove the circumstances under which the assessee was forced to make cash payments and such circumstance falls within one of the conditions enumerated under Rule 6DD of the I.T. Rules - one more opportunity should be granted to the assessee to prove his case that he was forced to make cash payments under the compelling circumstances and assessee’s case falls in one of situation enumerated under Rule 6DD of the I.T. Rules. For the above purpose, this issue is restored to the file of the Assessing Officer. Accordingly, Ground Nos. 1 to 5 of the assessee are allowed for statistical purposes. Payments to persons covered u/s. 40A(2) in excess of market value - assessee had paid salary to his mother, his wife and his two brothers - HELD THAT:- Having regard to the fact that the assessee’s mother, wife and two brothers had experience in this line of trade, salary was paid to them as compensation for market value of services rendered by them - Disallowance of 50% of salary on facts and circumstances of the instant case is excessive. In order to meet the ends of justice, out of ₹ 5,40,000/- hold that assessee is to be granted further deduction of ₹ 2,70,000/- on account of salary paid to close relatives, for the reason that assessee‘s father was the previous owner of the business, on his passing away, all his children and his wife were entitled to business. Moreover, it is also a fact that assessee’s mother, wife and his two brothers were assisting the assessee in running the day to day business affairs of the assessee. Accordingly,grant further deduction of ₹ 2,70,000/- and confirm the disallowance of ₹ 2,70,000/- out of the total disallowance of ₹ 5,40,000/- made by the Assessing Officer which was confirmed by the CIT(A). Disallowance of Car Expenses - AO disallowed 1/3rd of the expenses claimed on account of four cars owned by the Appellant - HELD THAT:- It is an admitted fact that that the assessee has four relatives who were attending to business and each of them was given a car for business and for its utilization. The assessee has also to go to other places such as Tamil Nadu and Bangalore for making purchases. - 1/3rd disallowance of car expenses is excessive - restrict the disallowance to 1/4th of the car expenses claimed by the assessee. - Decided partly in favour of assessee.
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