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2024 (3) TMI 1151 - AT - Income TaxAddition u/s 40A(2)(b) - Allegation of excessive and unreasonable salary paid to the relative of partner acting as administrative head - appellant has shown salary payment to the Specified Period and deducted TDS, upon deduction of the same, the remaining amount has been shown as unsecured loan obtained from her - She is the Administrative Head, possesses the degree of Masters in Business Administration from University of Houston-Downtown engaged in looking upon areas related to students like accommodation, food facility, water supply, disciplinary actions etc. of the hostel - HELD THAT:- Payment of salary and granting of interest free loan are two different transactions and there is no scope of clubbing the same to attract the provision of Section 40A(2)(b). The same salary would have been given to any other person recruited by the appellant for the said post. Thus, question of diversion of funds or routing of funds does not and cannot arise as these two transactions i.e. payment of salary as well as loan is through journal entry and the amounts stands payable, on the other hand, in the form of creditor or lender as rightly pointed out by the appellant. As Smt. Palak A Shah did not withdraw salary, the amount was lying as unsecured loan as per normal accounting principle. Had the interest been paid the Revenue would have at loss because the appellant firm attracts 30.9% tax whereas Smt. Palak A shah, an employee falls under 20.6% tax slab. Income Tax Authority must put themselves in the shoes of the appellant and to see as to how a prudent businessman would act. The authorities must not look at the matter from their own view point but of a prudent businessman. When the expenditure incurred by the appellant is otherwise deductible but deduction is restricted to a part of the sum by considering such expenditure to be excessive, having regard to the fair market value of the goods or services etc. and so much part of the expenditure is disallowed or in other words, if the expenditure incurred by the appellant is proved by the Ld. AO to be excessive or unreasonable considering the fair market value of the goods or services for which the payment as made the deduction under Section 40A(2)(b) of the Act is permissible. None of the order passed by the authorities below doubted the services so rendered by Smt. Palak A Shah nor alleged to have been paid salary excessive or unreasonable which is sine qua non in invoking the provision of Section 40A(2)(b) of the Act, in the absence of which, the order of disallowance is found to be not sustainable, bad in law and therefore, quashed. Decided in favour of assessee.
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