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TMI Blog2014 (3) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... d Nos. 2 and 3 relate to the validity of reduction of disallowance made from salary expenses from 10 per cent. to 5 per cent. Ground No. 4 relates to non-consideration of disallowance of "agents incentive" expenses under section 40A(2)(b) of the Act. We notice that grounds 5 and 6 raised by the Revenue do not arise out of either the assessment order or the order of the learned Commissioner of Income-tax (Appeals). Hence, the learned Departmental representative was asked to explain the reason for urging those grounds before us. In response thereto, the learned Departmental representative sought clarifications from the Assessing Officer, who has clarified that those grounds were raised to support the ground relating to the disallowance to be made under section 40A(2)(b) of the Act. Thus we notice that we need to adjudicate the following two issues:- (a) Reduction of disallowance made from salary expenses. (b) Disallowance of "agents incentive" expenses under section 40A(2)(b) of the Act. 4. The facts relating to the issues referred above are stated in brief. The assessee is a partnership firm consisting of 8 partners. It is engaged in share br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, apparently to cover possible deficiencies. 5. In the appeal filed, the learned Commissioner of Income-tax (Appeals) noticed that the TDS deducted from "agents incentive" was remitted to the Government account before the due date of filing the return of income prescribed under section 139 of the Act. Accordingly he deleted the disallowance of "agents incentive" expenses made under section 40(a)(ia) of the Act. It is pertinent to note that the Assessing Officer, after discussing about the applicability of the provisions of section 40A(2)(b) of the Act, did not make disallowance under that section only for the reason that he disallowed the same under section 40(a)(ia) of the Act. Hence, the grievance of the Department is that the learned Commissioner of Income-tax (Appeals) should have sustained the disallowance of "agents incentive" expenses, alternatively by invoking the provisions of section 40A(2)(b) of the Act. However, the learned Commissioner of Income-tax (Appeals) did not consider the disallowance under section 40A(2)(b) of the Act. The learned Commissioner of Income-tax (Appeals) reduced the disallowance made from the salary expenses from 10 per cent. to 5 per cent. Agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m is more than what is required in other cases. If the payment was to a stranger and bona fide, presumption of reasonableness of payment would apply but not when payments are between related parties. This is because in the case of related companies beneficiaries are the same set of people and, therefore, unless details are furnished justifying the payment of service charges, the Department is not bound to allow the claim." In the above cited case, it can be seen that the payment was made to a related person, which is not the case here in respect of salary payments. Hence, in our view, the decision of the jurisdictional High Court cannot be applied to the facts of the instant case. 7.1. According to the assessee, it has got 10 branches in Tamilnadu and one branch in Kerala and the salary expenses have been incurred wholly and exclusively for the purposes of business. Since the branches were spread mostly in Tamilnadu, the assessee had to employ persons hailing from Tamilnadu. We find force in the abovesaid contentions of the learned authorised representative. On a perusal of the assessment order, we notice that the Assessing Officer has not doubt about the genuineness of the salar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to form an opinion that the said expenditure is excessive or unreasonable. The measure of excess or unreasonable nature has to be determined having regard to:- (a) the fair market value of the goods, services or facilities for which payment is made or (b) the legitimate needs of the business or profession or (c) the benefit derived or accruing therefrom. After carrying out the abovesaid exercise, the Assessing Officer can disallow only that portion of expenditure, which was considered by him as excessive or unreasonable. 8.2. In the instant case, the Assessing Officer has not carried out the exercise as discussed above, but has simply taken the view that the payments made to related persons is disallowable under section 40A(2)(a) of the Act. Further, the Assessing Officer has observed that M/s. Systematic Associates and M/s. Image Associates fall under the category of related concerns specified under section 40A(2)(b) of the Act. However, the assessee contends before us that the abovesaid observations of the Assessing Officer are against the facts. According to the assessee, M/s. Systematic Associates and M/s. Ima ..... X X X X Extracts X X X X X X X X Extracts X X X X
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