TMI Blog2017 (3) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ₹ 2 Lakhs to a sister concern - Held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the facts and circumstances of the case and under the provisions of law, the Assessing Officer and CIT (A) erred in making and sustaining the addition of ₹ 2,00,000/- u/s 40A(3), whereas such payment of ₹ 2,00,000/- is nothing but transfer of funds from one firm to another firm through the Partner's Capital Account for which Section 40A(3) is not attracted. 5. For these and other reasons which may be adduced at the time of hearing, the appellant prays before this Hon'ble Bench to delete the addition made by the Assessing and sustained by the Hon'ble CIT (A). 6. Appellant craves leaves, to add, to alter, to amend and to delete any other grounds at the time of hearing. 2. Ground No. 1 is general in nature a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcess payment of ₹ 15,10,000/- u/s. 40A(2)(a) of the Act. The assessee challenged the action of the AO before the CIT(A) and contented that the assessee firm is a family business partnership. The three partners of the assessee firm are sons of the three erstwhile partners and therefore these three persons had rich knowledge and experience in the field of the business of the assessee firm and contributed a lot in running the business smoothly. Thus the assessee contented that the business of the assessee firm has grown manifold over the years due to the services of these persons. The CIT(A) did not accept the contention of the assessee. However, the CIT(A) has restricted the salary of ₹ 13,00,000/- and consequently sustain the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Having considered the rival submissions and relevant material on record, it is noted that the AO has considered the salary paid to these 5 persons who are relatives of partners of assessee firm is excessive and therefore restricted the salary on estimate basis to ₹ 7,50,000/- and disallowed the excess payment of ₹ 15,10,000/-. The CIT(A) granted part relief to the assessee by allowing the remuneration to these 5 persons of ₹ 13 Lakhs instead of ₹ 7,50,000/- by the AO. Thus the addition sustained by the CIT(A) is ₹ 6,00,000/-. 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A). However, the CIT(A) dismissed the ground of the assessee on this issue. 9. I have heard the ld. AR as well as the ld. DR and considered the relevant material on record. It appears that this amount of ₹ 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. 10. In the result the appeal of the assessee is partly allowed. Pronounced in the open court on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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