TMI Blog2003 (5) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... n section 40A(2) of the Income-tax Act?" - we hold that the increase in the salary of employees, namely, Ajaz Ahmad and Ali Ahmad, is reasonable and that of Mohammad Ali is unreasonable taking into account the provisions of clause (a) of sub-section (2) of section 40A of the Act. - Our answer to the question referred to above is decided partly in favour of the assessee and partly in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmad Ali from Rs. 500 to Rs. 900 per month in the assessment year 1975-76. The Income-tax Officer took the view that the increase in the salary of these persons was not on the grounds of commercial expediency and was unreasonable, having regard to the fair market value of their services, the legitimate needs of the business and the benefits derived by the assessee-firm from their services. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Income-tax Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer without any material cannot hold that the increase in the salary is unreasonable. It is, however, to be examined that the ratio of increase in the salary is reasonable. If the ratio of the increase in the salary is higher, the assessee must establish by producing cogent material that there were exceptional circum stances, which compelled him to increase the salary of the empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent. but in the case of Mohammed Ali, the increase of salary would be 80 per cent. The assessee did not produce any material to show that the disproportionate increase of salary of Mohammad Ali was on the basis of some exceptional circumstances. In view of the above discussion, we hold that the increase in the salary of employees, namely, Ajaz Ahmad and Ali Ahmad, is reasonable and that of Moh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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