TMI Blog1984 (3) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... ile system of accounting. 3. The ITO disallowed Rs. 5,195 paid to S. R., son of one of the partners, under s. 40A(2) holding that he was school going boy, attending the office casually after school hours and, therefore, considered Rs. 1,200 per year as reasonable payment. 4. The assessee paid commission of Rs. 8,700 to an employee S. S., working as salesman over and above regular salary. The ITO invoked the provisions of s. 40A(3) and disallowed the same. 5. Similarly, the ITO invoked the provisions of s. 40A(3)) in respect of commission paid in cash to Shri S. an employee salesman of the assessee. 6. The ITO also found that two of the partners had withdrawn in aggregate sum of Rs. 1,48,000 for construction of property. Since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the business of the assessee firm and thus paid salary for which no disallowance was made. 8.2. In respect of the disallowance of commission paid to two employees of the assessee firm, be drew our attention to the circular of the Board u/r 6DD(J) dt. 31st May, 1977 appearing on pp. 16 and 17. 8.3. In respect of the interest disallowance, he brought to our notice that partners had withdrawn the amount of Rs. 1,48,000 out of total capital of the partners which stood at Rs. 2,08,513. He drew our attention at p. 42 of the paperbook wherein necessary details in respect of the opening balances of the capital accounts of partners standing at Rs. 76,000 approximately and additions made by the partners to the extent of Rs. 1,94,700 because o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and materials to which our attention was drawn. 10.1. Regarding disallowance of Rs. 5,195 out of salary paid to son of a partner, sought to be justified under s. 40A(2) of the Act, we hold that the same is required to be deleted. Merely because the payment is made to a relative of partner would not itself justify disallowance. The disallowance has to be considered after finding that expenditure was excessive or unreasonable having regard to (i) Market value of services,(ii) legitimate needs of the business, and (iii) benefit derived by or accruing to assessee therefrom. Unless the findings are recorded on the basis of above tests disallowance sought to be made as is confirmed by CIT (A) cannot stand the test of law. Invoking of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular issued u/r 6DD (j) specifically mentions that apart from the cases and circumstances stated in the circular, which are not exhaustive but illustrative, there could be cases other than falling within the categories which would satisfy the requirements of r. 6DD (j). The main purpose of the section is to ensure an identity of the receiver so that if necessary the payment made can be cross-checked with the income returned by the payee. In this case it is not the case the Revenue that the employees did not show the receipt by way of commission or that commission paid to the employees were excessive. 10.3. In respect of interest disallowance, we find that the CIT (A) has confirmed the disallowance without applying the amount to the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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