TMI Blog1990 (9) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... s at the rate of 12 per cent in that year. He accordingly disallowed a sum of Rs. 84,950. The CIT(A) allowed interest at the rate of 21 per cent in respect of the deposits of the various relatives of the partners and worked out the disallowable amounts only to Rs. 14,141 and granted a relief of Rs. 70,809. The assessee has challenged the disallowance of Rs. 14,141 confirmed by the CIT(A) while the Revenue challenged the relief of Rs. 70,809 granted by the CIT(A) out of disallowance of interest claimed. 3.1 The learned Sr. D.R. invited our attention towards detailed reasons given in the assessment order. It was submitted that the assessee itself pleaded before the ITO that it has charged interest at the rate of 18 per cent on its four advances as per the balance sheet and hence if excess interest is to be disallowed, only 1/4th of Rs. 1,13,128 being interest paid to eight relatives at the rate of 24 per cent, which comes to Rs. 25,382 could be disallowed. The CIT(A) has therefore clearly erred in granting deduction in respect of such interest at the rate of 21 per cent per annum. He further urged that rate of interest has been increased from 12 per cent to 18 per cent and 18 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax assessees and rate of tax applicable in their respective cases range between 44 per cent to 56 per cent as per details placed on page 2 of the paper book. Interest paid on most of the deposit accounts in the preceding year was at the rate of 18 per cent per annum and not at the rate of 2 per cent as mentioned in the ITO's order. The assessee has also produced various statements showing that they have earned cash discounts approximately at the rate of 12 per cent per month from Calico Mills. In order to determine the allowability of an expenditure with reference to s. 40A(2) what is required to be seen is whether such expenditure is excessive or unreasonable having regard to the fair market value of the services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accrued to the assessee therefrom. The interest rate of 24 per cent per annum allowed on the unsecured deposits of relatives lying with the assessee cannot be treated as unreasonable or excessive in the previous year relating to asst. yr. 1983-84. While arriving at this conclusion we derive support from the decision of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems and came to the conclusion that only a sum of Rs. 5,610 paid to M/s Hira Agencies is not supported by proper voucher and hence the same was rightly disallowed. The balance disallowance of Rs. 58,652 was deleted by him. 5.2 The learned D.R. contended that the CIT(A) has erred in granting relief of Rs. 58,652. He relied upon the detailed reasons given in the assessment order. He submitted that the fact relating to the nature of expenditure amounting to Rs. 18,500 which represents expenditure incurred for rent needs verification as to whether those premises were really occupied and used by the assessee for its business. The ITO only considered the allowability thereof as commission as this amount was claimed by the assessee under the head commission. He also submitted that the other items of commission allowed by the CIT(A) are not based on proper reasons. As regard Rs. 5,610 paid to M/s Hira Agencies the disallowance of which was confirmed by the CIT(A), he contended that the documents of Hira Agency now produced before the Tribunal were not produced before the ITO or the CIT(A) and somebody has to verify the genuineness of the payments of Rs. 5,610 made to the aforesaid part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,481 credited in the account of R.M. Textile R represents credit allowed to regular agents as is apparent from the details of commission of the next year where commission has been paid to these two parties also. We are, therefore, of the view that the relief granted by the CIT(A) to the extent of Rs. 58,652 out of commission is based on valid grounds. Hence, the relief granted by the CIT(A) in this regard is confirmed. 5.6 Coming to the As regards assessee's ground relating to disallowance of Rs.5,610 being commission paid to M/s Hira Agencies we are of the view that this disallowance should be set aside and the matter should be restored back to the ITO for further verification. Although the assessee has established the identity of the payee M/s Hira Agencies by producing their offer forms and correspondence but the genuineness of the payment of Rs. 5,610 paid in cash requires further verification. The assessee did not produce the cash book pertaining to the year under consideration despite specific demand to ascertain the exact date of the aforesaid payment. In the assessment order this amount is shown as paid on 25th Jan., 1984 while during the course of hearing it was stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries have also been assessed to tax in respect of their share income received from the said trust. Copies of relevant assessment orders were also submitted in the paper book. He therefore, urged that addition to the extent of Rs. 8,772 sustained by the CIT(A) should be cancelled. He further contended that the relief of Rs. 9,292 in respect of interest income of the said trust granted by the CIT(A) is perfectly valid as the entire income of the said trust granted by the CIT(A) is perfectly valid as the entire income of the trust in fact as well as in law really belongs to the said trust. 6.2 The learned D.R. heavily relied upon the reasons mentioned in the assessment order and contended that the CIT(A) ought to have considered confirmed the entire amount of addition of Rs. 18,064 in the hands of the assessee. 6.3 After hearing the parties and after going through the order of the learned departmental authorities we are of the view that income derived by Kalpesh N. Sharad Trust Cannot be included in the hands of the assessee. The profit derived by the trust in respect of goods purchased from the appellant firm represents normal trading transaction and there is no material or evi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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