Related-party payments under section 40A(2)(b) and transport charge disallowance were upheld on the facts found.

Payments to a firm in which the assessee-company's director, directors' spouses and another director's son were partners fell within the related-party category under section 40A(2)(b) of the Income-tax Act, so the provision applied to scrutinise the expenditure. The transport-charge disallowance was upheld on facts because the authorities found that the increase was not fully supported by the value of services rendered; a reduced disallowance for one year was also sustained after considering higher diesel, oil and other costs. The additions under section 40A(2)(b) were confirmed and the assessee received no relief on either issue.

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Issues: (i) Whether payments made to a firm consisting of the assessee-company's director and relatives of directors attracted section 40A(2)(b) of the Income-tax Act, 1961. (ii) Whether the disallowance of part of the transport charges as excessive and unreasonable was justified.

Issue (i): Whether payments made to a firm consisting of the assessee-company's director and relatives of directors attracted section 40A(2)(b) of the Income-tax Act, 1961.

Analysis: The assessment years were 1985-86 and 1986-87. The payees were partners who included a director, the spouses of two directors, and the son of another director. These relationships brought the payments within the class of persons covered by section 40A(2)(b), and the statutory provision was therefore applicable.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether the disallowance of part of the transport charges as excessive and unreasonable was justified.

Analysis: The disallowance was based on material showing that the increase in transport charges was not fully justified by the value of services rendered. The order reducing the disallowance for one year in light of increased diesel, oil, and other costs was also upheld on the facts found by the authorities.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Final Conclusion: The additions sustained under section 40A(2)(b) stood confirmed, and the assessee obtained no relief on either referred question.

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