Related-party salary disallowance fails without evidence of excessiveness or unreasonableness under income-tax rules.

Disallowance of salary paid to related parties under section 40A(2)(b) requires cogent material showing that the remuneration is excessive or unreasonable having regard to market value and services rendered. An ad hoc estimate, including a bare assumption that similar personnel could be hired at half the salary, is insufficient where no comparable cases or other evidence are produced. On that basis, the salary disallowance was held unsustainable and deleted, granting relief to the assessee.

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Issues: Whether the disallowance of salary paid to related parties under section 40A(2)(b) of the Income-tax Act, 1961 was sustainable in the absence of comparable material to show that the payments were excessive or unreasonable.

Analysis: The payment of salary to 11 related persons was disallowed on an ad hoc basis by estimating that similar personnel could be engaged at half the salary. No comparable cases or other cogent material were brought on record to establish that the remuneration exceeded market levels or that the expenditure was excessive having regard to the fair market value of the services rendered.

Conclusion: The disallowance was not justified and was directed to be deleted, resulting in relief to the assessee.

Ratio Decidendi: A disallowance under section 40A(2)(b) cannot rest on conjecture or ad hoc estimation and must be supported by material showing that the expenditure is excessive or unreasonable.

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