1984 (3) TMI 91 - AT - Income Tax

Appellate Tribunal allows partner salaries but upholds disallowance of expenses under Income-tax Act

The Appellate Tribunal overturned the disallowance of salaries paid to former partners by a registered firm under section 40A(2)(a) of the Income-tax Act, ... Business Disallowance, Business Expenditure Issues:1. Disallowance of salaries paid to former partners under section 40A(2)(a) of the Income-tax Act, 1961.2. Disallowance of miscellaneous expenses for the assessment years.Analysis:1. The judgment concerns the disallowance of salaries paid to former partners, Suresh Chandra, Mahesh Prasad, and Ganesh Prasad, by a registered firm engaged in the sale of sugar and vanaspati. The Income Tax Officer (ITO) disallowed the salaries as excessive and unreasonable under section 40A(2)(a) of the Income-tax Act, 1961, considering the qualifications and part-time nature of the employment. The Commissioner (Appeals) upheld the disallowances, citing improved financial positions of the former partners and lack of application of mind in previous assessments. However, the Appellate Tribunal disagreed, noting the history of the firm, duties performed by the individuals, and past assessment decisions. The Tribunal held that the salaries were not excessive or unreasonable, considering qualifications, duties, and agreements, and overturned the disallowances.2. Additionally, the judgment addresses the disallowance of miscellaneous expenses claimed for the assessment years. The ITO disallowed a portion of the expenses due to lack of details and unvouched nature. The Commissioner (Appeals) and the Tribunal upheld the disallowance, citing insufficient information provided. Consequently, the Tribunal partially allowed the appeals, overturning the disallowance of salaries to former partners but upholding the disallowance of miscellaneous expenses due to lack of supporting documentation.