Tribunal decision: Partial win for assessee, disallowed expenses reduced, salary deduction limited. Department appeal dismissed.

The Tribunal allowed the assessee's appeal in part, deleting the disallowance of Rs. 90,000 and upholding the weighted deduction for bank interest and commission but only allowing 50% of the claimed salary to the export division. The department's appeal was dismissed, confirming the deletion of the disallowance of Rs. 2 lakhs for payments to Sonu International.

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Issues Involved:
1. Addition of Rs. 90,000 maintained by the Commissioner (Appeals).
2. Rejection of allowance of weighted deduction u/s 35B of the Income-tax Act, 1961.
3. Disallowance of Rs. 2 lakhs on the instructions of the IAC u/s 144B.

Summary:

1. Addition of Rs. 90,000:
The assessee, a manufacturer of garments for export, contested the addition of Rs. 90,000 maintained by the Commissioner (Appeals). The ITO had disallowed payments to related parties under section 40A(2)(a) of the Act, considering them excessive. The Commissioner (Appeals) partially upheld this, disallowing Rs. 90,000. The Tribunal found that the fair market value of services was not established, and comparisons made were not like-for-like. The Tribunal concluded that the disallowance was uncalled for and deleted it, also covering the department's appeal against the deletion of Rs. 60,000.

2. Rejection of Weighted Deduction u/s 35B:
The assessee's appeal included the non-allowance of weighted deduction u/s 35B for bank commission, bank interest, and salary to the export division. The Tribunal allowed weighted deduction for bank interest and commission, following a precedent. However, it upheld the Commissioner (Appeals)'s decision to allow only 50% of the salary to the export division due to lack of necessary details to support a higher claim.

3. Disallowance of Rs. 2 lakhs u/s 144B:
The department's appeal involved the disallowance of Rs. 2 lakhs for payments to Sonu International for embroidery work, considered excessive compared to other parties. The Commissioner (Appeals) found no material evidence to support the excessiveness and noted that section 40A did not apply. The Tribunal agreed, emphasizing the need for like-for-like comparisons and the consistency of gross profit rates, and confirmed the deletion of the addition.

Conclusion:
The assessee's appeal was allowed in part, and the department's appeal was dismissed.

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