Section 40A(2) disallowance on employee remuneration deleted where payments reflected agreed increments, arrears and service value.

Disallowance under section 40A(2) for salary and commission paid to two employees was held unwarranted where the payments were supported by a written agreement providing annual increments and the additional amounts represented leave salary and salary arrears. The remuneration was examined against the employees' responsibilities, qualifications, services rendered, and the improvement in turnover, and it was found not to be materially higher than in the immediately preceding year. On that basis, the addition was deleted.

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Issues: Whether the disallowance made under section 40A(2) in respect of salary and commission paid to the two employees was justified.

Analysis: The payments were made under a written agreement providing for annual increments, and the additional amounts reflected leave salary and salary arrears. The remuneration was considered in the context of the employees' responsibilities, qualifications, services rendered, and the improved turnover. The total payments were not materially higher than those allowed in the immediately preceding year.

Conclusion: The disallowance was not warranted and the deletion of the addition was ?

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