1983 (4) TMI 99

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....e year. The commission paid was at Rs. 28,483, on the basis of the agreement and which was allowed. But in respect of finance commission paid to Smt. Bhupender Kaur being a relative of the assessee who has advanced Rs. 1,05,000 on the basis of similar agreement, the ITO noticed that the rate of interest was at 3 1/2 per cent on gross receipts which worked out to 40 per cent of the capital borrowed. The ITO considered the payment to be excessive and unreasonable. The ITO noted that the bank rate varied from 8 per cent to 16 per cent and that too, after obtaining proper securities and guarantees. He noted that the lady advanced the loan to the assessee without security or guarantor and the rate of commission was fixed at 3 1/2 of the gross re....

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....he AAC's order cannot be sustained. It is therefore, urged that his order may be reversed and that of ITO may be restored. 5. On behalf of the assessee, the ld. counsel supports the order of the AAC while arguing that the payments to the above lady at the rate stipulated in the agreement, were made in the earlier years as well for which no disallowance was made by the ITO. It is argued if the ITO for those earlier years held the payments as reasonable, there is no earthly reason why suddenly the ITO should now change the stand. It is argued that the assessee made agreement with the lady on 15th Feb., 1967 and right from the beginning the commission payment was accepted by the ITO. It is argued that before the AAC it was stressed that the....

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....at the stated rate was excessive and unreasonable. The case of the revenue is that the ITO has proportionately disallowed part of the claim having regard to the provisions of s. 40A(2)(a). Admittedly the payment was not disputed. The case of the revenue is that payment to the lady was excessive having regard to the facts of the case and the legitimate needs of the business. The assessee claimed that he was in immediate need for financial assistance to execute contract work undertaken by him and that he had no collateral security or landed property to be mortgaged. He had no other alternative but to take loan from the above lady at the above rate. The AAC after considering the facts of the case noted that as the rate of commission paid to Sh....