TaxTMI 
TaxTMI 
2012 (11) TMI 103
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.... unjustified in as much as the car is predominantly used for the business and in any case the disallowance upheld is highly excessive and as such the disallowance upheld is arbitrary & unjustified. 2. That the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding the disallowance of Rs.4,862/- being 1/5th of the telephone expenses and depreciation on mobile which is again arbitrary and unjustified. 3. Briefly stated the facts of the case are that the assessee is a consignee sale agent of Systopic Laboratories Ltd. Delhi and M/s Sarabhai Chemicals, Baroda. While framing the assessment, the Assessing Officer made disallowance of Rs. 26,178/ - being 1/5th of Car expenses and Rs. 4,862/ - being 1/5th of the telephone exp....
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....on account of local conveyance, entertainment , staff welfare and packing material expenses. The assessee claimed Rs. 6,315 on account of local conveyance, Rs. 15,545/ - on account of entertainment , Rs. 12,535/ - under the head staff welfare and Rs. 12,615/ - on account of packing material expenses. The Assessing Officer disallowed 1/5th of these expenses on the ground that these payments have been made through cash and were petty but were not properly vouched. The Assessing Officer observed that the Ld. Representative of the assessee vide order sheet entry dated 31.8.2010 agreed for 1/5th disallowance out of the above expenses. On appeal , the CIT(A) upheld the action of the Assessing Officer stating that having agreed to the disallowance....
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....s as under:- 5. That the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding the addition of Rs.79,065/- on account of excess of interest more than 12% having been paid to S/Shri Shreayan Jain and Shrenik Jain invoking the provisions of section 40A2(b) of the Act in as much as section 40A2(b) of the Act is not attracted in these two cases and nowhere it has been explained how they are covered under that section and as such the addition upheld is arbitrary & unjustified. 12. The Assessing Officer disallowed a sum of Rs. 79,065/ -, observing as under: - 3(iv) Further a perusal of the interest paid on Unsecured Loans it was noticed that interest of approximate 19.5% paid to Shreayan's Jain & 15% to Shri Shrenik Jai....
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....ntal charges, interest charges, cheque book issue charges and other charges as per Bank rules have to be incurred from time to time which would mean more than 18% as simple interest . In my considered opinion, the disallowance u/s 40A(2)(b) of the Act can be made only to the extent the payment for the services is excessive or unreasonable vis-a-vis the market price of such services but what is essentially required is that the market price of these services is established and then amount paid in excess of such market price is to be disallowed. In the instant case, no such findings are given by the Assessing Officer as well as the CIT(A) . Thus, keeping in view the entire facts and circumstances of the present case, interest paid by the asses....