2017 (3) TMI 663

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....s of the case and under the provisions of law, the Assessing Officer erred in disallowing the salary of Rs. 15,10,000/- u/s 40A(2)(a) paid to the employees of th4e firm, wherein for the previous year, the said salary paid to the employees are allowed by the Assessing Officer and CIT (A). 3. On the facts and circumstances of the case, the authorities below erred in appreciating the facts and explanation offered by the appellant in a proper prospective manner. 4. On the facts and circumstances of the case and under the provisions of law, the Assessing Officer and CIT (A) erred in making and sustaining the addition of Rs. 2,00,000/- u/s 40A(3), whereas such payment of Rs. 2,00,000/- is nothing but transfer of funds from one firm to anoth....

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....to the services rendered by the partners. Accordingly, the AO restricted the payment of salary to the above said persons to Rs. 7,50,000/- and disallowed the excess payment of Rs. 15,10,000/- u/s. 40A(2)(a) of the Act. The assessee challenged the action of the AO before the CIT(A) and contented that the assessee firm is a family business partnership. The three partners of the assessee firm are sons of the three erstwhile partners and therefore these three persons had rich knowledge and experience in the field of the business of the assessee firm and contributed a lot in running the business smoothly. Thus the assessee contented that the business of the assessee firm has grown manifold over the years due to the services of these persons. The....

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.... the partners of the assessee firm. Therefore comparing the services of the partners the salary paid to these persons are excessive. 7. Having considered the rival submissions and relevant material on record, it is noted that the AO has considered the salary paid to these 5 persons who are relatives of partners of assessee firm is excessive and therefore restricted the salary on estimate basis to Rs. 7,50,000/- and disallowed the excess payment of Rs. 15,10,000/-. The CIT(A) granted part relief to the assessee by allowing the remuneration to these 5 persons of Rs. 13 Lakhs instead of Rs. 7,50,000/- by the AO. Thus the addition sustained by the CIT(A) is Rs. 6,00,000/-. Both AO as well as CIT(A) have estimated the salary for determining t....