M S HOSTEL, NEW SAMA SAVLI ROAD, V. Deputy Commissioner of Income Tax, Circle 1(3), Vadodara, AAYAKAR BHAVAN, VADODARA

ITA 614/AHD/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 3328 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-02-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 09-08-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRASHANT UPADHYAY
• Keywords: TDS
• Section: 143(3); 201; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./I. T. A. No . 614/Ahd/20 23 ( नधा रण वष / As ses s men t Years : 201 5-16) M S H o s t e l 1, N e w Sa m a S a v li R o a d, V a do da r a - 39 00 0 8 बनाम/ Vs . De pu t y C om mi s s i on er o f I n c o m e T ax C ir c l e 1( 3 ), V a d od a r a थायी लेखा सं./जीआइआर सं./P A N/ G I R N o . : A A C FM 4 0 5 6 C (Appellant) . . (Respondent) अपीलाथ ओर से /Appellant by : Shri Prashant Upadhyay, AR यथ क ओर से/Respondent by : Ms. Saumya Pandey Jain, Sr. DR D a t e o f H e a r i ng 27/02/2024 D a t e o f P r o n o u nc e me n t 21/03/2024 O R D E R PER Ms. MADHUMITA ROY - JM: Th e instan t app eal filed at th e in stan ce of the asse ss ee is directed against the order dated 21. 06. 2023 passed by the National Faceles s App eal Centre (NFAC), Delhi, arising out of the order dated 08. 12. 2 017 p assed by the DCIT, Circle 1 (3), Vado dara, under Sectio n 143(3) of the Income Tax Act, 19 61, (hereinafter referred to as ‘the Act’) fo r Asses s ment Year 2 015-16. ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 2 – 2. During the course of a ss es s men t proceeding, it was found th at th e appellant h as shown salary pay ment of Rs. 4, 20, 000/- to one Smt. Palak A. Shah and deducted TDS of Rs. 43,2 60/-. Upon dedu ction of the same, the re maining amo unt h as been shown as unsecu red lo an obtained fro m S mt. Palak A Shah du ring the year under consid eration. Relev ant to mention that S mt. Palak A S hah is the Ad ministra tive Head, p osses se s the d egree o f Masters in Business Ad minis tratio n fro m Uni versity of Housto n-Do wnto wn engaged in lookin g upon areas related to st udents like acco mmodatio n, food facility, water supply, disciplinary actions etc. of the hostel. A show cause was is sued since no return o f in come wa s filed by S mt. Palak A Shah with the following contents: “ P l e a s e r e f e r t o y o u r l e t t e r d a t e d 1 2 . 0 9 . 2 0 1 7 r e c e iv e d i n t h i s o f f i c e o n 1 3 . 0 9 . 2 0 1 7 , i t i s s e e n t h a t a m o u n t o f R s . 4 , 2 0 , 0 0 0 / - p a i d t o P a l a k A S h a h a s a b u s i n e s s t r a n s a c t i o n . H o w e v e r , i t i s o b s e r v e d t h a t P a l a k A S h a h h a s n o t f i l e d a n y r e t u r n o f i n c o m e f o r A . Y . 2 0 1 5 - 1 6 . M or e o v e r , n o p a y m e n t o f s a l a r y b y c h e q u e o r o t h e r w i s e h a s b e e n m a d e t o h e r a n d i t i s o n l y a j o u r n a l e n t r y . E v e n , t h e t a x p a i d b y h e r i s a l s o a t t h e r a t e o f 1 0% o n l y w h i c h i s n o t t h e t o t a l t a x r e q u i r e d t o b e p a i d I t i s a l s o s e e n t h a t t h e s a m e a m o u n t h a s b e e n g i v e n b a c k b y P a l a k A S h a h t o M . S . H o s t e l a n d n o i n t e r e s t h a s b e e n c h a r g ed o n i t . T h e r e f o r e , i n e f f e c t t h e m o n e y h a s b e e n c l a i m e d a s a n e x p e n d i t u r e a n d r o u t e d b a c k i n t h e f o r m o f a l o a n w i t h o u t a n y c o s t t o y o u i . e . M. S. H o s t e l . T h e r e f o r e , y o u a r e r e q u i r e d t o s h o w c a u s e a s t o w h y t h e s a l a r y p a id t o P a l a k A S h a h o f R s . 4 , 2 0 , 0 0 0 / - s h o u l d n o t b e d i s a l l o w e d a n d a d d e d ba c k t o y o u r t o t a l i n c o m e u / s . 4 0 A ( 2 ) ( b ) o f I n c o m e T a x A c t , 1 96 1 " . “ 3. Th e ap pellant submitted a reply dat ed 07. 12. 2017, which was rejected b y the Ld. AO on the premise S mt. P alak A Shah is a relative of th e p artner and stands covered within the purview o f ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 3 – Section 40A(2 )(b) of the Act. Further th at, by clai ming this particular ex pend itu re, the appellant has g ot a benefi t of 30 % as per its tax ation rate b eing a p artnership fir m. Hence, this is a collusive transaction to evade pay ment of tax. Apart fro m that as th e sa me a moun t has been i mmediately given back by S mt. Palak A Sh ah as an interest free unsecu red loan to the appellant and particularly when the same was neither made through b ank account or b y any o ther mean s the transaction has been found to be paper/sha m transa ction to claim ex ces s ex pend itu re rely in g u pon th e jud gment pas sed in th e matter of McDo well and Co. Ltd., reported in [1 985] 154 ITR 148, Work men o f A ssociated Rubber Ind ustry Ltd. vs. As sociated Ru bber Indu stry Ltd., rep orted in [19 86] 157 ITR 7 (SC), CIT v s. Sri Meenakshi Mills Ltd., reported in 63 ITR 60 9 (SC), CIT vs. Durga Prasad More, reported in 82 ITR 540 (SC) & Bo mbay Oil Industries Ltd. vs. DCIT, reported in [20 00] 82 ITD 626 etc. The amou nt debited b y the app ellant fo und to be bog us salary expen ses in the P&L account and the same h as been disallowed under Sectio n 40A(2)(b ) of the Act, which was furth er confir med b y th e First App ellate A uthority. It was further con fir med by the Ld . CIT(A) with the following observation s: “ 3 . 4 . 3 T h e a p p e l l a n t h a s c o n t e n d e d t h a t t h e A O c o u ld o n l y h a v e d i s a l l o w e d t h e e x p e n s e w h i c h h e c o n s i d e r e d i n e x c e s s o f m a r k e t v a l u e . A s h e l d i n t h e c a s e o f C O R O N A T IO N F L O U R M I L L S . V e r s u s A S S T T . C . I . T. b y t h e h o n ' b l e H i g h C o u r t o f G u j a r a t , t h e j u r i s d i c t i o n a l H i g h C o u rt , i n T A X A P P E A L N o . 3 4 5 o f 1 9 9 9 , i n p a r a 8 " T h e c o n t e n t i o n r a i s e d o n b e h a l f o f t h e a p p e l l a n t - a s s e s s e e t h a t t h e f a i r m a r k e t v a l u e h a v i ng n o t b e e n a s c e r t a i n e d b y t h e A s s e s s i n g O f f i ce r n o d i s a l l o w a n c e c o u l d h a v e b e e n m a d e t h e r e f o r e d o e s n o t m e r i t a c c e p t a n c e " , w h i l e u p h o l d i n g t h e v i ew o f t h e A O q u e s t i o n i n g t h e c l a i m o f t h e a p p e l l a n t r e g a r d i n g s er v i c e s r e n d e r e d b y a ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 4 – p a r t y c o v e r e d u / s 4 0 A ( 2 ) , S i m i l a r l y , i n t h i s c a s e th e s e r v i c e s r e n d e r e d a r e q u e s t i o n a b l e i n t e r m s o f a c t u a l l y b e i n g p e r f o r m e d . I n v i e w o f t h i s , t h e d e c i s i o n o f t h e A O i s u p h e l d . C o n s e q u e n t l y , t h e g r ou n d s o f a p p e a l a r e d i s m i s s e d . ” 4. At the ti me o f h earing o f the in stan t appeal, the Ld. Counsel appearing for the appellant relied upon the submi ssio ns made by hi m be fore the CIT(A) and reitera ted th e same be fo re us. The contents whereof is as follows: " 1 T h e o r d e r o f l e a r n e d D C I T i s a g a i n s t l a w a n d f a ct s 2 S a l a r y p a i d t o P a l a k S h a h o f R s 4 2 0 0 0 0 i s i n r e s p e c t o f a d m i n i s t r at i o n w o r k h a n d l e d b y h e r f o r t h e a p p e l l a n t f i r m 3 S h e h a s p u r s u e d M a s t e rs i n B u s i n e s s a d m i n i s t r a t i o n 4 T h e t a x d u e h a s b e e n p a i d o n t h e to t a l s a l a r y i n co m e a n d h e n c e t h e r e i s n o e v a s i o n o f t a x . T h e c o m p u t a t i o n of t o t a l i nc o m e w a s s u b m i t t e d d u r i n g t h e c o u r s e o f a s s e s s m e n t p r o c e e d i ng s 5 T h e s h o r t f a l l i n T D S w a s m a d e g o o d b y p a y m e n t o f s e l f a s s e s s m e n t t a x o n 7 t h A p r i l 2 0 1 5 6 S i n c e s h e w a s n o t i n n e e d o f f u n d s s h e h a s n o t w i t hd r a w n t h e s a m e a n d k e p t w i t h t h e a p p e l l a n t f i r m t o t h e c r e d i t o f h e r ac c o u n t " 2 . 1 V i d e n o t i c e s d a t e d 0 6 / 0 1 / 2 0 2 1 , 1 1 / 0 6 / 2 0 2 1 , 0 6 / 04 / 2 0 2 2 , 2 5 / 0 4 / 2 0 2 3 t h e a p p e l l a n t w a s r e q u e s t e d t o f i l e i t s r e p l y , I n re s p o n s e t o t h e n o t i c e s , a p p e l l a n t f i l e d t h e r e p l y d a t e d 0 2 / 0 7 / 2 0 2 1 , 0 7 / 0 4 / 20 2 2 & 0 1 / 0 5 / 2 0 2 3 w h i c h r e p r o d u c e d a s u n d e r : " T h e l e a r n e d D e p u t y C o m m i s s i o n e r o f I nc o m e T a x ( D C IT ) d u r i n g t h e c o u r s e o f a s s e s s m e n t p r o c e e d i n g s h a s d i s a l l o w e d s a la r y p a i d o f R s . 4 , 2 0 , 0 0 0 / - t o S m t . P a l a k S h a h ( r e l a t i v e o f p a r t n e r ) b y i n v o k i n g p r o v i s i o n s o f s e c t i o n 4 0 A ( 2 ) ( b ) of t h e I n c o m e T a x A c t , 1 9 6 1 . B r i e f f a c t s o f t h e c a s e: T h e a p p e l l a n t f i r m h as p a i d s a l a r y o f R s . 4 , 2 0 , 0 0 0 /- t o P a l a k A . S h a h w h o i s a d m i n i s t r a t i o n h e a d . M r s . P a l a k S h a h p o s s e s s e s th e d e g r e e o f M a s t e r ' s i n B u s i n e s s A d m i n i s t r a t i o n ( M B A ) f r o m U n i v e r s i t y o f H o u s t o n , D o w n t o w n. T h e l e a r n e d A . O . h a s d i s a l l o w e d t h e c l a i m o f t h e a ss e s s e e f i r m f o r s a l a r y p a i d t o P a l a k S h a h a m o u n t i n g t o R s . 4, 2 0 , 0 0 0 o n f o l lo w i n g g r o u n d s : 1 . M r s . P a l a k S h a h h a s n o t f i l e d h e r r e t u r n o f I n c om e. 2 . T a x i s d e d u c t e d @ 1 0 % 3 . B y c l a i m i n g t h e e xp e n d i t u r e , t h e a s s e s s e e f i r m ha s g o t a b e n e f i t o f 3 0 % a s p e r i t s t a x a t i o n r a t e . T h i s i s c l e a r c u t c o l l u s i v e t r a n s a c t i o n . ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 5 – 4 . T h e w h o l e s a l a r y i s a b o o k e n t r y a s n o p a y m e n t wa s m a d e t o h e r . 5 . T h e u n p a i d s a l a r y i s g i v e n a s a n i n t e r e s t f r e e un s e c u r e d l o a n t o t h e a s s e s s e e f i r m . I n t h i s c o n n e c t i o n w e h a v e t o s u b m i t a s f o l l o w s : 1 . I n r e s p e c t o f s a l a r y p a i d t o P a l a k S h a h a n d a l l ow a b i l i t y o f e x p e n s e f i r s t l y w e w o u l d l i k e t o d r a w y o u r k i n d a t t e n t i o n to p r o v i s i o n s o f s e c t i o n 3 7 o f t h e A c t w h i c h c l e a r l y s t a t e s • T h e e x p e n d i t u r e s h o u l d n o t b e o f t h e t y p e o f e x p e n se s a l r e a d y c o v e r e d u n d e r s e c t i o n s 3 0 t o 3 6 o f t h i s A c t . • E x p e n s e s s h o u l d h a v e b e e n i n c u r r e d i n t h e r e l e v a n t a c c o u n t i n g y e a r . • E x p e n s e s s h o u l d b e i n r e s p e c t o f t h e b u s i n e s s c a r r ie d o n b y t h e a s s e s s e e a n d t h e p r o f i t s o f w h i c h a r e t o b e c o m p u t e d a n d a s se s s e d a n d s h o u l d b e i n c u r r e d a f t e r t h e b u s i n e s s i s s e t u p . • E x p e n s e s s h o u l d n o t b e i n t h e n a t u r e o f p e r s o n a l e xp e n s e s o f t h e a s s e s s e e . T h e e x p e n s e s s h o u l d h a v e b e e n i n c u r r e d t o t a l l y a n d e x c l u s i v e l y f o r t h e p u r p o s e s o f t h e b u s i n e s s o f t h e a s s e s s e e . • E x p e n s e s a r e n o t o f c a p i t a l n a t u r e . • T h e e x p e n s e s a r e i n c i d e n t a l t o t h e b u s i n e s s o f t h e a s s e s s e e a n d d i r e c t l y s p r i n g f r o m t h e c a r r y i n g o n o f i t . s h a l l b e a l l o w e d i n c o m p u t i n g t h e i n c o m e c h a r g e a b l e u n d e r t h e h e a d p r o f i t s a n d g a i n s o f b u s i n e s s o r p r o f e s s i o n . " T h u s , t h e b a s i c a n d f o r e m o s t r e q u i r e m e n t o f a l l o w a b i l i t y o f a n y e x p e n s e i t s h o u ld b e i n c u r r e d w h o l l y a n d e x c l u s i v e l y f o r t h e p u r p o s e o f b u s i n e s s a n d s h ou l d n o t b e i n n a t u r e o f c a p i t a l o r p e r s o n a l e x p e n d i t u r e . 1 . S e c o n d l y , t h e p r o v i s i o n s o f s e c t i o n 4 0 A s p e a k s ab o u t n o n a l l o w a b i l i t y o f e x p e n s e s o r p a y m e n t s i n c e r t a i n c i r c u m s t a n c e s . S u b -s e c t i o n 2 ( a ) o f t h e s a i d s e c t i o n s a y s " w h e r e t h e a s s e s s e e i n c u r s a n y e xp e n d i t u r e i n r e s p e c t o f w h i c h p a y m e n t h a s b ee n m a d e o r i s t o b e m ad e t o a n y p e r s o n r e f e r r e d t o i n c l a u s e ( b ) o f t h i s s u b s e c t i o n a n d t h e o f f i c e r i s o f o p i n i o n t h a t s u c h e x p e n d i t u r e i s e x c e s s i v e o r u n r e a s o n a b l e h a v i n g r e ga r d t o t h e f a i r m a r k et v a l u e o f g o o d s . s e r v i c e s o r f a c i l i t i e s f o r w h i c h t he p a y m e n t i s m a d e o r l e g i t i m a t e n e e d s o f t h e b u s i n e s s o r p r o f e s s i o n o f th e a s s e s s e e o r t h e b e n e f i t d e r i v e d b y o r a c c r u i n g t o h i m t h e r e f r o m , s o m u c h o f t h e e x p e n d i t u r e a s i s s o c o n s i d e r e d b y h i m t o b e e x c e s si v e o r u n r e a s o n a b l e s h a l l n o t b e a l l o w e d a s d e d u c t i o n . " T h u s , a s p e r t h e p r o v i s i o n s o f s e c t i o n 3 7 r . w . s . 4 0A , a n y s u m p a i d t o t h e p e r s o n s c o v e r e d b y t h e p r o v i s i o n s o f s e c t i o n 4 0 A ( 2 )( b ) i f f o u n d t o b e e x c e s s o r l e g i t i m a t e t h o u g h i n c u r r e d f o r t h e p u r p o se o f b u s i n e s s o r p r o f e s s i o n s h a l l n o t b e a l l o w e d a s d e d u c t i o n . 1 . I n t h e g i v e n c a s e o f t h e a p p e l l a n t f i r m , i t h a s p a i d s a l a r y o f R s . 4 , 2 0 , 0 0 0 / - t o M r s . P a l a k A S h a h f o r a d m i n i s t r a t i o n w o r k h a n d l e d b y h e r . S h e h a s p u r s u e d M a s t e r ' s i n B u s i n es s A d m i n i s t ra t i o n f r om ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 6 – U n i v e r s i t y o f H o u s t o n , D o w nt o w n a n d a p p e l l a n t f i r m i s e n g a g e d i n r u n n i n g h o s t e l n e e d s a n a d m i n i s t r a t o r t o l o o k u p o n a r e a s r e l a t e d t o s t u d e n t s l i k e a c c o m m o d a t i o n , f o o d f a c i l i t y , w a t e r fa c i l i t y , d i s c i p l i n a r y a c t i o n s , e t c . M r s . P a l a k A S h a h b e i n g M B A i s w e l l q u a l i f i e d t o l o o k a f t e r s m a l l e s t n e e d s o f t h e s t u d en t s a s a n y u n s o l v e d i s s u e c a n b r i n g d o w n t h e i m a g e o f t h e r e n ow n e d h o s t e l r e s u l t i n g i n t o d e c l i n e i n i t s b u s i n e s s a f f a i r s . S h e i s w e l l e d u c a t e d a n d f u l l y r e s p o n s i b l e t o c o n f i r m t h a t a l l t h e s t u d en t s a r e p r o p e r l y a c c o m m o d a t e d a n d n o n e o f t h e r o o m s a r e ov e r l o a d e d wi t h s t u d e nt s w h i c h m a y r e s u l t i n t o q u a r r e l s a n d a l s o u n i n t e n d e d i s s u e s . M o r e o v e r , s h e h a s t o c o n f i r m t h a t t h e q u a l i t y a s w el l a s q u a n t i t y o f w a t e r a s w e l l a s f o o d i s a p p r o p r i a t e l y m a i n t a i n e d by t h e H o s t e l a s a n y l a c k o f h e r r e s p o n s i b i l i t y m e a n s p l a y i n g w i t h th e h e a l t h o f s t u d e n t s a n d s u c h s c e n a r i o i s n o t a c c e p t a b l e b y p a re n t s r e s u l t i n g i n t o d e t e r i o r a t i o n o f t h e i m a g e o f w e l l - k n o w n h o s t el . A l s o , s h e i s o b l i g e d t o s e e t h a t p r o p e r d i s c i p l i n e i s a l w a y s m a in t a i n e d i n t h e h o s t e l . T h e s i l e n c e r e q u i r e d i n t h e h o s t e l , t i m i n g s t o b e f o l l o w e d b y t h e s t u d e n t s f o r g o i n g o u t a s w e l l a s c o m i n g b a c k to t h e h o s t e l , t h e p o l i c y f o r m e e t i n g t h e s t u d e n t s , a n y c o m p l a i n t s o f s t u d e n t s o r p a r e n t s o r s t a f f a l l i s t o b e t a k e n c a r e o f b y h e r . F o r u n d e r t a k i n g a l l t h e a b o v e w o r k , s h e i s p a i d R s . 3 5 , 0 0 0 / - p e r m on t h w h i c h i s v e r y m u c h a s p e r t h e p r e v a i l i n g r a t e s . 2 . N o w , t h e a l l e g a t i o n o f l e a r n e d A O t h a t s h e h a s no t f i l e d h e r r e t u r n o f i n c o m e f o r t h e r e l e v a n t a s s e s s m e n t y e a r c a n n o t be t h e b a s i s f o r d i s a l l o w a n c e o f e x p e n s e u / s 4 0 o f t h e A c t . S e c t i o n 3 7 a s w e l l a s s e c t i o n 4 0 A i s a t t r a c t e d o n l y i f e x p e n d i t u r e i s n o t i n c u r r e d e x c l u s i v e l y f o r t h e p u r p o s e o f b u s i n e s s a n d i s e x c es s a s c o m p a r e d t o f a i r m a r k e t v a l u e . T h e a p p e l l a n t f i r m h a s i n c u r r e d s a l a r y e x p e n s e f o r t h e p u r p o s e o f b u s i n e s s a n d h a s b e e n p a i d a s p er t h e n o r m a l b u s i n e s s s t a n d a r d s p r e v a i l i n g i n t h e m a r k e t . T h e a pp e l l a n t f i r m h a s a l s o d e d u c t e d t a x o n t h e s a m e . O n t h e t o t a l s a l a r y o f R s . 4, 2 0 , 0 0 0 / - t h e t a x o f R s . 4 3, 2 6 0 / - h a s b e e n d e d u c t e d a n d p a i d b y t h e a p p e l l a n t f i r m t o t h e c r e d i t o f c e n t r a l g o v e r n m e n t . M o r e o v e r , i f a n y n o n - r e l a t e d p a r t y i s h i r e d f o r t h e s a i d p o s i t i o n h e / sh e w o u l d h a v e b e e n p a i d s i m i l a r o r e v e n m o r e s a l a r y l o o k i n g t o t h e r e sp o n s i b i l i t i e s h a n d l e d b y h e r . 3 . A n o t h e r a l l e g a t i o n b y y o u r e s t e e m e d o f f i c e i s n o p a y m e n t o f s a l a r y b y c h e q u e o r o t h e r w i s e h a s b e e n m a d e t o h e r a n d i t i s o n l y j o u r n a l e n t r y . A g a i n , w e w o u l d l i k e t o s t a t e t h a t f o r a l l o wa b i l i t y o f a n e x p e n s e , i t s p a y m e n t i s n o t t h e p r e - r e q u i s i t e . T h e w o r d s u s e d a r e e x p e n s e h a s t o b e i n c u r r e d a n d i f t h e i n t e n t i o n o f l a w w a s a l l o w a b i l i t y o f e x p e n s e o n l y o n a c t u a l p a y m e n t t h e n i n s t e a d o f i n c u r r e d t h e y w o u l d h a v e d e f i n i t e l y u s e d w or d p a i d w h i c h i s n o t t h e c u r r e n t s c e n a r i o . H e n c e , t h e a m o u n t p a y a b l e i s e q u al l y e l i g i b l e f o r c l a i m i n g a s a n e x p e n s e . T h u s , w h e t h e r s a l a ry h a s a ct u a l l y b e e n p a i d o r n o t d o e s n o t d e t er m i n e a l l o w a b i l i t y o r d i s a l l o w ab i l i t y o f a n e x p e n s e . ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 7 – 1 . T h i r d l y , i t h a s b e e n a l l e g e d t h a t t a x p a i d b y h er i s a l s o a t t h e r a t e o f 1 0 % o n l y w h i c h i s n o t t h e t o t a l t a x r e q u i r e d t o b e p a i d . H e r e , w e w o u l d l i k e t o s t a t e t h a t t h e a p p e l l a n t f i r m h a s p a id R s 4 , 2 0 , 0 0 0 / - t o P a l a k S h a h a n d d e d u c t e d t a x o f R s . 4 3 , 2 60 / - a n d d i sc h a r g e d i t s l i a b i l i t y . F u r t h e r m o r e , s h e w a s p a i d s a l a r y f o r t h e w o r k e x e c u t e d b y h e r a n d s e r v i c e a c t u a l l y r e n d e r e d t o t h e a p p e l l a n t f i r m . T h u s , s i n c e t h e s a i d e x p e n s e w a s w h o l l y a n d e x c l u s i v e l y i n c u r r ed f o r t h e p u r p o s e o f b u s i n e s s , i t i s v e r y m u c h e l i g i b l e a s d ed u c t i o n 1 . I n r e s p e c t o f t o t a l i n c o m e o f P a l a k : Sh a h , w e h av e a l r e a d y s u b m i t t e d d u r i n g t h e c o u r s e o f a s s e s s m e n t p r o c e e d i ng s i n o u r s u b m i s s i o n d a t e d 2 7 t h J u l y , 2 0 1 7 t h a t s h e ha s e a m e d s a l a r y i n c o m e o f R s . 4, 2 0 , 0 0 0 / - e a c h f r o m A m b e V i d h y a l a y K G s e c t io n a n d M S H o s t e l d u r i n g t h e y e a r . T h e t o t a l i n c o m e e a r m e d d u ri n g t h e y e a r a m o u n t s t o R s . 8 , 4 0, 0 0 0 / - a n d s h e h a s m a d e i n v e s t m en t o f R s . 2 9 , 0 0 0 / - a ' s 8 0 0 o f t h e I n c o m e T a x A c t , 1 9 6 1 . T h e ne t t a x a b l e i n c o m e a m o u n t s t o R s 8 , 1 1 , 0 0 0 o n w h i c h t o t a l t a x p ay a b l e a m o u n t s t o R s . 8 9 , 8 1 6 / - T h e a p p e l l a n t f i r m a n d A m b e V i d h y a la y K G s e c t i o n h a s d e d u c t e d t a x o f R s . 5 7 , 7 8 3 / - r e s u l t i n g i n t o n e t t a x p a y a b l e o f R s . 3 2, 3 2 7 / - w h i c h w a s p a i d b y h e r v i d e c h a l l a n n u mb e r 5 1 7 1 6 D a t e d 7 t h A p r i l 2 0 1 5 . T h u s , t h e q u e s t i o n o f e v a s i o n o f t a x d o e s n o t a r i s e a t a l l a n d s h e h a s d i s c h a r g e d h e r t a x l i a b i l it y i n a c c o r d a n c e w i t h t h e a p p l i c a b l e t a x r a t e E v e n i f a n o n - r e l a t i v e p e r s o n w o u l d h a v e b e e n p a i d t h e a b o v e s t a t e d s a l a r y , t h e t a x l i ab i l i t y w o u l d r e m a i n s a m e a n d e v e n i n s u c h c i r c u m s t a n c e s , t h e a p pe l l a n t f i r m w o u l d b e e l i g i b l e t o d e r i v e b e n e f i t a t t h e r a t e o f 3 0 % a s p e r i t s t a x a t i o n r a t e b e i n g a p a r t n e r s h i p f i r m . O n l y b e c a u se s h e i s a r e l a t e d p e r s o n d o e s n o t e n t i t l e t h e a p p e l l a n t f i r m w i t h e x t r a b e n e f i t s a n d m o s t i m p o r t a n t l y t h e s a l a r y w a s p a i d a s p e r t h e p r e s e n t m a r k e t r a t e a n d t h a t t o o t o t h e p e r s o n w h o i s c o m p e t e n t e no u g h t o l o o k a f t e r a l l o c a t e d r e s p o n s i b i l i t i e s . 2 . L a s t l y , i t h a s b e e n a l l e g e d t h a t t h e s a i d a m o u n t w a s n o t w i t h d r a w n a n d i n f a c t g i v e n b a c k b y h e r t o t h e a p p e l l a n t f i r m a s i n t e r e s t - f r e e u n s e c u r e d l o a n . T h e p a y m e n t o f s a l a r y a n d g r a n t i n g o f i n t e r e s t f r e e l o a n a r e t w o d i f f e r e n t t r a n s a c t i o n s a n d n e e d n o t b e f o r c e f u l l y c l u b b e d t o a t t r a c t t h e p r o v i s i o n s o f s e c t i on 4 0 A ( 2 )( b ) o f t h e A c t . S a l a r y w a s g i v e n f o r t h e a c t u a l s e r v i c e s r e nd e r e d wh i c h w o u l d h a v e b e e n g i v e n t o a n y o t he r p e r s o n r e c r u i t e d o n t h e s a id p o s t N o w i n s u c h a s c e n a r i o q u e s t i o n o f d i v e r s i o n o f f un d s o r ro u t i n g o f f u n d s d o e s n o t a r i s e a s b o t h t h e t r a n s a c t i o n s . l . e. sa l a ry a s w e l l a s l o a n i s t h r o u g h j o u r n a l e n t r y a n d t h e a m o u n t s t a n d s p a y a b l e e i t h e r i n f o r m o f c r e d i t o r o r l e n d e r . S i n c e s h e h a s n o t w i t h d r a w n t h e s a l a r y , t h e a m o u n t i s l y i n g a s u n s e c u r e d l o a n a s p e r n o r m a l a c co u n t i n g p r i n c i p l e s . I f i n t e r e s t w a s p a i d , t h e r e v e n u e w o u l d h a v e a t l o s s b e c a u s e f i r m a t t r a c t s 3 0 . 9 % t a x w h e r e a s P a l a k s h a h a n e m p l o y e e f a l l s u n d e r 2 0 . 6 % t a x s l a b I n t h i s r e g a r d , w e r e l y o n f o l l o w i n g j u d g e m e n t s : ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 8 – * T h e H o n ' b l e S u p r e m e C o u r t i n t h e c a s e o f S . A . B u il d e r s L t d . v . C I T ( A p p e a l s ) [ 2 0 0 7] 2 8 8 I T R 1 ( S C ) , w h e r e i n i t w a s h el d a s u n d e r : " o n c e i t i s e s t a b l i s h e d t h a t t h e r e w a s n e x u s b e t w e en t h e e x p e n d i t u r e a n d t h e p u r p o s e o f t he b u s i n e s s ( w h i c h n e e d n o t n e ce s s a r i l y b e t h e b u s i n e s s o f t h e a s s e s s e e i t s e l f ) , t h e r e v e n u e c a n n ot j u s t i f i a b l y c l a i m t o p u t i t s e l f i n t h e a r m - c h a i r o f t h e b u s i n e s s m a n or i n t h e p o s i t i o n o f t h e b o a r d o f d i r e c t o r s a n d a s s u m e t h e r o l e t o d ec i d e h o w m u c h i s r e a s o n a b l e e x p e n d i t u r e h a v i n g r e g a r d t o t h e c i r c u m st a n c e s o f t h e c a s e . N o b u s i n e s s m a n c a n b e c o m p e l l e d t o m a x i m i z e hi s p r o f i t . Th e i n c o m e - t a x a u t h o r i t i e s m u s t p u t t h e m s e l v e s i n t h e s h o e s o f t h e a s s e s s e e a n d s e e h o w a p r u d e n t b u s i n e s s m a n w o u l d ac t . T h e a u t h o r i t i e s m u s t n o t l o o k a t t h e m a t t e r f r o m t h e i r o w n v i e w p o i n t b u t t h a t o f a p r u d e n t bu s i n e s s m a n . . . " * T h e H o n ' b l e S u p r e m e C o u r t i n t h e c a s e o f C I T v . Wa l c h a n d & C o . ( P . ) L t d . [ 1 9 6 7] 6 5 I T R 3 8 1 h e l d t h a t t h e I n c o m e - l ax a u t h o n t i e s h a v e t o d e c i d e w h e t h e r 2 t h e e x p e n d i t u r e c l a i m e d a s a n a l l o w a n c e w a s i n c u r r e d v o l u n t a r i l y a n d o n g r o u n d s o f c o m m e r c ia l e x p e d i e n c y . I n a p p l y i n g t h e t e s t o f c o m m e r c i a l e x p ed i e n c y f o r de t e r m i n i n g w h e t h e r t h e e x p e n d i t u r e w a s w h o l l y a n d e x c l u s i v e l y l a i d o u t f o r t h e p u r p o s e o f t h e b u s i n e s s , t h e S u p r e m e C o u r t l a i d d o wn t h a t t h e r e a s o n a b l e n e s s o f t h e e x p e n d i t u r e h a s t o b e a d j u d g ed f r o m t h e p a i n t o f v i e w o f t h e b u s i n e s s m a n a n d n o t o f t h e R e v e n u e . H o n ' b l e M a d h y a P r a d e s h H i g h C o u r t i n t h e c a s e o f B i r l a G w a l i o r ( P ) L t d . V s . C I T - ( 1 9 6 2 ) 4 4 I T R 8 4 7 h a s s t a t e d t h a t , " i t i s f o r t h e as s e s s e e t o j u d g e a s t o w h a t r a t e i s r e a s o n a b l e . I t i s f u r t h e r s t a t e d t ha t w h e n t h e i n c o m e t a x a u t h o n t i e s h a v e f o u n d t h a t t h e b o r r o w i n g t r a n s ac t i o n s a r e n o t i l l u s o r y o r c o l o u r a b l e a n d t h e c a p i t a l i s b o r r o w e d b y t h e a s s e s s e e f o r p u r p o s e o f b u s i n e s s a n d t h e a m o u n t o f i n t e r e s t i s p a i d, t h e y h a v e n o j u r i s d i c t i o n t o d e t e r m i n e w h e t h e r t h e r a t e o f i nt e r e s t t o p a y i s r e a s o n a b l e o r n o t a n d t o d i s a l l o w a p o r t i o n o f i n t er e s t w h i c h h a s b e e n p a i d " * I T A T A h m e d a b a d B e n c h t h e c a s e o f O m k a r M a l G a u r i S h a n k e r v s . I T O - ( 1 9 9 1 ) h e l d t ha t " t h e r a t e o f 2 4 % c a n n o t b e t re a t e d a s u n r e a s o n a b l e o r e x c e s s i v e a n d t h e r e f o r e d i r e c t e d a ll o w a n c e o f e n t i r e i n t e r e s t . F u r t h e r i t w a s h e l d t h a t d e p o s i t s b e i n g o l d , i n t e r e s t t h e r e u p o n w a s n e v e r d i s a l l o w e d i n t h e p a s t . I n v i e w o f t h e a b o v e , i t w a s h e l d t h a t t h e f u n d w a s u s e d f o r b u s i n e s s p u r p o se c o m i n g o v e r f r o m p r e c e d i n g a s s e s s m e n t y e a r s , i n t h e p a s t i t h a d b e e n a l l o w e d a t t h e r a t e o f 2 4 %, i n t e r e s t o f 2 4 % w a s n o t e x c e s s i v e o r u n r e a s o n a b l e . " * I T A T , R a j k o t B e n c h i n t h e c a s e o f A C - 3, J a m n a g a r v s . S u r e s h M a g a n L a l R a v a n i ( 2 0 1 3 ) 1 4 3 I T D 2 5 h a s h e l d t h a t " in t e r e s t @ 1 8 % i n A Y 2 0 0 8 - 0 9 o n u n s e c u r e d l o a n s o f f a m i l y c a n n o t be s a i d t o b e e x c e s s i v e o r u n r e a s o n a b l e u / s 4 0 A ( 2 ) ( b ) o f t h e I n c om e T a x A c t , 1 9 6 1 . " ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 9 – * H o n ' b l e A l l a h a b a d H i g h C o u r t i n t h e c a s e o f A b b a s W a z i r ( P ) L t d . V s . C I T - 2 6 5 I T R 7 7 ( A l l ) h a s h e l d t h a t " e v e n w h i le i n v o k i n g t h e p r o v i s i o n s o f s e c t i o n 4 0 A ( 2 ) o f t h e A c t , t h e r e a s on a b l e n e s s o f e x p e n d i t u r e f o r t h e p u r p o s e o f b u s i n e s s h a s t o b e ju d g e d f r o m t h e p o i n t o f v i e w o f a b u s i n e s s m a n a n d n o t t h a t o f t h e r e v e n u e . T h e r e a s o n a b l e n e s s m u s t b e l o o k e d i n t o f r o m b u s i n e s s m a n p o i n t o f v i e w . " S i m i l a r v i e w i s h e l d b y H o n ' b l e M a d r a s H i g h C o u r t in C I T vs . C o m p u t e r G r a p h i c L t d . ( 2 5 8 I T R 8 4 ) . S e c t i o n 4 0 A ( 2 ) s t i p u l a t e s t h a t w h e r e t h e a s s e s s e e in c u r s a n y e x p e n d i t u r e i n r e s p e c t o f w h i c h p a y m e n t h a s b e e n m a d e o r i s t o b e m a d e t o a n y p e r s o n r e f e r r e d t o c l a u s e ( b ) o f t h i s s u b - s e c t i o n a n d t h e A s s e s s i n g O f f i c e r i s o f t h e o p i n i o n t h a t s u c h e x p e n d i t u r e i s e x c e s s i v e o r un r e a s o n a b l e h a v i n g r e g a r d t o t h e f a i r m a r k e t v a l u e o f t h e g o o d s , s e r v ic e s o r f a c i l i t i e s f o r w h i c h t h e p a y m e n t i s m a d e o r t h e l e g i t i m a t e n e e d s of t h e b u s i n e s s t h e n s o m u c h o f t h e e x p e n d i t u r e a s i s s o c o n s i d e r e d b y h i m t o b e e x c e s s i v e o r u n r e a s o n a b l e s h a l l n o t b e a l l o w e d a s a d ed u c t i o n . Fr o m r e a d i n g o f t h i s s e c t i o n , i t i s c l e a r t ha t t h e e x p e n d i t u r e s h o u l d h av e b e e n i n c u r r e d b y t h e a s s e s s e e w h i c h i s o t h e r w i s e d e d u c t i b l e , b u t t h e d e du c t i o n i s r e s t r i c t e d t o a p a r t o f t h e s u m b y c o n s i d e r i n g s u c h e x p e n d i t u r e t o b e e x c e s s i v e h a v i n g r e g a r d t o t h e f a i r m a r k e t v a l u e o f t h e g o o d s o r s e rv i c e s e t c . , t h e d i s a l l o w a n c e i s t o b e r e s t r i c t e d t o ' s o m u c h p a r t of t h e e x p e n d i t u r e a s i s s o c o n s i d e r e d b y h i m t o b e e x c e s s i v e o r u n r e a s o n a b l e . I n o r d e r t o b e c o v e r e d w i t h i n t h e a m b i t o f t h i s s e c t i o n i t i s n e c e s s a r y t ha t t h e e x p e n d i t u r e i n c u r r e d b y t h e a s s e s s e e s h o u l d b e p r o v e d b y t h e A ss e s s i n g O f f i c e r t o b e e x c e s s i v e o r u n r e a s o n a b l e S u c h u n r e a s o n a b l e n e s s c a n b e p r o v e d b y c o n s i d e r i n g t h e f a i r m a r k e t v a l u e o f t h e go o d s o r se r v i c e s f o r w h i c h t h e p a y m e n t i s m a d e . I t c a n n o t b e s o a s p e r t h e m e r e w hi m s a n d f a n c i e s o f t h e O f f i c e r . H e n c e , i t i s c r y s t a l c l e a r f r o m t h e a s s e s s m e n t o r d er o f t h e l e a r n e d A O t h a t n e i t h e r i t w a s p r o v e d t h a t t h e s a l a r y p a i d t o P a l a k S h a h i s e x c e s s i v e o r u n r e a s o n a b l e i n t e r m s o f f a i r v a l u e f o r i n v o k i n g p ro v i s i o n s o f s e c t i o n 4 0 A ( 2 ) ( b ) n o r i t w a s d e m o n s t r a t e d t h a t t h e s a l a r y ex p e n s e w a s n o t i n c u r r e d f o r t h e p u r p o s e o f b u s i n e s s o f t h e a p p e l l an t f i r m t o a t t r a c t p r o v i s i o n s o f s e c t i o n 3 7 o f t h e A c t . T h u s , o n l y b e ca u s e s h e i s w o r k i n g a t t w o p l a c e s s i m u l t a n e o u s l y o r r e t u r n w a s n o t f i l e d by h e r o r t a x w a s p a i d o n l y a t t h e r a t e o f 1 0 % o r t h e s a l a r y w a s n o t p a i d t h r o u g h c h e q u e o r a n y o t h e r m o d e a n d t h e s a m e w a s g i v e n a s i n t e r e s t f r e e u n s e c u r e d l o a n t o t h e a p p e l l a n t f i r m a r e n o t f e a s i b l e c r i t e r i a f o r d i s a l lo w a n c e o f s a l a r y e x p e n s e u / s 4 0 A ( 2 ) ( b ) o f t h e A c t . T h e r e f o r e , w e k i n d l y r e q ue s t y o u t o d e l e t e t h e a d d i t i o n s m a d e b y t h e l e a r n e d A O c o n s i d e r i n g t h e f ac t s o f t h e c a s e a n d a s d e c i d e d b y v a r i b u s j u r i s d i c t i o n s f o r w h i c h a c t t h e u n d e r s i g n e d s h a l l b e h i g h l y o b l i g e d " ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 10 – 5. Th e Ld. DR o nly relied upo n the order pas sed by the authorities below but h as not been ab le to controvert the sub mi ssion made by the Ld . AR as indicated hereinabove. 6. Hen ce, th e instant ap peal before u s. 7. Upo n considering th e case mad e out by the appellant an d the statu to ry p rovision sou ght to be invo ked by th e auth orities below, we find th e following: 7. 1 Th e b asic and fo re most req uire ment of allowability o f expenditure is this that it shou ld be incurred wholly or ex clusively fo r th e p urpose of busin es s and sho uld n ot be in the nature o f cap ital or personal ex penses a s per Sectio n 3 7 r. w.s. 40A of the Act. Only if the su m paid to th e persons co vered by the pro visions of Section 40 A(2)(b) o f the Act foun d to be ex cess o r illegitimate th ough incurred for th e purpose of business o r profes sio n was not be allowed as deductio n. So far as the allegation o f no n-filing o f return by S mt. Palak A Shah is co ncern ed as it is conten ded by the Ld . Senio r Counsel that this canno t be the basis of the disallo wance of exp enses u nder Sectio n 4 0 o f the Act since both th e Section 37 & 40A o f the Act ar e attracted if the ex pend iture is not found to h ave b een in curred exclusively fo r the business purpose an d is excess as co mpar e to the fair market value is fo und to be acceptable. Mo reso, the appellant firm al so dedu cted tax on th e said salary paid to S mt. Palak A Sh ah and paid the same to the credit of the Central Go vernment. ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 11 – 7. 2 Apart fro m that, the case of the appellant that if a non - related party is h ired for the said position the said person would have b een p aid si milar or ev en more salary co nsid ering the respo nsib ility h and led by her cannot be brushed asid e. 7. 3 Furth er that, Smt. Palak A Shah w as paid salary fo r the work executed by her and services actually rendered by her to the appellant. Therefore, the expenditure was wholly and ex clusively in curred fo r the purpose o f busines s and very muc h elig ible as dedu ction. 7. 4 Th e d etails of inco me ea rn ed by S mt. Palak A Shah as it appearing fro m t he reply filed b y the ap pellant dated 27 t h July, 2017 is as follows : “ 1 . I n r e s p e c t o f t o t a l i n c o m e o f P a l a k S h a h , w e h av e a l r e a d y s u b m i t t e d d u r i n g t h e c o u r s e o f a s s e s s m e n t p r o c e e d i n g s i n o u r s u b m i s s i o n d a t e d 2 7 t h J u l y , 2 0 1 7 t h a t s h e h a s e a r n e d s a l a r y i n c o m e o f R s . 4, 2 0 , 0 0 0 / - e a c h f r o m A m b e V i d h y a t a y K G s e c t i o n a n d M S H o s t e l d u r i n g t h e y e a r . T h e t o t a l i n c o m e e a r n e d d u r i n g t h e y e a r a m o u n t s t o R s . 8 , 4 0, 00 0 / - a n d s h e h a s m a d e i n v e s t m e n t o f R s . 2 9 , 0 0 0 / - a s 8 0 C o f t h e I n c o m e T a x A c t , 1 9 6 1 . T h e n e t t a x a b l e i n c o m e a m o u n t s t o R s . 8 , 1 1 , 0 0 0 / - o n w h i c h to t a l t a x p a y a b l e a m o u n t s t o R s . 8 9 , 81 6 / - . T h e a p p e l l a n t f i r m a n d A m be V i d h ya l t y K G s e c t i o n h a s d e d u c t e d t a x o f R s . 5 7, 7 8 3 / - r e s u l t i n g i n t o n e t t a x p a y a b l e o f R s . 3 2 , 3 2 7 / - w h i c h w as p a i d b y h e r v i d e c h a l l a n n u mb e r 5 1 7 1 6 D a t e d 7 t h A p r i l 2 0 1 5 . T h u s , t h e q u e s t i o n o f e v a s i o n o f t a x d oe s n o t a r i s e a t a l l a n d s h e h a s d i s c h a r g e d h e r t a x l i a b i l i t y i n a c c or d a n c e w i t h t h e a p p l i c a b l e t a x r a t e . ” 7. 5. Und er these fact s and circu mstances, even if a non -r elative perso n would have b een paid the said salary , the tax liability would remain same and even in such circu mstances, th e app ellant fir m wo uld have b een elig ible to derive benefit @30% as per its taxation rate being a p artnership fir m; merely becau se S mt. Palak ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 12 – A Shah is related person the sa me c anno t b e a grou nd to disentitle th e appellant firm when no extra b enefit, is given p articularly, when the salary was as p er the pres en t market rate and the serv ice was rendered by a co mpetent p erso n capable en ough to look into allocated respon sibility. 7. 6 Apart fro m th at, p ay ment of s alary an d g ranting of interest free loan are two different transact ions and there is no scope o f clubbin g the same to attract the p rovision o f Section 40 A(2)(b) o f th e Act. The same salary would hav e been given to any other perso n recruited by the appellant for th e said post. Thus, question of d iversio n of fu nds or rou tin g of fu nds does not and cannot arise as these two trans actio ns i. e. payme nt of salary as well as loan is th ro ugh jou rn al entry and the amo unts stand s payab le, on the other hand , in the for m of creditor or lender as rig htly p ointed out by th e app ellan t. As S mt. Palak A Sh ah did no t withdraw salary, the amo unt was lying as u nsecured loan as per no rmal acco unting prin ciple. Had the interest been p aid the Revenue would have at lo ss because the appellant fir m attracts 30 . 9% tax whereas S mt. Palak A shah, an employee falls under 20.6% tax slab. 8. Keeping in min d the afo resaid fact s, we hav e further considered the judg ments relied upon by the app ellan t: i . T h e H o n ' b l e S u p r e m e C o u r t i n t h e c a s e o f S . A . B ui l d e r s Lt d . v . C IT ( A p p e a l s ) , r e p o r t e d i n [ 2 0 0 7 ] 2 8 8 IT R 1 ( SC ) , i i . T h e H o n 'b l e S u p r e m e C o u r t i n t h e c a s e o f C IT v. W a l c h a n d & C o . ( P . ) Lt d . , r e p o r t e d i n [ 1 9 6 7 ] 6 5 IT R 3 8 1 ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 13 – i i i . IT A T A h me d a b a d B e n c h t h e c a s e o f O m ka r M a l G a ur i S h a n ke r v s . IT O - ( 1 9 9 1 ) i v. IT A T , R a j ko t B e n c h i n t h e c a s e o f A C - 3 , J a m n a gar v s . S u r e s h M a ga n La l R a va n i , r e po r t e d i n ( 2 0 1 3 ) 1 4 3 IT D 2 5 v. H o n 'b l e A l l a h a b a d H i g h C o u r t i n t h e c a s e o f A b b as W a z i r ( P ) L t d . V s . C IT - 2 6 5 IT R 7 7 ( A l l ) 9. Th e ratio laid down by these ju dgments is this th at the Inco me Tax Au thority mu st p ut themselves in th e s hoes o f the appellant and to see as to h ow a pr udent busin essman wo uld act. Th e authorities must no t look at the matter fro m the ir own view point but o f a prudent businessman. 10. He has further r elied upon the judg ment p as sed by the Hon’ble Madras High Court in the case o f CIT vs. Computer Graph ic Ltd., reported in 258 ITR 84, where it h as b een h eld that where the ap pellan t incu rs any expenditure in respect of which pay ment has been made o r is to b e made to an y person referr ed to Clause (b) of Sect ion 4 0A(2) of the Act and the Ld. AO is of the opinion that such exp enditure is exces sive or unreasonable having regard to the fair market value o f t he g oods, serv ices o r facilities fo r which the p ayment as is so considered by him to be excessive or u nreasonable shall not be allowed as a deduction under Section 40A(2) of the Act. 11. Th us, hav ing regard to the entire aspect o f th e matter, we find that when the expenditure incu rred b y th e appellant is otherwise ded uctible but ded uction is restricted to a part o f the su m by con siderin g such ex pend itu re to be excess ive, having ITA No. 614/Ahd/2023 (M S Hostel vs. DCIT) A.Y.– 2015-16 - 14 – regard to the fair market v alue o f th e good s or s ervices etc. and so much part of th e expenditure is disallowed or in other wo rd s, if th e ex penditu re incurred b y the ap pellan t is proved by the Ld. AO to b e excessive or un reasonable considerin g the fair market value of th e goo ds o r services for which the pay men t as made the dedu ction un der Sectio n 40A(2 )(b) of the Act is permi ssible. None of the orde r pas sed b y the auth orities below do ubted the services so ren dered by S mt. Palak A Shah no r all eged to have been p aid salary ex cessiv e or u nreasonable which is sine qu a non in invoking the p ro vision of Section 40A(2 )(b) of th e Act, in the absence o f wh ich, th e order of disallowan ce is fo und to be not sustainable, bad in law an d therefo re, quashed. 12. In th e result, app eal preferred by the asse ssee is allo wed. This Order pronounced on 21/03/2024 Sd/- Sd/- (ANNAPURNA GUPTA) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 21/03/2024 S. K. SINHA True Copy आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. "वभागीय &त&न ध, आयकर अपील)य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड/ फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील$य अ%धकरण, अहमदाबाद / ITAT, Ahmedabad