Law:

Section:

I. Section 40A(2) of the Income-tax Act, 1961 - Business disallowance - Excessive or unreasonable payments - Assessment year 1988-89 - Whether for making disallowance under section 40A(2) Assessing Officer is required to record a finding as to whether expenditure is excessive or unreasonable in relation to any one of three requirements prescribed in section which are independent and alternative to each other; for making disallowance, all three requirements need not exist simultaneously - Held, yes - Whether where Assessing Officer held a part of expenditure on account of repair and maintenance to be excessive having regard to legitimate needs of business and for recording such a finding cogent reasons were assigned by him, he was justified in disallowing such excess payment under section 40A(2) and there was no need to record a finding on market value of services - Held, yes II.Section 40A(12) of the Income-tax Act, 1961 - Business disallowance - Fees for income-tax proceedings - Assessment year 1988-89 - Whether preparation of data and other materials from seized papers is primarily for income-tax proceedings and fees paid therefor is covered under section 40A(12) - Held, yes FACTS-I The assessee-firm, in the course of its business activities, claimed to have paid certain amount to a concern 'C' on account of repair and maintenance of machinery. 'C' was a proprietary concern of one 'R' who was husband of one of the partners of the assessee-firm. The Assessing Officer disallowed a part of the payment made to 'C' under section 40A(2) on the ground that it was excessive considering the legitimate needs of the business. Both, the Commissioner (Appeals) and the Tribunal, dismissed the assessee's appeal. On appeal under section 260A : HELD-I In relation to disallowance under the provisions of section 40A(2), the Assessing Officer is required to record a finding as to whether expenditure is excessive or unreasonable in relation to any one of the three requirements prescribed in the section which are independent and alternative to each other. All the three requirements need not to exist simultaneously. In a given case, if any one condition is shown to be satisfied,…

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