Law:

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Section 40A(2) of the Income-tax Act, 1961 - Business disallowance - Excessive or unreasonable payments - Assessment year 1996-97 - Assessee entered into lease agreement with its group company to have full finance for purchase of bottling plant and claimed deduction of lease rent paid - Assessing Officer noted that lease rent, as paid, gave annual rate of return of 33.6 per cent to lessor while prime lending rate of bank was 15.6 per cent - He, therefore, by applying section 40A(2), allowed deduction at rate of 15.6 per cent and made addition of remaining amount - On appeal, Commissioner (Appeals) deleted addition on ground that payment of same lease rent had been allowed in earlier assessment years and, moreover, no material evidence had been brought on record to establish that rate of rent was not reasonable or transaction of lease was bogus - Tribunal upheld view taken by Commissioner (Appeals) - Whether on facts, Tribunal had taken correct view - Held, yes FACTS The assessee-company had entered into a lease agreement to have full finance for purchase of a bottling plant and other assets on lease for a period of 5 years. The lessor company belonged to the same group of companies. The assessee claimed deduction of the lease rent paid. During the assessment proceedings, the Assessing Officer observed that the companies were related to each other and, therefore, provisions of section 40A(2) were attracted. He also observed that the lease rent, as paid, gave annual rate of return of 33.6 per cent to the lessor while the prime lending rate of bank was 15.6 per cent. He, therefore, allowed the deduction at the rate of 15.6 per cent and made addition of the remaining amount. On appeal, the Commissioner (Appeals) deleted the addition on the ground that in the earlier assessment year, the Assessing Officer had accepted the assessee's claim with regard to the payment of lease rent and no additional evidence had been presented to enable departure from the settled issues. On the revenue's appeal, the Tribunal affirmed the order of the Commis-sioner (Appeals). On the revenue's appeal : HELD The appellate authorities below had inter alia proceeded on the ground that in…

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