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Tax Publishers
Disallowance under section 40A(2)(b) citing salary
paid to employee after TDS retained as unsecured loan in the hands of the payee
Facts:
Assessee firm had paid to one Ms. Palak Shah (relative of a
partner) salary of Rs. 4,20,000/- after subjecting it to TDS for Rs. 43,260/-.
The said salary was not paid and was retained as an unsecured loan in the books
of the assessee with no interest being charged on the same. This was read to be
a subterfuge and thus the entire salary was disallowed under section 40A(2)(b)
without establishing as to how this was in excess to the arm's length price. On
appeal to ITAT -
Held in favour of the assessee that for disallowance under
section 40A(2)(b) AO has to establish how the payment was excess in relation to
market prices which was not done by the AO. The fact of recipient not having
filed tax return as alleged by the revenue or has given the same as an
unsecured loan is not a reason as the loan and the salary payment are two
different transactions.
Case: MS Hostel v.
Dy. CIT 2024 TaxPub(DT) 1545 (Ahd-Trib)
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